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A new form of digital currency has emerged in the past several years called cryptocurrency. Those who use it believe it makes their monetary transactions safer by utilizing encryption.

Because of the encryption, the process of exchanging cryptocurrency is not easy to fake. In fact, not a single bank has to be involved to do it. But even with these positives there are still reasons to be wary of cryptocurrency.

1. Cyber Theft

One possible threat that could cause some people to turn away from using cryptocurrency is cyber theft. In fact, just last month a hacker made off with $7M of digital currency during an initial coin offering.

If someone were to hack your bank account, for instance, your bank will likely cover it. In addition, you may be able to press charges if you are able to catch the thief. At the very least, you will probably get your money back.

Cyber theft crimes involving cryptocurrency are much harder to solve. To make matters worse, because of the way digital currency is exchanged without oversight there’s no one you can turn to who will cover your losses.

2. Tax Avoidance

There are cases where large corporations have avoided taxes through the use of digital currency. Since the IRS doesn’t see cryptocurrency as money it can’t be taxed in the same way.

IRS guidelines require revenue from the buying and selling of cryptocurrency to be reported and taxed as capital gains. Instead of reporting in that way, some companies choose to label them as other things instead. As a result, the IRS is working to change this.

3. Be Wary of Cryptocurrency Because of Legality

Virtual currency, or cryptocurrency, is not illegal in and of itself. However, there have been cases when cryptocurrency has been used for criminal activity. For example, a few years ago an illegal drug operation that involved Bitcoins was shut down by the FBI.

Even though cryptocurrency isn’t illegal, it isn’t used in every country, nor is it a form of legal tender in the U.S. Only time will tell whether or not digital currency will become legal in the future.

4. Changes in Value

Changes in the value of cryptocurrency make it a gamble to hold onto. The past several years have seen wild swings in the value making some people millionaires overnight and causing others to lose thousands.

Our national currency, by comparison, does not change nearly as much in value as Bitcoin, one form of cryptocurrency. These crazy swings in value make it hard to set a price and conduct business with cryptocurrency.

5. Lack of Backing

U.S. legal tender is no longer backed by gold. But that does not mean the dollar itself has changed very much. Our government backs its paper money by fiat instead. This means it has value because the government declares it to.

No government or bank, however, is backing cryptocurrency. Instead, it only has value because we have given it value.

But what happens if tomorrow it is decided that digital currency has no value? The amount of money some people stand to lose if that happens is staggering.

In conclusion, of course there may still be money to be made in cryptocurrency. But with all of the reasons to be wary of cryptocurrency it may not be worth the risk.