You’ve probably heard stories of people who got rich by investing in Bitcoin or another cryptocurrency. You may be tempted to dive into this new type of investment and make your fortune. But before you leap, it’s wise to understand the risks first. Everyone knows that investing is risky, but many people forget about it when they see an opportunity for a big return. The riskier something is, the more potential downside there is when investing your money. When thinking about how to invest in cryptocurrency, you need to understand what risks you might face and how much time and money you’re willing to commit to this as a long-term strategy. Even though we are in the early adoption phase of blockchain technology, there are still plenty of risks involved with investing in these digital currencies.
How to Secure Your Cryptocurrency
This is one of the most important things investors should think about when deciding if they should invest in cryptocurrency. Theft has plagued the crypto space since its inception. Whether it’s an online hack or a physical heist, investors are always at risk of losing their investment if they do not properly secure their assets. Some of the most common ways to secure your cryptocurrency are listed below.
- Cold storage wallet - This is the most secure way to store cryptocurrencies. A cold storage wallet is not connected to the internet, which greatly reduces the risk of someone hacking into it. The downside is that you need to connect to an online computer to transfer funds out of your cold wallet.
- Paper wallet - This is another offline method for storing cryptocurrency, although there is always the risk of someone stealing the paper wallet. You can avoid this by putting the paper in a safe deposit box or burying it in your backyard.
- Hot wallet - This is the opposite of a cold wallet. Hot wallets are internet-connected wallets that are typically used for short-term trading.
- Hardware wallet - This is another type of cold wallet. While it can be very secure, it can sometimes be complicated to use.
Loss By Theft or Fraud
This is one of the most common risks associated with investing in cryptocurrencies. If the exchange that you’re using is hacked, or if the person running it scams you, you could lose your money. Many of the exchanges that allow you to trade cryptocurrencies are not regulated. This means that if the exchange disappears with your money, there is a good chance you will never see it again. There are many examples of this happening around the world. A few years ago, one of the largest exchanges in Japan was hacked and investors lost millions. In 2018, Canada shut down the largest exchange in that country because it was being used to launder money. Similarly, some exchanges may be legitimate, but they could mismanage assets and somehow lose the money you put into them. You need to be careful to choose an exchange that is reputable and has a long track record of being trustworthy.
Irreversible Transaction Mistakes
This is a mistake that many people make when they are first starting with cryptocurrencies. You can’t cancel a transaction once it has been sent to the blockchain. If you make a mistake and send your crypto to the wrong address, there is nothing you can do to get it back. Once you click “send,” the transaction cannot be reversed. To help prevent this mistake, you should always double-check the address before you send a transaction. You should also check the address after you’ve sent it to make sure that it was the right one.
Blockchain Confirmation Mistake
This is another common mistake when investing in cryptocurrencies. Many people make the mistake of thinking that the blockchain confirmation process is instantaneous. You probably have heard people saying that you need six blockchain confirmations before a transaction is legitimate. This is not true. You only need one blockchain confirmation. This is because the transaction itself has not been verified yet. Wait for the blockchain confirmation to take place and then the transaction is verified. If you don’t want to wait for the blockchain confirmation, you can simply choose to wait for one confirmation, which is the bare minimum required.
Lack of Transparency and Honesty
This risk is relatively new and has only been an issue in the past few years. Crypto exchanges are mostly unregulated, which can lead to some shady practices. The exchanges are also not required to release information about their owners or the exchange’s finances, which means that you don’t know who is running the exchange or if they have enough money to pay you if they lose your money. You need to carefully research any exchange that you plan on using and only use exchanges that have proven to be trustworthy. If the exchange is not transparent about who is running it and where the money is coming from, you should probably avoid using it.
Investing in cryptocurrencies can be a great way to make money, but it’s important to understand the risks first. There are many types of risks associated with investing in crypto, including theft, fraud, blockchain confirmation mistakes, and lack of transparency and honesty. By being aware of the risks, you can better prepare yourself to avoid them. Now you know what the risks are when investing in cryptocurrency and how to secure your assets. It's time to take the plunge and start investing. With a little bit of research and patience, you could be the next Crypto millionaire.