The cryptocurrency space can be somewhat overwhelming, even to the most experienced of heads. As crypto gains more mainstream popularity, the risks to your assets also increase exponentially. Investors in crypto are increasingly concerned about the security of their investments and assets. While crypto-assets and cryptocurrencies are secured by platforms on which they are traded, investors and users of these exchanges need to be more proactive when securing their digital assets.
It is imperative that users have a thorough idea of the cryptocurrency space before investing in cryptocurrencies. It is also essential to have an idea of the regulatory landscape in your country so that you would know the legal status of cryptocurrencies and how you can go about investing. Following a set of best practices is ideal for safeguarding your crypto investments and having a seamless crypto experience.
Potential Risks To Crypto Consumers
Volatility is a risk that is considered part and parcel of the crypto space. Any individual investing in crypto is well aware of the volatility aspects of crypto. However, several other risks could pose a significant threat to cryptocurrency investors and their investments. Some of these risks are
- Money laundering
- Fake investment scams through ICOs.
- Crypto pump and dump scams
- Fake cryptocurrency exchanges
- Phishing scams.
Apart from the risks mentioned above, there is always the looming threat of hackers. Investors should always be alert towards the possibility of fraud, theft, loss of assets. Let’s look at some of the ways in which investors can safeguard their cryptocurrencies and ensure that they have a smooth crypto experience.
Which of the following is not considered a sound strategy when investing in crypto?
Crypto Best Practices To Ensure A Seamless Crypto Experience
Your crypto can be compromised through several avenues such as cryptocurrency wallets, a compromised exchange, or a compromised seed phrase. Here are a few simple steps that can go a long way in ensuring that you have a seamless crypto experience.
Always Use A Strong Password
When using an exchange to trade crypto, you will be required to create an account. It is imperative that you secure this trading account with a strong password consisting of numbers and special characters. A strong password is your first line of defense against any malicious hacker or party. Using a password manager also helps, allowing you to create and remember complex passwords. You can use password managers such as Dashlane to help you create a secure password. It is also imperative to change your password regularly and use a password manager, as mentioned above, along with Two Factor Authentication.
What can be considered as potential risks to crypto investors?
Use 2FA (Two-Factor Authentication)
Along with keeping a strong password, implement 2FA when using cryptocurrency exchanges. Instead of using SMS authentication, you can use applications such as Google Authenticator or Authy. Ideally, it would help if you used the strongest 2FA allowed by the platform. Hardware security keys such as Yubikey are ideal, along with applications like Google Authenticator and Authy, which have already been mentioned above. If you have no choice and SMS-based 2FA, you should enable a one-time code to be sent to your mobile device every time you log into your crypto trading account.
Safeguard Your Private Keys
To store your cryptocurrencies, you will require a wallet that will hold your public and private keys to send, receive, and store cryptocurrencies. While your public address has to be shared with other users, you must not share your private keys with any individual or entity. If anyone gains access to your private key, then you could end up losing all the funds present in your wallet. The same applies to your private keys when it comes to your blockchain or trading account. You can secure your keys by following a few simple steps.
- Using a random key or passphrase
- Maintaining control of your keys and not giving them up to a centralized exchange.
- Using a hardware wallet
Use A Cold Wallet
As we know, cryptocurrency wallets fall into two categories, hot wallets, and cold wallets. Hot wallets offer ease and simplicity but also significant vulnerability. While you get easy access to your cryptocurrency, they are also vulnerable to security threats such as hacking. A cold wallet is what most experts in the crypto space recommend, especially if you intend to keep your cryptocurrencies for a significant amount of time. A cold wallet is essentially an offline wallet, meaning your assets are stored offline, securing your assets from any hacking attempts. Cold wallets ensure complete safety from threats you would usually have to deal with when using a hot wallet. Examples of cold wallets are hardware wallets and paper wallets.
Adopt A Hybrid Approach
Adopting a hybrid approach entails using both hot wallets and cold wallets. When using this approach, you can store your cryptocurrencies offline when they are not traded. However, when executing a trade, you can simply transfer the assets you intend to sell into your hot wallet, complete the trade, and then transfer your assets back into the cold wallet.
Use A VPN
It is extremely important to use a secure internet connection when accessing your cryptocurrency trading account and making crypto transactions. Never try and conduct a trade on a public WiFi network, and even when using your home network, the use of a VPN is recommended for additional security. Using a VPN will help keep your browsing activity safe from potential hackers or malicious entities. It is also important to secure your personal device, which you would be using to conduct transactions. Always keep your device up-to-date, and ensure that you do not end up clicking on any malicious link or visit any malicious website.
Don’t Put All Your Eggs In One Basket
Just as with the traditional stock market, diversification is key in the crypto market. As an investor, diversification is always healthy for your crypto portfolio. Instead of putting all your money in, say BTC, investing in a combination of BTC, ETH, and a handful of other cryptocurrencies could help protect you from potential market volatility while also allowing you to benefit from multiple sources when the market is on a bull run.
Due Diligence Is Key
Before investing in a cryptocurrency, it is important to understand the underlying asset, its uses, and how it functions. Almost every coin has whitepapers available online, which can help you better understand the coin and improve your knowledge about the coin’s potential. If there is no whitepaper available or if the whitepaper does not mention or describe the coin’s functioning, then that coin is best avoided.
Timing Is Also Key
Just like due diligence, timing is also considered a key factor when it comes to investing in the crypto market. Think you know that there is to know about crypto, then you must be able to time your investment perfectly. The cryptocurrency market is volatile, and price swings are common. Don’t go around investing in new coins looking for the next Bitcoin or the next Ethereum. Always be thorough about the project before investing, follow price patterns, and keep track of the news to stay ahead of events that could negatively impact the value of your investment (exchange hack, price manipulation). Cryptocurrencies are highly speculative, so always do your homework before jumping into the space.
Double Check All Transaction Details
Remember, blockchain transactions are immutable, meaning once executed, they cannot be reversed. This makes it extremely important to double-check all transaction details before going ahead with the transaction. Your funds can only be reverted back to you if the opposite party agrees to do so.
Don’t Invest More Than You Can Afford To Lose
This is one of the most critical points that you should keep in mind as an investor. While cryptocurrencies may be considered as a safe haven, and yes, they are for countries that are for citizens of counties such as Venezuela, which is reeling under hyperinflation. But cryptocurrencies are a high-risk investment with significant volatility. What was profitable in the morning could be red in the afternoon. If you are a beginner, it is always advisable to start by investing lower amounts of money.
Cryptocurrencies are a somewhat risky investment for beginners and for experienced heads. As a rule of thumb, high-risk investments should make up only a small portion of your portfolio. In the case of cryptocurrencies, it is always good to diversify your investments into several coins so that your investments can appreciate or depreciate at varying degrees, insulating you to some degree.
The points mentioned above are generally considered as the most basic tactics you could employ to ensure a seamless crypto experience. The space is constantly in flux, and you must be proactive in ensuring the security of your investments and funds by thoroughly securing your accounts and wallets. Always keep yourself updated with the latest news and developments in the crypto space.