🚀How Safe Is Cryptocurrency?
BY DANNY COIN
Last updated
BY DANNY COIN
Last updated
Nowadays, you might not be surprised to see a new cryptocurrency make it to the mainstream as more people are now interested than ever in exploring and investing in the crypto industry.
The first question that comes to any investor’s mind is whether they can gauge the safety of their investment.
With a massive increase in cryptocurrency scams and stealing attempts, it’s imperative to understand the basics of cryptocurrency and focus on how to use and invest securely.
In this article, we’ll read about cryptocurrency, its safety protocols, the risks involved, and the safety measures you must take to keep your investment safe.
Cryptocurrencies are digital currencies based on a cryptographic system. This technology aims to provide secure online payments without requiring a third-party intermediary.
Several cryptographic techniques and encryption algorithms are used to safeguard critical information, like public-private key pairs, hashing functions, and elliptical curve encryption.
This digital currency can be mined, obtained after working on the blockchain, or purchased through a cryptocurrency dealer. Although crypto technology has been present since the 80s, the popularity of cryptocurrencies like Bitcoin and Ethereum has turned the industry into a lucrative investment and trading instrument.
A volatile market, rising scams, and hacking are the three issues that portray cryptocurrency as an unstable and risky investment option. Despite the digital currency’s decentralized nature, the transactions conducted on the network stay secure.
However, your investment can be at risk if the required precautions are not taken.
Cryptocurrency can be purchased, stored, and used without a hitch as long as the user follows the best practices. Although many investors would want to invest a significant portion of their investment portfolio in crypto, leading market experts recommend investing a small percentage of the total assets.
While no type of investment can guarantee safety, experts still advocate maintaining a diverse investment portfolio to be on the safe side.
Now that we’ve covered the basics, here’s what you should know about the risks involved with cryptocurrency investments.
Unlike traditional investment and finance, crypto usage can be complex for an average person. This technical complexity of understanding how the system works and the proper way to use and store crypto can become overwhelming for a new user. Having a basic understanding before investing is crucial.
The prices in the crypto industry can fluctuate almost instantly. These rapid changes make short-term trading for a crypto trader much more difficult.
Cryptocurrency investments like Bitcoin are accessible through unique private keys, which only the owner should have access to. Any user possessing private keys and your basic crypto wallet information can gain access if these keys get stolen.
Most cryptocurrencies launched every now and then are aimed to create unnecessary hype, causing the digital currency to make a customer base while its value goes up. However, this buzz is short-lived, which results in the cryptocurrency crashing.
A famous example of this scenario is Dogecoin which gained worldwide traction with the hype it created, but eventually, the coin came down crashing. Until now, only two cryptocurrencies, Bitcoin and Ethereum, are well-established and have a stable market rate less affected by speculation.
The cryptocurrency market is relatively new to conventional financial instruments. Even the most stable cryptocurrencies are only a few years old.
While many investors who jumped early on the crypto investment bandwagon have made a fortune, several others have lost their investments due to an unstable market and by making the wrong moves.
Despite significant efforts by world governments, the cryptocurrency industry still needs to be regulated to make a more secure investment platform.
Even many countries have banned the sale, purchase, and use of crypto, making it difficult for the average joe to think about investing in these financial instruments.
Hackers and online scammers are always aiming at crypto owners. They use several malicious tactics to lure their victim into a trap, infecting their computer or gaining access to their crypto assets by stealing private keys.
Recently, several crypto scams that gain access to your assets using malicious software or a service where your computer is connected to their server have been identified.
Due to the limited knowledge and complexity of mining crypto, many prefer purchasing and trading digital assets to make money. These trades and sales are made through an intermediary exchange that acts as a custodian to store and sell cryptocurrency.
Unfortunately, several exchanges have become scams, resulting in an investment loss. On the brighter side, a few crypto exchanges have stood the test of time, making them a trustworthy option.
A simple search over the internet can reveal the top reliable exchanges.
Due to limited regulations, it becomes difficult to stay protected against malicious management practices. For example, several digital currencies failed after their launch, leading to a loss of investment through failed management by the devs.
The prominent players in the game, like exchanges, stakeholders, and tech firms, can directly affect the market, leading to increased speculation.
Cryptocurrency and related platforms use programming software to automate the process and use smart content to move the user deposits. Although it’s rare, there is still a chance these programs can be rigged with a bug or an exploit that can compromise the account and make the investor lose their money.
One of the main culprits that compromise the security of cryptocurrency is these crypto scams, according to the data from the Federal Trade Commission. The main goal of these scams is to engage the crypto owner to make crypto payments.
You might be contacted by a fraudster posing as a government official, asking for a crypto payment via the mail, offering a lucrative crypto investment opportunity out of the blue, or a company that wants to reward you in cryptocurrency for no reason.
All these scenarios are some common ways these fraudulent activities are conducted. Let’s review these scams in detail, as knowing about them can educate you on how to keep your digital currency investment safe.
These scammers impersonate celebrities, singers, and other influencers, claiming to run crypto giveaway contests. However, they first ask to deposit a specific amount in their crypto, which they can double and return to you.
They give the same wallet address to make the scam look legit, claiming to return vast sums of money, but the investor never gets their investment back.
Stable cryptocurrencies are relatively unaffected by this scam but recently launched coins and cryptocurrencies with low value are.
In this scam, several scammers will coordinate with each other, dumping vast amounts of cash in one digital currency. This rapid investment causes the price of the currency to rise, leading other investors to make investments in hopes of turning in reasonable profits.
A few days after creating this hype, the scamming group, a significant stakeholder in this digital currency, will pull their investment, causing the market to crash and making other investors lose their assets as the currency’s value decreases.
Users with relevant knowledge of the industry prefer mining these digital coins. Several mining scams are also done where the investor is lured into investing in their mining operations to gain control of the assets.
A scammer might claim they have sensitive information about the crypto investor, blackmailing them into sending cryptocurrency to their address, or else they will release sensitive information on the internet.
Most of these blackmailing attempts are bluffs as they aim to create panic and influence the crypto asset holder to send them crypto.
Always do your market research and only invest in digital assets that show stable growth.
Avoid investing in lower-value coins and promises of significant returns at all costs.
Only pick and work with reputable crypto exchanges instead of a relatively new exchange.
Continually evaluate any promotional offer thrown at you. These so-called opportunities promise enormous returns and stability but, in fact, are far from being legit.
Here’s a rundown of what you must do to invest safely in this crypto industry.
Only trade and purchase on a reliable exchange.
Always choose a trustworthy custodian if you keep your investments with a crypto trading firm.
Keeping assets secure in your wallet is the best option in some cases.
Only limit your investment in reliable cryptocurrencies unless you have experience and are familiar with the market influencing factors.
Using strong passwords and private keys makes gaining access difficult for unauthorized users.
Keep the passwords and private keys stored in several digital and physical locations. Doing this ensures you will gain access to your account if one location is compromised or if you don’t remember the passwords.
Enable the provided security features like two-factor authentication to keep the transactions and access to your account secure.
Limit the news of your crypto investment to yourself and avoid sharing the information publicly.
Diversifying your investment portfolio is key to lowering the risk and keeping the investments safe.
Purchasing cryptocurrency is a simple process where you will sign up on your preferred crypto exchange, add the bank account credentials, and exchange the conventional currency for the preferred purchase.
Depending on the exchange, the transaction fees will vary. Once you have purchased the cryptocurrency, the next move should be to keep it secure. Let’s explore how you can store it safely.
You can either keep the digital assets with a custodian, that’s usually the exchange, or keep them in your own wallet. Public and private keys control any crypto transaction you make.
The public key is intended to be shared as it will require the user to receive crypto. It is like the wallet address others can use to send cryptocurrency.
While you cannot limit the exposure of your public key, keeping the private key secure at all times is necessary. You can keep the key secure by placing your assets with a reliable exchange or using a hardware wallet.
Most beginners opt to keep their investments with the exchange, making them the custodian. The exchange is authorized as a custodian and will keep your private keys safe with them. The assets will remain in the exchange unless you transfer the crypto into your wallet.
Likewise, the exchange takes responsibility for providing security against hackers and stealing attempts. However, the stored crypto can be at risk if the exchange gets hacked or compromised.
Another way to store crypto securely is by confiscating your assets and keeping them in your cryptocurrency wallet. Most advanced crypto investors and traders use dedicated crypto wallets to separate their investments. However, this protocol is feasible for advanced traders.
Here are several types of crypto wallets that can store the currency.
Software wallets are web-based and desktop applications connected to crypto service providers. These are also called hot wallets, as the user is connected to the internet, posing an increased risk of exploits and hacks.
Hardware wallets allow the user to store offline cryptocurrency. These wallets can look like a physical USB or a portable hard drive, containing all the relevant information about the digital asset.
Paper wallets are a simple yet effective way to store crypto. The wallet is just a piece of paper with your private key written on it and stored securely.
Although cryptocurrency is a relatively new investment and trading instrument, the potential for future growth is massive. With this promising growth, the chances of risk also increase.
To keep your investments safe, consider the information we shared here to make the process secure and streamlined.
