Decentralized blockchains like Bitcoin and other cryptocurrencies can provide individuals with more freedom than traditional financial systems. That said, liberty can be a double edged sword because it also requires individuals to be responsible and some people abuse that freedom.
There are many thieves and scammers in the crypto industry who take advantage of newcomers. Cryptocurrency transactions are irreversible and don’t come with consumer protection. If you’re interested in using crypto it’s important to realize that this ecosystem is a digital jungle full of predators. Individuals who use crypto need to take full responsibility for their security because there’s nobody to protect you. You need to build a firewall for your mind called discernment. Caveat emptor is the golden rule for playing in this financial wild west. Here are some simple steps to help you on your journey…
Keep Your Private Keys Safe
All bitcoin transactions are stored on a public ledger called the blockchain. Private keys give you ownership of your money stored on this ledger and anyone who gets access to them can steal your bitcoin. For this reason it’s important to keep your private keys secure. Make sure to keep your computer free from viruses and use a hardware wallet to secure any significant amount of money. Hardware wallets like Trezor or Ledger allow you to store your keys offline while being able to access your money through a simple web wallet.
If you’re an active trader, it’s important to not store all your coins with a third party exchange. Many exchanges have been hacked and lost millions of dollars. Also make sure to use 2-Factor Authentication on all your online accounts to protect your passwords from getting cracked.
Be Skeptical of Hype
There are many new cryptocurrency projects being launched all the time. Some of them offer innovation while others are just pure hype. Since Bitcoin is open-source, anyone can just copy and paste the code, make a few tweaks and then repackage it into something else.
Often new crypto projects will do crowdfunders to raise money for their projects. Crowdfunds like Ethereum turned out to be really profitable, with investors making returns up to 2000% from the tokens. That said, there are some crypto crowdfunding campaigns that offer very little innovation and are just trying to scam people out of their money.
Before participating in any of these you want to do your research to make sure the project is legit. Most legitimate crowdfunds have real people backing them and not just a bunch of anonymous profiles. Developers who don’t reveal their identity can easily run off with your money and offer you nothing in return. There’s nothing wrong with anonymity, just as long as your not taking people’s money. Satoshi Nakamoto was anonymous and created Bitcoin but he did it on a voluntary basis and didn’t solicit people for funds.
Sometimes even projects that seem legitimate can cause financial loss. The DAO was one of the biggest fundraisers in history, raising over $150M. The project was over hyped with people purchasing tokens in a frenzy. Eventually the project failed, creating a big rift within the Ethereum community. In these situations sometimes it’s a good idea to be a contrarian and go against the herd.
Research Before Sending Money
Before you send cryptocurrency to a website you want to investigate the site first. It’s always good to remain objective and look at both sides of the coin. There are many fake websites and financial schemes that try to rip people off. Generally these sites are called out over social media to warn other users, so it’s not too difficult to see if they’re in good standing.
Any site that offers really high daily financial returns for “mining” or “investing” is probably a Ponzi scheme. You also want to make sure that any exchange you use has a good reputation as well as regtech regulated. There’s often warning signs months in advance of users having difficulty withdrawing money before an exchange goes bust.