Precautions You Need To Take When You Expose Yourself to Crypto
Here’s the guide to help you not regret for the rest of your life
4 min read
Photo by Mohammadreza alidoost on Unsplash
While many are becoming millionaires every day by investing in crypto, some are just on paper, or rather on the digital ledger. These millionaires have lost their bitcoin because they lost their private key and now can’t access their funds.
According to Glassnode, a substantial amount of mined BTC is lost forever (we estimate this number to be ~3M BTC)
At the time of this writing, 3M BTC is around $179 Billion! Yup, that’s lost forever.
Let’s discuss some other ways you can lose money and how not to make those mistakes, which you will regret for the rest of your life
Not Your Keys, Not Your Crypto
That’s an old saying in the world of crypto.
In a deterministic wallet, seed-phrase can programmatically generate private and public key pairs. Private key is necessary to access and transfer funds from one wallet to another.
So, if you lose your private key, say goodbye to your cryptos. It might seem obvious, but many people don’t save their seed phrase properly and lose their cryptos. Another problem is centralized exchanges.
Most of the centralized exchanges don’t provide users with private keys, so technically, they are the owner of the cryptos, and you just see digits flickering on the screen. So, if the centralized exchange gets regulated or goes out of business, you can lose control over your crypto or even lose all the funds.
How to avoid this mistake?
Buy a hardware wallet and store your crypto in it
Note down the seed phrase in a good quality paper or engrave it in metal
Store the seed phrase in a vault
Don’t share the seed phrase with anyone, no matter who the person claims to be.
Below is a small guide of hardware wallets for you- Which Cryptocurrency Hardware Wallet Is Best for You What’s the best place to store your cryptomedium.com
This one goes without saying, but it happens so often and with so many people that it’s worth mentioning.
Don’t fall for scams, Ponzi schemes, or pyramid schemes. I know it’s easier said than done. All the small-cap projects with great growth potential and Ph.D.'s behind them look promising. They seem like they can make you a millionaire in a day and can solve all the world's problems but don’t get fooled by the big promises, conferences, and many blind believers.
How to make sure the project is not a scam.
Check if the blockchain actually exists and functions
Research the project and make sure it is trying to solve a real-world problem and blockchain is actually required to do that (many projects just use blockchain to raise funding)
Go to their GitHub and check the code. If you can’t read the code, check the number of commits, how many contributors are there, and check the profiles of a few contributors.
Check the project roadmap and make sure the team is following the roadmap and progress is being made. Crypto Scam Worth $15 Billion, Shook the Whole Industry How a Ph.D. fooled the entire worldlevelup.gitconnected.com
Volatility and FOMO
It may tempt you to buy bitcoin and other cryptocurrencies when it looks like it is just going up. Your friends might be into it and the media won’t stop talking about it, but don’t FOMO in.
FOMO stands for Fear Of Missing Out
If you do not have any experience with trading cryptocurrencies, then you should be extra careful not to invest more than you can lose. The price of especially the small-cap coins can decrease by 80% in a day! Some projects can be mere scams or ponzi schemes.
Even if you are looking to invest in large-cap coins with relatively lower volatility, they are still quite volatile when compared to traditional assets like gold, stocks, and bonds.
How to prevent worse from happening-
Only invest in the projects you have researched about
Don’t invest more than you can afford to lose
Set stop losses and concrete rules to buy and sell
Set a risk level you are willing to take
Don’t be greedy
I know it’s hard to follow these rules all the time, and even I have disobeyed these a few times. In this case, at least know how much you are risking and be aware of the consequences.
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