Cryptocurrency is the hot investment trend of 2018. It’s a decentralized, secure form of digital money, based on blockchain technology. While it offers new investment opportunities, many investors wonder if crypto is safe to buy, use, and invest in. This article will help you answer the question “is crypto safe?”
Cryptos are built on top of cryptography, a form of advanced computer security that encrypts and secures data. They are also run on a public, peer-to-peer network of computers that keep records (aka ledgers) of transactions. The network verifies these ledgers against each other to prevent fraud and identity theft. This system is known as the blockchain, and it’s what makes cryptocurrencies so valuable.
Like any other asset, cryptocurrency has risks. It’s important to be aware of these risks so that you can make smart investing decisions. Here are a few of the biggest risks associated with crypto:
Cybersecurity risks: Hackers are always looking for new ways to steal your crypto. Reputable exchanges have top-notch security and pour millions into preventing hacks, but they’re not immune to breaches. And because crypto transactions are not editable or reversible after the fact, there’s no customer service department to call when something goes wrong.
Regulatory risks: The legal status of some cryptocurrencies is unclear, and they may be subject to a regulatory crackdown that could make it difficult or impossible to sell your crypto. Regulatory uncertainty can also cause the price of a given crypto to drop dramatically over the short term.
Counterparty and management risks: Most investors rely on third parties, such as exchanges, to store their crypto and provide custodial services. If these third parties fail or are compromised, you could lose your entire investment. And since there are few regulations in the crypto space, you have little protection against deceptive or unethical management practices.
Storage and purchase risks: Your crypto is only as safe as the wallet you use to store it. Always follow best practice recommendations when buying and storing crypto, including using two-factor authentication and securing your computer with a password or virtual private network (VPN). Only store crypto on an exchange if you’re actively trading it; otherwise, move it to a wallet you control. And don’t forget to back up your wallet, either by encrypting your keystroke file or keeping a physical record of your seed words (e.g., a paper backup) somewhere safe.
Overall, is crypto safe? It can be if you take the right precautions and invest only in what you can afford to lose. But remember that any asset can plummet in value on a given day, so don’t put all your eggs in one basket! Instead, incorporate crypto into a diversified portfolio of stocks, bonds, ETFs, real estate, and other investments. This way, you’ll minimize your risk of losing your entire investment. Good luck!