Cryptocurrency can seem like an especially risky investment, even for those who are familiar with the tech. After all, it’s not uncommon for prices to jump and drop quickly, and transactions are generally non-refundable. This has led to a fear of losing money, which can deter many newcomers from making the leap. However, the reality is that investing in cryptocurrency can be as safe as any other type of investment – provided you take the right steps to protect your assets.
The first step is choosing a reputable online exchange or marketplace to buy your cryptocurrency from. The safer options will ask you to verify your identity and follow Know Your Customer (KYC) and Anti Money Laundering guidelines. They will also have high security measures in place, such as two-factor authentication (2FA). This means you will need to enter a code sent to your phone or email when logging in or making transactions.
You can also reduce your exposure to hacking by storing your crypto in “cold storage,” which is a computer that’s not connected to the internet. However, this isn’t a good option for most people, as you will need to dedicate a computer or shell out for a hardware wallet, such as a Trezor or Ledger. Instead, a better alternative is to use an exchange that keeps only a small amount of your crypto in hot wallets connected to the internet. This helps protect you from hackers if the exchange gets hacked, although it won’t help you if you lose your cryptocurrency through no fault of the exchange.
Another important thing to remember is that cryptos are not backed by any government or financial authority, which can pose risks for investors and merchants alike. If regulators decide to crack down on the industry, or if one of the custodians that holds your keys fails, you could lose your investment. This is one reason it’s important to only invest in cryptocurrencies you plan on holding for the long term and not buy into any get-rich-quick schemes or Ponzi schemes.
Other risks include overtrading, as it’s hard to predict where the price of a crypto will go, and falling for a rug pull scam, in which the founder of a project invites users to invest their crypto, then runs away with the funds once enough people have piled in. It’s also important to remember that past performance isn’t necessarily indicative of future returns, so make sure you do your research before investing in any cryptocurrencies.
If you’re considering making a big investment in crypto, consider how much you can afford to lose and make sure your investments are spread out. It’s also a good idea to diversify your portfolio, so you aren’t all in the same boat if the value of crypto plummets. With the right precautions, however, it’s still possible to reap the rewards of this fast-growing market. Rachel Curry is a Pennsylvania-based content writer who talks all things finance. She believes that numbers have meaning when they’re given context, so she loves to tell stories that humanize them.