What’s the Worst Can Happen While Using Cryptocurrencies?

Cryptocurrencies are part of a new financial market that can hugely empower users. The innovation means that value can travel ....
4.7 / 5 ( 7 votes )

Cryptocurrencies are part of a new financial market that can hugely empower users.

The innovation means that value can travel quickly and cheaply around the world with near-instant settlement.

This has never been possible before. Not only that but, no single entity can stop a cryptocurrency transaction.

However, with such power comes a lot of responsibility. There is also no one to bail you out if you somehow screw up.

It’s pretty easy to screw up in some way and it almost always involves losing your cryptocurrency forever.

Lose Wallet Credentials

A lot of cryptocurrencies have been lost for good because of users losing their sign-in credentials for a wallet.

Perhaps, the most famous example was the Welsh man who managed to throw away a hard drive holding 7,500 Bitcoins.

With the price of Bitcoin over $7,000, these would be worth an astronomical amount now but the funds are lost forever because he essentially lost his wallet credentials.

Other less dramatic stories are common on social message boards such as Reddit.

In fact, it’s estimated that large numbers of Bitcoin are lost for good and the actual supply is considerably less than the expected 21 million BTC.

Centralized Storage

If you fail to make a suitable copy of your own private keys and you lose your cryptocurrency, you have no one else to blame but yourself.

Much more devastating is the potential risk posed by centralized storage media.

Custodial solutions of various forms hold huge numbers of Bitcoin on behalf of their users. The most common are large exchange platforms.

Although it might seem like a convenient way to store your cryptocurrency without having to take the burden of responsibility yourself, you should never rely on such centralized storage methods.

An easy way to tell if you’re using centralized storage is to try to find your private key for your funds. If you can’t access it, you’re using a permission-ed storage system.

It means that the wallet provider needs to grant permission for you to withdraw your funds.

This can cause big issues in the event of exchange hacks or other security compromises.

In many examples, the platform users have lost money since most exchanges aren’t regulated and don’t have asset insurance.

Scammed

Since there are so many stories of early investors in Bitcoin collecting absolutely massive gains, a lot of “get-rich-quick” folks have become attracted to cryptocurrency.

When people are hungry to make some fast cash, so too are opportunists.

So far, there have been billions of dollars stolen from those hoping to achieve the percentage gains of early Bitcoin investors.

Just about every week, mainstream media outlets report on different scams targeting digital asset investors.

If you’re just starting out in cryptocurrency, remember that there’s a huge number of scams out there and even massive investment schemes often turn out to be fraudulent.

Market Crashes

Of course, even if you follow a squeaky clean security protocol yourself and never invest in any shady assets, you can still lose money.

If you buy and sell at the wrong time, you can lose a lot.

Although Bitcoin has gone through numerous boom and bust cycles, the overall trend has been upwards.

When its historical performance is shown on a yearly candlestick chart, you can see a pattern of two years of moderate gains, then one year of massive gains, followed by a year of decline.

If Bitcoin holds above the yearly low of $3,800 until the end of 2019, this pattern will still be intact, which could mean a huge upside coming in 2021.

That isn’t to say this will definitely happen.

The above pattern has only been observed twice.

This is a very small sample size.

There are all kinds of events that could make one or all cryptocurrency markets suddenly crash.

These could include huge technological flaws in one or more cryptocurrency, technological advances like quantum computing, a better version of blockchain technology, or a simultaneous and coordinated effort to repress the use of cryptocurrency.

There are certainly other such events that could also cause further crashes in the Bitcoin market and take the price to less than $1,000.

Protect Yourself

You can’t really protect yourself against “black swan events.”

However, you can protect yourself against scams, wallet credential losses, and the perils of centralized storage solutions.

First off, before you buy your first Bitcoin or other cryptocurrencies, do some research into the best storage for you.

If you only have a small amount to spend with crypt-friendly retailers, an open-source mobile or desktop wallet would be adequate.

Download your wallet before you buy your digital assets and understand how it works before sending funds to it.

Make sure to back up the private key or seed phrase offline (never on the same device as the wallet).

The private key or seed phrase will allow you to access the wallet if you lose the device it is stored on.

If you’re holding a serious amount of value in a digital asset for whatever reason, you might want to use cold storage.

Paper wallets are the ultimate solution for long-term storage, despite their name. And hardware wallets are a close second for non-technical users.

The credentials of both hardware wallets and paper wallets must be guarded fanatically. Only the owner of the cryptocurrency must see them ever.

And multiple copies should ideally be kept in multiple safe deposit boxes in different geographical locations.

This might sound a little extreme but if you’re protecting a serious amount of cryptocurrency, such steps are needed.

The next step to avoid losing money is to not invest in anything stupid. There are more than 4,000 different coins and tokens listed at CoinMarketCap today.

Obviously, not all of them are going to be a roaring success.

By avoiding investing in useless projects (there are loads of them), you will protect yourself from some of the market’s worst volatility.

When we say don’t invest in stupid projects, that also means investment platforms with “guaranteed returns.”

If any investment scheme guarantees a return, that should be enough to turn you off immediately.

It’s a cliché but if something sounds too good to be true, it probably is, even if it has Bitcoin in the name.

Even long-established projects, like Bitcoin, are very volatile.

To protect yourself against some of this volatility, you can follow a dollar-cost averaging strategy to invest.

This means buying a set dollar amount worth of Bitcoin at a regular interval.

If the price is low one month, you’re happy because you’re buying a lot of the asset you believe in.

If prices have trended up another month, you’re happy because the overall gains have impacted the other parts of your investment.

Leave a Reply

Your email address will not be published. Required fields are marked *