The risks are plentiful.
i. There are no fail safes
Cryptocurrencies are not like anything else you may have encountered before. The interfaces and user experience of most crypto exchanges are in many cases ghastly and the simplest of mistakes could cost you dearly.
The risks are exacerbated further if you do not understand what you are doing – and if you are stuck, and perhaps lucky, you may be able to find a Telegram channel to assist with certain issues. I must warn you that even then, it may take weeks, if not months to a resolve a simple issue.
ii. Little regulation, no FDIC insurance or bank protection
Cryptocurrency regulation is still in its infancy and in a state of flux. Most countries do not have a solid regulatory framework just yet. Therefore, if you lose your funds, it will most likely be gone forever since there are no FDIC insurances or bank protections in place to back the assets of cryptocurrency exchanges and wallets.
iii. Extreme volatility
It is not uncommon for Bitcoin to swing from a 10% loss in one day to 10% gain in a matter of minutes. On many occasions the volatility is even more extreme so you have to nerves of steel.
Understanding what you are buying and why you are buying it should help recalibrate you if you ever start to panic.
iv. Price manipulation and scams due to lack of transparency and regulatory oversight.
It is not uncommon to hear of tokens rising 1000% in one day before dropping close to zero shortly after. This is known as a ‘pump and dump’ and is a situation whereby the price of a token is artificially inflated to give outsiders the impression that it will continue to increase in value. However, most victims suffer when insiders decide to dump their tokens to earn a huge profit (at their expense).
It is also not uncommon for token project owners to pay developers for ‘market making’ services. These services purposely create fake volumes to give outsiders the impression there are many active users trading the token.
v. Hacking risk
At any time, you are vulnerable to hackers. You could lose all of your digital assets to a hack with no recourse at all!
Learn how to protect your cryptocurrency – from the start!
So are you still interested in opening a cryptocurrency account?
Remember there are no pre-built fail safes and there are hackers everywhere trying to steal your funds. Only you are responsible for taking the necessary steps to protect your capital.
Luckily for you I can share my wisdom with you. I have prepared a helpful checklist for you to consider.
i. Passwords
- Never store passwords in your browser.
- Avoid storing passwords on a password manager even through they may be encrypted.
- Never store your passwords or login data online with a password manager, on your phone, or any device that is connected to the Internet.
- Buy a paper notebook to store your login credentials, passwords and security keys offline. Copy the information on two or three notebooks and ensure the notebooks are stored in separate yet secure locations. You never know what can happen. Your house or your office could be affected and your paper notebook could be destroyed.
- Use long passwords containing random words and letters, capitalisation and special characters.
- Avoid common phrases.
- NEVER use the same password for more than one account.
- If any accounts require security questions, treat the answers like your passwords: create fake, long complex answers. People can easily find out what your mother’s maiden name was and where you went to high school using social media such as Facebook. Also, just like your passwords, store the fake answers to security questions in your paper notebook.
ii. Check that your PC isn’t compromised
- Ensure your computer is secure and free of any malware before you begin to set up accounts and wallets.
- There are many free tools and services available to scan and secure your computer although I am not a fan of free software services as there are always some strings attached. However, if you really have to then you may want to look into Malwarebytes, which will give you a free trial. Trend Micro , or similar that are just as great.
iii. Key Scrambler
- You may want to go one step further to take your security to the max, and download a key scrambler.
- Key scramblers are a great tool that prevent hidden keystroke logging malware from recording your passwords to hack into your accounts by encrypting everything you type in real-time.
- You may want to look into KeyScrambler by QFX, but again, there are other key scrambling tools out there you can check out as well.
- If you have an onscreen keyboard on your computer, you can elect to only type in your passwords using the on-screen keyboard. This also prevents keystroke loggers from recording your passwords.
iv. Ensure your smartphone is secure
- Smartphones play a huge role in security and access as well. So you need to take steps to secure your phone.
- Require a password to unlock your phone. That way if it’s ever lost or stolen, there is a barrier between a potential hacker and your capital.
- Make sure you log the password in your paper notebook for safekeeping.
- You may want to ensure you remove your phone number from any public website in social media and try to never publish your cell phone or cell phone provider publicly or to people you don’t know or trust.
- Cellphone numbers are used to access a myriad of sensitive data including banking crypto and two-factor authentication applications.
- Using your cell phone provider and cell phone number, there are hackers out there who conduct something called “sim theft.” This is where hackers steal your phone’s identity by calling your cell phone provider and requesting a new SIM card. If they steal your cell phone SIM card, they can easily hack into your investment accounts and drain your funds.
- The next thing you need to do to prevent this from happening is set up a passphrase with your cell phone provider that must be disclosed before activating a new SIM card. So get on the phone with your phone provider is and set up a strong passphrase that must be disclosed before activating a new SIM card on your account.
v. Set up a new email account
- Create a new unique email address using a handle you’ve never used before. This new email address should be used exclusively for your crypto investments only. Do not use an email address you use already and that people know about to open up crypto accounts.
- You need something completely random to use for the handle for your new email and do not use the new email address for shopping or signing up for newsletters.
- Only use your new email just for crypto and don’t tell anyone you don’t know or trust about it.
- Next, choose your unique username you’ve never used anywhere else before.
- Next, generate a very strong password. Register a recovery email. Make sure the email address you use as a recovery has a strong password.
- Using your newly secured cell phone, download some two-factor authentication apps Two-factor authentication is an extra layer of security that is absolutely crucial to setup before investing in crypto.
- This is how it works: when accessing an account, after entering your super secure password, you’ll be required to input a code that is generated on your two-factor authentication phone app. These codes constantly change every twenty to thirty seconds, so no one will be able to access your accounts unless they have your cell phone at that particular moment in time. I would recommend Google Authenticator.
vi. Backup
- It’s important to set up a backup to ensure you can restore your accounts if you upgrade or lose your phone.
Concluding remarks
Coin Market Expert hopes you found this guide to be valuable. Now that you have a better understanding of the risks, read the next guide – on how to set up a wallet.
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