Is Cryptocurrency Safe?
As Bitcoin and Ethereum become more popular, more and more people are starting to learn about crypto. And one of the most frequently asked questions is simple: is crypto safe? Cryptocurrency is digital money that doesn’t have a central bank and is based on the blockchain. You may have heard of Bitcoin and Ethereum, which are two of the most well-known cryptocurrencies, but there are more than 19,000 different ones in circulation.
How safe is crypto?
Even though cryptocurrency networks are decentralized, most transactions are very safe as long as users take precautions. The technology behind blockchain is inherently safe.
A picture of a distributed ledger (Image Source)
Crypto can be bought, stored, and used safely as long as the user follows best practices (see “How to Invest in Crypto Safely” below).
And if you take the same safety steps, you can invest safely in crypto.
But when it comes to investing, most experts say that you should only put a small amount of your money into cryptocurrency.
In other words, it’s safe to invest in cryptocurrency, but you shouldn’t only invest in cryptocurrency.
Experts say that you should build a portfolio that includes stocks, bonds, ETFs, real estate, and cryptocurrency.
No investment is a sure thing, of course.
Even investments that seem safe, like real estate and stock index funds, can cause a market crash, as we saw in 2008. Cryptography is the same. And here we are, July 2022. The crypto market crashes — or has corrected itself.
Blockchain and Cryptocurrency
Blockchain technology is usually used to make cryptocurrencies. Blockchain is a way to talk about how transactions are saved in “blocks” and given a time stamp. It’s a fairly technical process, but the result is a digital ledger of cryptocurrency transactions that’s hard for hackers to change.
A two-factor authentication process is also needed for transactions. For example, to start a transaction, you might be asked to enter a username and password. Then, you might have to enter a code that was sent to your cell phone via text message.
Even though there are security measures in place, that does not mean that cryptocurrencies can’t be broken into. Hacks that cost a lot of money have hurt cryptocurrency start-ups a lot. Hackers stole $534 million from Coincheck and $195 million from BitGrail, making them two of the biggest cryptocurrency thefts of 2018.
Unlike money that is backed by the government, the value of virtual currencies is completely based on supply and demand. This can lead to wild swings that can give investors big gains or big losses. And traditional investments like stocks, bonds, and mutual funds get a lot more protection from the government than cryptocurrencies.
4 Safe Ways to Invest in Cryptocurrencies
Consumer Reports say that all investments have some risk, but some experts think that cryptocurrency is one of the riskier investments. These tips can help you make smart decisions if you want to invest in cryptocurrencies.
Research Crypto Exchanges
Learn about cryptocurrency exchanges before you put money into them. There are probably more than 500 exchanges to choose from. Before you invest, you should do your research, read reviews, and talk to investors with more experience.
Learn how to keep your digital money
If you buy cryptocurrency, you must find a place to keep it. You can store it in a digital wallet or on an exchange. There are many different kinds of wallets, and each has its own pros, cons, technical needs, and security. Like with exchanges, you should look into your options for storage before you invest.
Spread your money around
Diversification is a key part of any good investment plan, and this is also true when you are investing in cryptocurrency. For example, don’t put all your money in Bitcoin just because you know the name. There are a lot of choices, and it’s best to spread your money out over more than one currency.
Get ready for changes
The cryptocurrency market has a lot of ups and downs, so be ready for that. Prices will go up and down in big ways. If your investments or mental health can’t handle that, you might not want to buy cryptocurrency.
Cryptocurrency is very popular right now, but keep in mind that it is still in its early stages and is considered very risky. Putting money into something new can be risky, so be ready. If you want to take part, do your research and start with small investments.
Using a full antivirus is one of the best things you can do to stay safe online. Find one that protects you from malware infections, spyware, and data theft. It also uses bank-grade encryption to protect your online payments.
Keep your crypto somewhere safe
Even though the biggest exchanges are getting safer, hackers and fraud is still a big problem for the industry as a whole. This is why investors with a lot of Bitcoin should think about storing their cryptocurrency themselves.
Traders with a lot of experience and a good understanding of cybersecurity might prefer to own their own wallets. This way, they can move their cryptocurrencies whenever they want to and not have to depend on an exchange.
This means moving your Bitcoin from the exchange you use to your own cryptocurrency wallet. There are two kinds of these wallets:
Cold wallets, which are also called “hardware wallets,” are small devices that store the private key for your Bitcoin address. This key is needed to move Bitcoin out of the address. They don’t connect to the internet, so they are thought to be safer than software-based alternatives that work online.
Hot wallets are apps that you can use on your phone, desktop computer, or web browser. They are also called “software wallets.” They also store the private key of your Bitcoin address, but because they do connect to the internet, they aren’t considered quite as safe as hardware/cold wallets.
Hardware wallets are more secure than software wallets, but the best software wallets still have a number of security features, like two-factor authentication and the ability to work with hardware wallets.
Sources: GetEarlyBird, Forbes, Kaspersky, BusinessInsider