5 Critical Mistakes To Avoid in Cryptocurrency

Cryptocurrency are digital currency that use encryption techniques for payment transactions for goods and services. They can also be used to settle contracts. You are not purchasing stocks with dividends, instead it uses tokens with valued returns. The commodity are called coins which is now the possession of the buyer of the cryptocurrency. They can be used as a medium of exchange or store of value. In cryptocurrency trading, gains and losses can be made in seconds, minutes, hours or days. It is just like any investment market but is more high risk and volatile. It is a very volatile world that is unlike the traditional investment in stock markets where you can sit on your money and wait. Such swings have moved the value of Bitcoin from less than $900 up to $20,000 in just a few months. There are things newbies don’t understand about and this can be consequential. There is no regulation or securities to back up your money for most cryptocurrency investments. The price value is open to market forces and not determined by a central authority. That means if you lose big, there is not much way you can recover your losses. Decentralization was by design, following the white paper for Bitcoin. That way no government or any bank should be able to control the prices. It is high risk so it is not for the faint of heart, but with enough knowledge of cryptocurrency markets and what they are used for, newbies can gain more confidence and patience. I present 5 critical mistakes which should be avoided when using cryptocurrency.

Bitcoin, Ethereum, Litecoin — Cryptocurrency

5. “Not DYOR” — Do Your Own Research. Many are getting into cryptocurrency because they heard it from a friend or saw the latest news. Hearing “100x returns on Bitcoin” is enough to convince people to invest money and buy their own BTC. However, many newbies don’t seem to understand the purpose of BTC and it’s underlying technology platform — the blockchain. It might also be a scam like a ponzi or pyramid scheme. Any investor, who wants to make a good investment, must do their research into what they are putting their money in. There is plenty of speculation in the cryptocurrency market, based on the events that shape BTC’s move to becoming more mainstream. Swings in it’s value are influenced by news about improvements in the technology or alleged interest from big business and financial institutions. When the CBOE and CME Bitcoin Futures opened, it lead to a spike in BTC prices with the anticipation of more liquidation. When you invest because of the numbers, it is more like gambling. That always has disastrous results.

4. “Buying the Hype — FOMO” — The “Fear Of Missing Out” has a tremendous social effect on people who want to get in on some hot new cryptocurrency. This behavior leads to dumping of money into a new cryptocurrency that may not even have a fully functioning system yet. So it is overvalued without any utility. When some investors realize this, then the pull back happens. Another reason is moneyed investors called “whales” can purposely dump money to inflate prices. Then when they have reached a level of high profits, they pull out and many people can lose their money when the prices go down. The hype is also there for so called privacy coins which aim to deliver anonymity when it comes to transactions. However, some of these coins have been under government scrutiny because it can be used for illegal activities. That is why the hype is not always the best investment. “SomeNewCoin is surging, BUY! BUY! BUY!” Hype also leads some less experienced investors to buy at the peak or high level. Then the dip comes and they lose some of it’s worth in fiat. This leads to pulling out due to FUD “Fear, Uncertainty, Doubt” and lack of patience.

3. “Not securing Private Keys” — When you purchase cryptocurrency, whether it’s Bitcoin or another of the 1,000+ altcoins, you must have a digital wallet. This is where your cryptocurrency coins are stored. It is easier now with more mainstream exchanges that sell the top cryptocurrencies in the market. Exchanges like Coinbase provide a custodial wallet, where they store and handle your coins. Some users though, purchase coins which require downloading software to install on their smartphone or computer. In cryptocurrency, you are provided with a public key also called the public address and a private key. On Coinbase, the private key is not given to the customer. However, if you downloaded your own wallet then you possess your own private key. The public address is what a person is supposed to give to a sender to receive coins. The problem is there are times when a person provides their private key, which is a big mistake. That could mean “Game Over” because once someone knows your private key, they can access your wallet. Scammers love to play this game. They often pretend to sell items and ask the buyers to provide their private key to complete transaction. That is not how it works and some newbies learned this the hard way. Keep your private key to yourself and never give it to anyone. No seller or sender needs your private key. All they will need is your public address.

2. “Forgetting passwords” When a wallet is created, users will be required to create a password on most of them. A series of seed words are also created as a way to recover a wallet in case the password is lost or forgotten. It is important to keep this information because once it is lost it may be impossible to recover your coins. There is no support available to recover your wallet, that is not the way cryptocurrency works. Since it is decentralized, you are your own bank. Therefore you are responsible for everything about your coins security. It is better to store coins off the network in what are called hardware wallets. You still are required to generate seed words for recovery. That information should not be lost as well as some newbies have gotten careless by writing the information down, then accidentally throwing it away. These wallets are also encrypted, so attempting to hack them is also nearly impossible. There are services offered to decrypt wallets, but you have to be careful it is not a scam.

1. “Wrong Send” Sending cryptocurrency to the wrong public address or the wrong address entirely is irreversible. Once it is sent, it is as good as gone. Some systems will not process the transaction if the address is totally invalid. That is why there are QR codes that can retrieve the public address for convenience, otherwise copy and paste. Be careful though that you copy the entire public address string. When using your wallet to send coins, there is a send field where the public address must be put. Every wallet can generate multiple public addresses and you can have many for different types of transactions. It appears this is not user friendly on some wallet interfaces or the instructions don’t appear too clear. A public address has a form similar to this:

1HPaRmyCAmmbHd1V7vGEfD3xsgh1b1M5gB (Ex. BTC address)

If it does not resemble that, then it probably is not the correct public address. Also be careful when you are sending to multiple addresses. If you forget to copy a new address, it will use the current content of the clipboard which contains the older address. This could lead to a double send to the previous recipient. Always make sure you copy and paste the correct public address to whom you are sending coins.

Disclaimer: This is not financial advice, just the author’s views regarding the subject matter. This is for reference and informational purposes.

5 Critical Mistakes To Avoid in Cryptocurrency was originally published in Hacker Noon on Medium, where people are continuing the conversation by highlighting and responding to this story.