It’s no longer a secret that cryptocurrency is one of the most lucrative industries out there. But it’s also quite apparent that the market is rife with hacks and scams.
A large number of users have lost access to their wallets, made poor investments in low-quality ICO projects, or fell prey to cybercriminals. So, why invest in crypto in the first place?
While there may have been some ambiguity about the benefits of cryptocurrency a few years back, there is no longer any doubt: cryptocurrency is here to stay and it's going to completely disrupt all existing models. We are seeing this happening right now and the benefits are undeniable.
Blockchain transactions are immutable and corruption-free, not to mention lightning-fast and very cost-effective. There are a number of blockchains to choose from that can be tweaked to specific industries. It’s not really a matter of whether the industry as a whole is going to thrive. It’s just a matter of finding good cryptocurrencies within the industry and holding onto them.
With all this in mind, the following tips will outline the most important things to be made aware of in order to safely invest in crypto.
Tip #1 - Secure Your Private Keys
The number 1 tip when investing in cryptocurrency is to make a copy of your private key. Every cryptocurrency wallet will have an associated private key. If you lose this private key, you lose your wallet. It’s that simple.
The good news is all you have to do is make two or three copies of this private key and store it in a secure location. Once you do this, your keys are safe, and so are your wallet funds. Some people overthink this part, saying that leaving copies of your private keys is a security vulnerability.
But the chances of a thief somehow locating a piece of paper with a passcode or random words written on it, copying it down, and then restoring it before you do are tiny in comparison to the chances of just losing your keys.
Tip #2 - Use a Secure Crypto Wallet
Exchanges have a history of being hacked. Though this is no longer as dangerous as it once was, it’s still far better to use a privacy and security focused crypto wallet. The main options include hardware wallets, desktop wallets, or secure online wallets.
All of these will offer you a private key for safe storage. This is not the case with exchanges where you will have an account open and the centralized party holds onto these keys. This is now a smart option.
Even ‘DeFi’ applications are subject to scams and hacks if you keep your funds stored with them. BadgerDAO recently suffered an attack that drained over $120 Million worth of cryptocurrencies.
The takeaway, as always, is that users need to hold onto their private keys. The more you let other people take ownership of your funds, the more likely you are to lose them. This has happened time and time again and cryptocurrency was initially designed to grant wallet ownership and responsibility to citizens.
Tip #3 - Diversify Your Investments
For the purpose of investing and generating a good ROI, then new users will need to pay heed to the age old principle of diversification. Nobody can predict the future. So unless you have access to a certain event, then you won’t be able to predict market growth.
If you invest too heavily in a small number of projects, then you might not see a significant return. A large number of ICO projects went completely bust in 2019. The same could easily apply to the NFT startup space with its SHO and IDO offerings.
Correct diversification could assist in this area to ensure you are not spreading yourself too thin. Even if you take a few hits, your diversification will ensure you thrive into the future. Minimizing risk is still as important as maximizing gains, a point often forgotten amidst a large amount of crypto-related hype.
Tip #4 - Hold Your Crypto
If you had bought and held onto any of the major cryptocurrencies in the past 5 years - Bitcoin, Litecoin, Ethereum, Ripple, Dash - you would have made enormous profits. The same is likely to be true for a number of cryptocurrencies moving forward in the next 5 years. If you can hold onto them, you will make large profits. The industry is growing as a whole with massive institutional investment.
This also makes sense due to the fact that you lose money every time you make a trade. Gas fees on the Ethereum network are huge, and this is the blockchain that most of the latest projects are on, for the foreseeable future. Frequently moving your assets also makes the tracking and monitoring of them quite problematic.
So just keep it simple, identify a number of solid cryptocurrencies, and hold onto them for reasonable time frames. Investment is not the same as trading, and it's critical to ignore the noise and only focus on the signal.
Tip #5 - Get the Right Tools
There is a distinct lack of analytical tools on the market when it comes to cryptocurrency trading and investment. But there are some tools that you can use to pinpoint investments a little more accurately.
One such tool is Defy Trends, which combines both social sentiment and fundamental indicators to analyze investments. Social sentiment features hugely in the crypto asset market as most coins trade on launches and Tweets as opposed to more traditional trading variables. The tool lets you compare cryptocurrencies and see whether a given coin is over or undervalued.
Of course, there are many ways to invest in cryptocurrencies and you will likely have your own preferences. The platforms you use will depend on these preferences and what you are looking to achieve. You might prefer to invest in NFTs, sustainable cryptocurrencies, or coins in a given sector. But the more accurate information you have, from the right sources, the better.
Tip #6 - Be Selective
This is related to the advice to hold onto your crypto and don’t be in any rush to invest. The blockchain space moves incredibly rapidly and it’s easy to get sold on lucrative sounding coins. Many of these coins are nothing but a whitepaper and a theory.
There are multiple token offerings being advertised as inclusive virtual reality metaverses where you can buy and sell NFTs. The issue is that the ‘Metaverse’ the project is talking about has not yet even been created!
So take your time and make your moves wisely. The cryptocurrency industry is not going anywhere and if you carefully consider your coins and hold them for reasonable time periods (12 months +) you’re sure to make a profit.
Tip #7 - Understand the Ecosystem
For crypto investing, it’s good to stay abreast with current developments. New users will obviously need to get familiar with blockchain wallets and private keys, as well as the best places to purchase and trade cryptocurrency. With this knowledge, more intelligent decisions can be made because transaction fees will be more readily understood. You will also be less likely to fall for hacks and scams when you’re more familiar with the wider ecosystem.
Investing in some of the newer technologies will require becoming more familiar with certain software. The Metamask Web 3.0 application on the Brave browser is frequently needed for the trading of certain tokens, especially NFTs.
Research on Decentralized Exchanges. Strong Holder Offerings, and new types of distributed ledgers are also necessary in order to make better decisions. You don’t need to know everything about a specific coin to invest, but you do need to get a strong sense of where it’s going and what architecture it's built on.
Tip #8 - Know The Risks
Even when a company seems 100% legitimate, something can go wrong in an instant. Exchanges that seem extremely security conscious can easily get hacked from any number of network vulnerabilities. Pump and dump schemes are common within the ICO space. The US Securities and Exchanges Commission is routinely investigating many new startups, forcing them to shut down for non-compliance.
If your coins get lost due to a scam, there is pretty much nothing you can do. You have no legal recourse. But if you make a significant profit from your coins, you probably do have a large reporting obligation to the IRS. Even purchases made using Bitcoin and other cryptos are treated as realized profits/losses to be accounted for.
In other words, while you can likely make a significant profit in this industry, it’s not without its fair share of risks to account for. Only by educating yourself on the industry and taking the correct security precautions can you ensure that your funds are safe.
Distributed Ledger Technology is an expanding network that is rendering obsolete all older models. In the rise of any new system, there are always a lot of initial failures but the progress of the wider ecosystem is inevitable.
That’s why it's imperative to simply choose a diverse number of coins and consistently invest in them. Once securely stored in a high-quality crypto wallet, your holdings are likely to increase significantly in value, with time.