The world of cryptocurrencies is growing and developing. A lot of people are investing in crypto coins: they help projects to raise money for the development (when investing during the ICO) and they also increase their investments several times.
But sometimes projects turn out to be scams, sometimes people send their private keys there where they shouldn’t. There are a lot of nuances in the world of crypto, so let’s take note of 10 rules designed to help you invest safely and securely if you are thinking about investing in cryptocurrency.
- Do not invest more than you can afford to lose
Investing in cryptocurrencies is not for the faint of heart. It is a global market, which is highly volatile. Just as quickly as prices go up, they can come down — sometimes even faster. Before you invest, consider that your investment could drop by 50% or more. If the thought of losing that percentage of your portfolio or more makes you nervous, then you should reconsider your investment and only invest what you can afford to lose.
- Do your own research
There is no shortage of self-proclaimed experts in the cryptocurrency world. And when you are a novice, everyone appears to be more knowledgeable than you. It is important that you use objective measures to determine the value and viability of a project before investing. Below are some of the steps to take to research a coin.
- Read the whitepapers and roadmaps
You can find the whitepaper and roadmap on the project’s website. The whitepaper will describe the purpose fo the project, the problem it is intended to solve or the market need it is intended to meet. The roadmap will tell you for where the project currently stands. You will want to determine if they project is on track, if the creators are doing what they say they’re going to do and when. Try to figure out by what dates the project will meet its milestones, and what type of progress have they have already made.
- Check out the project team
What expertise do they bring to the project? What have they done in the past? Do they have experience with cryptocurrency or blockchain technology? Can you find them on Linkedin?
- Look at their partnerships
Does the project have strategic partnerships? Will those partnerships encourage adoption? Some projects (for example, Ethereum) have a substantial list of partnerships with both governments and established global companies.
- Evaluate the currency’s use case
What problem is the project trying to solve? And is it something that the average person will use and understand? Is it designed to solve problems that other cryptocurrencies haven’t addressed, or is it doing something better?
- Assess the economics of the currency
What is the market capitalization? What is the total supply and the circulating supply?
- Never give anyone your private keys
A private key is a sophisticated form of cryptography that allows a user to access his or her cryptocurrency. It is an integral element of cryptocurrency, designed to help protect a user from theft and unauthorized access of funds. If this information is shared with anyone they will have access to your cryptocurrency. In essence, sharing the private keys would be the same as sharing your ATM card and pin number.
- Keep your private keys safe and secure
Because it is impossible to access your funds without the keys, it is imperative to keep your private keys in a secure location. If you lose your private keys, you will be unable to withdraw, spend or transfer your cryptocurrency. Select a secure wallet designed for cryptocurrency to store your private keys. Then make a backup copy of your key and keep that in a separate location.
- Store your coins in your own wallet
Cryptocurrency wallets use software programs that store your public and private keys and interface with the blockchain of these currencies. This enables you to send and receive digital currency and to monitor your balance. When you leave your digital assets on an exchange, such as Coinbase, the exchange holds the private key. If the exchange were to be hacked, your assets would be lost. Storing them in your own wallet, ensures you have control of the private key.
There are many different types of wallets to choose from, such as hardware wallets or cold storage, hot wallets, mobile wallets and paper wallets. Before picking a wallet, consider how you will use it and its level of security.
- Use two-factor authentication
Your cryptocurrency is a digital asset, which means it is vulnerable to hackers and viruses. When you use an exchange, you will be required to create an account, with a login and password. Most exchanges will provide the option to add an additional layer of security to your account through the use of two-factor authentication.
Two-factor authentication (2FA) requires two ways of proving your identity. After you enter your password, you will be asked to enter the code provided by the authenticator app. Each time you log into your account, you will be sent a new code.
- Maintain a virus free computer
Whereas in the early days of computer viruses, the viruses were created by hackers – pranksters really — for the purpose of disabling machines and demonstrating the hacker’s abilities. Today’s viruses are much more nefarious. The purpose is no longer to disable machines but to compromise machines and the information held on those machines. This has given rise to ransomware attacks on business machines and identity theft on individual machines. Although the crypto account details stored on your computer are no more susceptible to these attacks than the bank account details stored on your computer, the resulting outcomes are quite different. There is no FDIC protection for your compromised crypto wallet. For these reasons, you will want to install anti-virus software on your computer and ensure it stays updated.
- Check all details before executing a transaction
Addresses on the blockchain are a long string of letters and numbers. If you mistype the address, you could be sending your funds to the wrong address, resulting in a permanent loss. Check, recheck, and triple check all addresses before executing any transactions. Your best bet is to copy and paste the address or to use the QR code of the address to avoid inadvertently typing the wrong address.
- Resist FOMO buying or panic selling
The world of crypto is new and exciting, yet inherently risky. It can be a breeding ground for scams and other unethical behavior. Because there is an abundance of news, and buzz on the different coins and ICOs, on social media it is easy to feel like you are going to miss the next big thing if you don’t invest right away. This feeling is referred to as “FOMO” or “Fear of Missing Out.” Your trading strategy, whether buying or selling, should not be driven by fear or greed. In the words of Warren Buffett, “Be fearful when others are greedy and greedy when others are fearful.”
- Understand market capitalization
The market capitalization is determined by the price of the coin/token, times the total circulating supply. It is the total dollar value of all the coins in circulation. It is important to evaluate the market cap of a coin to determine its potential for growth. For example, if you have an established coin that is worth $5 and has 100 million coins in circulation, the market cap would be $500 million (5*100,000,000.) Likewise, a new coin may have a value of 5 cents, with 10 billion coins in circulation. It’s market cap would also be $500 million. However, in order for this particular coin to increase in value to $5 (9,900% increase!!) as well, the market cap would have to increase by $49.5 BILLION! Your job as a cryptocurrency investor should be to determine if such an increase could be possible or would be realistic in relation to the market caps of for example Bitcoin or Ethereum and the total market cap of all traded cryptocurrencies together.
Good luck in your investing!
