Investing in cryptocurrencies and digital assets is now easier than ever. Online brokers, centralized exchanges and even decentralized exchanges give investors the opportunity to buy and sell tokens without going through traditional financial institutions and the huge fees and commissions associated with them.
Cryptocurrencies were designed to operate decentralized. This means that while they are an innovative way of global peer-to-peer value transfer, they do not involve reliable authorities that can guarantee the security of your assets. Your losses are your responsibility when you take care of your digital assets.
Here we look at some of the most common mistakes investors and traders make in cryptocurrencies and how you can protect yourself from unnecessary losses.
Lose your keys
Cryptocurrencies are based on blockchain technology, a form of distributed ledger technology that provides a high level of security for digital assets without the need for a centralized custodian. However, this adds the burden of asset protection, and secure storage of the wallet’s cryptographic keys is integrated into this.
On the blockchain, digital transactions are created and signed using private keys, which act as a unique identifier to prevent unauthorized access to your cryptocurrency wallet. Unlike a password or PIN, you cannot reset or recover keys if you lose them. Therefore, it is extremely important to keep your keys safe and sound, since losing them will mean losing access to all your digital assets stored in this wallet.
Lost keys are one of the most common mistakes crypto investors make. According to a Chainalysis report, of the 18.5 million bitcoins (BTC) extracted so far, more than 20% have been lost due to forgotten or lost keys.
Storage of coins in online wallets
Cryptocurrency centralized exchanges are probably the easiest way for investors to get certain cryptocurrencies. However, these exchanges do not give you access to wallets that contain tokens, but instead offer you a service similar to banks. Although the user technically owns the coins stored on the platform, they are still held by the exchange, making them vulnerable to attacks on the platform and endangering them.
There have been many documented attacks on well-known cryptocurrency exchanges that have resulted in the theft of millions of dollars worth of cryptocurrencies from these platforms. The safest way to protect your assets from this risk is to store cryptocurrencies offline and extract assets to a software or hardware wallet after purchase.
Do not keep a hard copy of the original phrase.
To generate a private key for your crypto wallet, you will be asked to write down an initial requirement consisting of up to 24 randomly generated words in a specific order. If you ever lose access to your wallet, this seed phrase can be used to generate your private keys and gain access to your cryptocurrencies.
Keeping a hard copy, such as a printed document or a piece of paper with the opening sentence written on it, can help prevent unnecessary losses due to damaged hardware wallets, defective digital storage systems, etc. Just like losing your private keys, sellers lost a lot of coins. due to computer errors and corrupted hard drives.
Fault with grease pin
Fat Finger Error is when an investor accidentally places a trade order that does not match their intentions. A misplaced zero can lead to significant losses, and misspelling even one decimal can have serious consequences.
An example of this “fat finger” error was the erroneous $ 24 million fee payment from the DeversiFi platform. Another unforgettable story happened when the highly coveted non-fungible Bored Ape token was accidentally sold for $ 3,000 instead of $ 300,000.
Sending to wrong address
Investors should be extremely careful when sending digital assets to another person or wallet, as they cannot be picked up if sent to the wrong address. This error often occurs when the sender does not follow up when entering the wallet address. Transactions on the blockchain are irreversible, and unlike a bank, there are no customer support lines to help in this situation.
This type of failure can be fatal for an investment portfolio. On the plus side, Tether, the company behind the world’s most popular stablecoin, has returned and refunded $ 1 million in Tether (USDT) to a group of crypto traders who sent funds to the wrong decentralized financial platform in 2020. This story is just a drop in the ocean of examples where things are not going so well.