As a potential alternative to fiat currencies, cryptocurrencies can be quite overwhelming to learn about at first glance.
To get started, you’ll need to choose a safe and secure wallet.
Such as an XMR wallet if you’re planning to use Monero, for example.
You’ll also need to know how crypto exchanges work, as they aren’t exactly a one-to-one match to traditional stock exchanges. Additionally, not all cryptocurrencies function in the same way, nor do they offer the same sets of features or benefits.
Indeed, there’s a lot you’ll need to become knowledgeable about to make more informed decisions as a crypto user or investor. To help you get a head start on your crypto journey, read on for five common mistakes you should avoid when getting into cryptocurrency:
Having No Basic Understanding of the Technology
You’ll be spending precious time, money, and other important resources investing in a cryptocurrency. As such, you’ll want to have a deep understanding of how the technology behind each crypto works and how it will work in your favor. That way, you’ll know you’re placing your bets on the right coins, tokens, and other digital assets.
Start with the basics, such as the different types of cryptocurrencies available and the basic definitions and explanations of how blockchains work. It’s also a good idea to know what exactly decentralization means and how that can impact your ability to trade digital coins compared to when you’re trading traditional stocks.
Thoroughly study the technology and don’t rush into making any investments until you’ve learned as much as you can about the inner workings of blockchain and crypto.
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Forgetting Your Crypto Wallet Seed
We’re all guilty of forgetting our passwords, but when dealing with crypto wallets, the last thing you want is to lose your seed phrase. Put simply, a seed phrase is a list of words generated by a crypto wallet, acting somewhat like a password for the wallet in question. Without it, you won’t be able to access your crypto wallet or the funds stored in it.
Hence, you must record the seed phrase in a safe place, whether digital or physical. It should also be placed somewhere you can easily access it without being too obvious a hiding place for other people.
While some may recommend writing your seed phrase onto a piece of paper and nowhere else, this may not be a viable option for many people. Losing this piece of paper will put you at a high risk of losing access to your wallet forever, with no other way of recovering your funds. That being said, the same concept applies to virtual methods of storing your seed phrase.
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Sharing a Crypto Wallet with Someone Else
While some may think that there’s nothing wrong with sharing a single crypto wallet with many other users, this puts everyone-especially the person with the most funds in it—at great risk.
The other parties using the wallet may not be as savvy when it comes to online security basics, for one. They may use public networks when using the wallet for transactions or may fall for phishing scams and give away the wallet’s seed phrase to a malicious individual. Worst of all, anyone with access to your wallet can take or spend all the funds in it without your knowledge or permission. So, avoid sharing your crypto wallet with anyone else to minimize these risks.
Not Understanding the Risks of Decentralized Currencies
Since today’s cryptocurrencies are typically unregulated, those who have converted their fiat currencies into these digital coins face a unique set of problems.
For one, because cryptocurrencies are decentralized, it will be difficult to retrieve your coins should your wallet be hacked into and drained of its funds. Unlike centralized currencies and financial institutions, you won’t have as many routes to pursue when it comes to recovering lost crypto. And because crypto is largely unregulated, this makes virtual currencies especially vulnerable to market manipulation, money laundering, and tax evasion.
In short, while fiat currencies and traditional bank accounts are also subject to these problems, such issues are magnified due to the decentralized nature of crypto.
Not Having Long-term Goals for Your Cryptocurrency
Because crypto has become a trending topic in the news, some people start converting their money into digital coins without really considering what they’ll get out of doing so. Remember that you worked hard for your money and that you shouldn’t be putting it into the crypto market without a clear goal in mind.
What is your overall goal when it comes to using cryptocurrency? Are you in it for the long-term or the short-term? Are you doing it mainly to support a vision of digital transformation in the finance industry, or are you using crypto as an investment vehicle? If you’re getting into crypto to potentially earn a profit, are you planning to keep your funds in any particular coins for the long run, or do you want to cash out your crypto after only a few months?
The answers to these questions will determine how you go about using your cryptocurrencies of choice. You’ll also know how much you’re willing to spend on virtual currencies and whether you’ll stay on the path or ride the waves of crypto market fluctuations.
The use of cryptocurrency comes with a level of risk not everyone is willing to take. But with a solid understanding of how cryptocurrencies work, you’ll be unlikely to make the mistakes mentioned above.
Always read up on the best practices for protecting your crypto, and keep yourself updated on the recent developments regarding these virtual currencies. Should crypto ever gain widespread adoption in the future, you’ll be one step ahead of everyone else.