It is easier than ever to invest in digital assets and cryptocurrencies. Investors can buy and sell tokens online through brokers, centralized and decentralized exchanges. This allows them to avoid the hassle of dealing with traditional financial institutions and the high fees and commissions.
The decentralized nature of cryptocurrencies was the reason they were created. Cryptocurrencies are a new way to transfer global peer-to-peer values. However, no trusted authorities can ensure your assets’ security. Once you have taken your digital assets into custody, your losses are yours.
We’ll be discussing some of the most common mistakes made by cryptocurrency traders and investors, and how to avoid them.
Losing your keys
Blockchain technology is used to create cryptocurrencies. This distributed ledger technology offers high security for digital assets and no need for a central custodian. This puts the responsibility of protecting asset holders. It is important to store the cryptographic keys for your digital asset wallet securely.
Digital transactions are signed and created on the blockchain using private keys. This acts as an identifier that prevents unauthorized access to your cryptocurrency wallet. You cannot recover or reset your keys, unlike a password or PIN. It is vital that you keep your keys safe and secure as they could be lost or stolen, which would result in loss of access to any digital assets.
Crypto investors often make the biggest mistakes when they lose their keys. Chainalysis reports that 20% of the 18.5 Million Bitcoin (BTC), has been lost due to misplaced or forgotten keys.
Online wallets for coins
Investors can access cryptocurrencies via centralized cryptocurrency exchanges. These exchanges don’t give you access the tokens in the wallets but instead offer a similar service to banks. Although the user technically holds the coins, they are still owned by the exchange. This makes them vulnerable to attacks and puts them at risk.
Many high-profile attacks have resulted in millions of dollars of cryptocurrency being stolen from cryptocurrency exchanges. To protect your assets from such risks, it is best to keep your cryptocurrency offline and withdraw assets to a hardware or software wallet once you have purchased them.
You should not keep a hard copy your seed phrase
You will need to create a seed phrase that contains up to 24 random words in a certain order to generate a crypto wallet private key. This seed phrase can be used to access your crypto wallet and generate your private keys if you lose access.
A hard copy record can be kept, such as a printed document, or a piece paper with the seed phrase on it. This will help to prevent unnecessary losses due to damaged hardware wallets and faulty digital storage systems. Traders have lost many coins to corrupted hard drives and crashed computers, just like they lost their private keys.
Fat-finger errors are when investors accidentally place trade orders that aren’t intended. A single error can cause significant losses. Even a small mistake in the numbering of decimal places can have serious consequences.
This fat-finger error occurred when DeversiFi incorrectly paid out $24 million in fees. An even more memorable story was the sale of a highly-coveted Bored Ape nonfungible token for $3,000 instead $300,000.
Not sending to the correct address
Digital assets should be sent with extreme care to an investor. If they are not returned to the correct address, there is no way for them to be retrieved. This is often caused by the sender not paying attention when entering the wallet address. The blockchain transactions are irreversible and, unlike banks, there are no customer support numbers to assist with the situation.
This type of error can cause irreparable damage to your investment portfolio. Tether, the company behind the most widely used stablecoin in the world, has recovered $1 million of Tether (USDT), and sent it back to crypto traders who had mistakenly sent the funds to the wrong platform for decentralized financing in 2020. This is just one example of many instances where things don’t go as planned. Digital asset transactions should be handled with caution by hodlers. It is important to take the time to complete all details. There is no way to correct a mistake.
With the high volatility in cryptocurrency, diversification is essential to build a strong portfolio. But, because of the abundance of options and the desire for large gains, many cryptocurrency investors end up diversifying too much. This can have devastating consequences.
An investor who over-diversifies can end up with a lot of underperforming assets. This could lead to substantial losses. It is important to diversify only into cryptocurrency when the fundamental value of the assets is clear. Also, it is vital to be well-versed in the various types of assets and their likely performance under different market conditions.
A stop-loss agreement should not be established
An order type called a stop-loss that allows investors to only sell security when it reaches a certain price. This is a way for investors to avoid losing more than they can afford, and to ensure they get back at least their initial investment.
Investors have suffered huge losses in many cases due to incorrectly setting their stop losses prior to asset prices dropping. It’s important to keep in mind that stop-loss orders can sometimes fail to trigger sales in the event of a sudden, large crash.
However, it is important to set up stop losses to protect investments. This can greatly help minimize losses in a market downturn.
Trading and crypto investing is risky. There are no guarantees. As with any form of trading, patience and caution are key. Blockchain puts the responsibility on the investor. It’s important to understand the market and to learn from past mistakes, before you put your money at risk.
Eileen Wilson –Technology and Energy
My Name is Eileen Wilson with more than 5 years of experience in the Stock market industry, I am energetic about Technology news, started my career as an author then, later climbing my way up towards success into senior positions. I can consider myself as the backbone behind the success and growth of topmagazinewire.com with a dream to expand the reach out of the industry on a global scale. I am also a contributor and an editor of the Technology and Energy category. I experienced a critical analysis of companies and extracted the most noteworthy information for our vibrant investor network.