While the Bitcoin network is secure, things like poor safekeeping methods, malware, and user error can part people from their hard-earned coins. Here are five things to watch out for as you navigate the confusing cryptocurrency waters.
Are your coins safe?
Coins can be lost in a variety of ways, with most people losing coins simply due to user error. This is a very real issue, as using many cryptocurrencies is way too hard for tech-illiterate people. There are quite a few opportunities for mistakes and some could result in you losing everything.
Storing Funds on Exchanges
Thousands of cryptocurrency users keep their holdings on exchanges for convenience or lack of knowledge about private wallets, i.e. wallets that enable only you to control the private keys. Hardware wallets like the Trezor have a great reputation in this space and are known for good customer services. Other mobile wallet apps like Samourai and Edge also never have access to your private keys and give users full control.
Exchanges are honeypots for hackers looking to make a quick buck.
If you use a lesser known exchange or an exchange that may not have proper security, your coins could be at risk. Just in the past month, two exchanges, Coincheck and Bithumb, have been hacked totaling in well over $450 million in cryptocurrencies stolen. Make sure you keep your coins in a private wallet, or at the very least a reputable exchange. Also, make sure you don’t get phished. Always double check the domain you’re visiting and use bookmarks. Most importantly, don’t visit your exchange by clicking random links online!
How to prevent loss: Keep your coins in a wallet where you control the private keys. Don’t store most of your funds on an exchange, and verify that they are a reputable business.
Risky ICO
With the cryptocurrency boom last fall, thousands of companies launched ICOs to raise funds for their projects. However, too many of these token sales end up as scams. ICO organizers will promote their ICO to as many people as possible as investors pour more valuable cryptocurrencies, such as Bitcoin and Ether, into the founder’s pockets.
Bitcoinist also reported that more than 80% of tokens have traded below ICO price since 2017. Moreover, many of these projects have questionable motives, tend to overpromise and underdeliver, and do not even need a blockchain.
So unless you love the risk, nine times out of ten, it will be safer to stick with the more established cryptocurrencies like Bitcoin than some novel coin whose founders spent millions on marketing.
How to prevent loss: Research the team and the project before investing in any project including past projects they’ve been a part of.
‘Free ETH Giveaways!’
These have become so common that even people with under 3,000 followers now have impersonators. Fake accounts aim to impersonate public figures in the community, announcing a brand-new giveaway. All you need to do to enter is send a bit of ether to an address, and you’ll get ten times that back! As the saying goes; if it sounds too good to be true, it probably is.
How to prevent loss: Don’t send money to strangers on the internet (duh).
https://t.co/beDM05c9F5 https://t.co/As3jOkfpAV
— Vitalik "Not giving away ETH" Buteriп (@RheaVaughan19) June 27, 2018
Sending to the wrong address
Bitcoin transactions are completely irreversible, unlike traditional financial systems. Sending a transaction to the wrong address could mean they’re gone forever, unless the owner of the address is kind enough to send them back to you. Some malware will paste a hack’s address even when you’ve copied a legitimate address. Even worse, sending them to an address that no one owns means they’re lost to the void, never to be spent again.
How to prevent loss: Before you go to send a transaction, triple check that the address you’re trying to send the coins to matches the one pasted in your wallet. Verify everything is correct before you hit send.
Losing your private keys
Your private keys are what gives you ownership of your coins and losing them could mean they’re lost forever. There are numerous stories online about people throwing out old hard drives with hundreds of bitcoins on them that are now worth fortunes. Don’t be one of the people during the next bull run wishing they hadn’t thrown out that old laptop!
How to prevent loss: Create working backups of all wallets and test the recovery phrases to make sure they work. Keep your seed on a physical medium, such as a piece of paper, and store it in a safe place.
Scared Yet?
Don’t be! A bit of personal due diligence makes the chance of these scams almost zero. Before you invest in a project or send coins to an exchange, read reviews from other investors/users. See if they have a reputable history and if anyone has been scammed before. Only use businesses that have a long-standing presence in the community. Whenever you store coins on a personal wallet, make sure it’s properly backed up in the event of your device gets lost or breaks down.
And finally, for the love of Satoshi, don’t send Ether to people on Twitter.
Have you ever lost cryptocurrencies in any of these ways? How do you protect your holdings? Let us know in the comments below!
Images courtesy of Bitcoinist Archives, Shutterstock