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Ask CryptoVantage: How Do I Avoid Losing Money in Crypto?
Banking was invented to protect assets from those who would steal or damage them. However, in the world of cryptocurrency, banks don’t really exist in the same way that they do for traditional finance.
In greater and greater capacity, modern banks offer a number of services that revolve around cryptocurrency assets, but what about the most fundamental service a bank aims to offer – The protection of your assets?
In this article, we cover the best way to protect your cryptocurrency assets and make sure your money remains in your possession.
Know What You’re Investing In
The famous investor and billionaire, Warren Buffet, famously said to invest in what you know. The same is true for cryptocurrency. If you don’t want to lose your money as a crypto beginner, then you should do your homework on the cryptocurrency asset you plan on investing in. Cryptocurrency is an investment like any other asset and as such, similar strategies can be adopted when investing in cryptocurrency, such as dollar cost averaging.
Knowing the cryptocurrency you are investing in can make a world of difference in terms of keeping your money as a crypto beginner. For example, if you were to invest in ADA and not stake it, ignorant of the fact that ADA is a staking coin, you would be missing out on potential profits by not staking it on an exchange. Not all cryptocurrencies are created equally and having that knowledge can make the difference between profits and losses.
Educating yourself about cryptocurrency has never been easier. We offer a number of guides and educational resources for folks new to the cryptosphere that you can check out here.
Use a Hardware Wallet
Owning a hardware wallet can almost be considered a necessity when it comes to keeping your crypto secure. Unsecured cryptocurrency has been the downfall of many investors, some of which you may have heard about online. There is an infamous phrase among cryptocurrency investors and it goes like this: “Not your keys, not your coins”. The phrase refers to the private keys of a cryptocurrency wallet.
If the private keys to your cryptocurrency wallet are not in your possession, then the contents of that cryptocurrency wallet do not belong to you. This is especially important to consider when purchasing cryptocurrency off of an exchange, which is a common practice.
When you buy cryptocurrency on an exchange, the cryptocurrency you bought will be stored in what’s called a “hot wallet”, or a cryptocurrency wallet which is connected to the internet.
Something to be aware of is that when you leave your crypto or digital assets on the exchange, since you don’t have access to the Exchange’s private keys, and your wallet is simply “an account” on theirs, you don’t have complete control, and therefore, complete ownership of you crypto assets. It becomes truly in your possession when you transfer your asset from the exchange’s wallet onto yours and you have access to your wallet’s private keys and secret phrase.
A software wallet is the absolute minimum you need to secure your cryptocurrency. You can install a software wallet onto a device you already own, such a phone or computer. However this still leaves your wallet connected to the internet.
The most secure way to store your cryptocurrency is to store it in a hardware wallet, or a paper wallet, that is disconnected from the internet. Cryptocurrency is considered to be in “cold storage” if it is stored in a wallet that is not connected to the internet, which is exactly what a hardware wallet does.
Now you could argue that for some less technical people it’s safer to just leave their crypto on an exchange — and there are safe exchanges — but the history of crypto is littered with nefarious exchanges like FTX that essentially stole their customers funds.
Hardware Wallet Recommendations
There are a number of hardware wallets out there that offer a number of features, but when it comes to cryptocurrency hardware, two brands are the Pepsi and Coke equivalent and they are Trezor and Ledger respectively. Hardware wallets are very affordable, but even after you have them in your possession, you are prompted to back your wallet on a paper wallet.
We wrote an entire piece about hardware wallets which goes more in-depth with hardware wallets and their specifications, but for two quick recommendations, you can’t go wrong with the Ledger Nano X or the Trezor One.
The Nano X is in the $100 price range, which is a bit expensive especially if you’re new to cryptocurrency, but it’s one of the most versatile wallets around and you probably wont ever need another one. By comparison the Trezor One is cheaper, in the $60 range, but isn’t as convenient and has some more limited storage capacity. Not a bad place to start if you’re new to cryptocurrency and want some means of cold storage for a low price.
Overall there’s a boat load of hardware wallet options out there, but for the most secure performance make sure it’s cold storage capable and you’re good to go.
Summary: Research and Security Come First in Crypto
To wrap up, the best way to not lose money as a cryptocurrency beginner is to know the asset you’re buying, know the asset class, and to keep your assets secure with a cold storage-capable hardware wallet.
Just as banks used to keep gold bars in a safe, a hardware wallet gives you the best chance at keeping your crypto assets safe, but still make sure to write down the secret phrase provided by your hardware wallet.
Being your own bank comes with certain responsibilities. Chief among them is keeping your assets safe and secure, and arming yourself with the knowledge on how to do so.
