- >Ask CryptoVantage: What Are the Most Common Bitcoin Beginner Mistakes?
Ask CryptoVantage: What Are the Most Common Bitcoin Beginner Mistakes?
Buying bitcoin can be intimidating when you are new to the topic of digital currencies. In this article we discuss common mistakes made by bitcoin beginners, and how to avoid learning these lessons the hard way.
Billy Garrison | Nov 13, 2020
Rushing into Buying Bitcoin
One of the most common mistakes made by bitcoin beginners is to rush into buying bitcoin before understanding the risks. This makes purchasing bitcoin much riskier than it needs to be because it leaves the purchaser exposed to hacks, scams, storing their funds insecurely, or losing their private keys. Taking the time to thoroughly research the technology behind bitcoin, its volatile nature as a currency, common bitcoin scams, and secure ways to buy and store funds are all imperative to avoiding many of the common mistakes made by beginners in bitcoin.
Additionally, reflecting on your reasoning for purchasing bitcoin before actually committing to buying any will help you understand what level of risk you are willing to tolerate. Sometimes, bitcoin beginners are motivated to buy bitcoin for the first time because they see the price rising. They feel like they must act quickly to get in on a bullish market, and so they purchase a large amount of bitcoin before developing an investment strategy. In general, buying bitcoin based on emotions, without having a strategy in place, can lead to devastating losses. It’s important to never put yourself in a position where you feel forced to sell your bitcoin in a panic when the price starts to drop. If this happens, it means you likely put in more money than you were willing to lose. Making an investment strategy is key to not making mistakes when you first buy bitcoin.
Bitcoin is a complicated technology and currency with many different facets. It can take a while to understand bitcoin “as a whole”. And if you rush into it, you will likely be acting on misinformed judgements. It is especially important to understand all the risks if you are planning to buy a large amount of bitcoin, or if you are planning to store a large portion of your wealth in bitcoin.
Insecure Bitcoin Storage
It is common for those who are interested in bitcoin as a currency, but less interested in the technology, to store large amounts of bitcoin on exchanges. Sometimes people do this intentionally, but they might not realize that if their bitcoin is on an exchange, it does not fully belong to them. Cryptocurrency exchanges have been at the center of many hacks and scandals and are a risky place to store your funds long-term. Trusting a third party to manage your bitcoin goes against the decentralized, trustless nature of bitcoin technology.
Another way that beginners might put themselves at risk is by keeping a bitcoin wallet on a general-purpose computer. This is not recommended because general-purpose computers are more susceptible to viruses. To avoid losing your bitcoin to viruses or hacks that will target your wallet software, it is recommended to use a hardware wallet, or, to keep your wallet on a computer that is only used for storing your bitcoin.
Most beginners do not run their own bitcoin node, but depending on your investment strategy and interest level in bitcoin it could be a good choice. If you are not running your own bitcoin node then you are trusting a third-party service provider to do it for you. This means that you do not have complete access and control over your bitcoin. It is highly recommended to consider running your own bitcoin node if you are planning to store a large amount of your wealth in bitcoin.
Distracted by Altcoins
It is easy for bitcoin beginners to get distracted by the hype surrounding alternative cryptocurrency, also known as altcoins. There are plenty of reasons this can happen, ranging from the enticing possibility of “getting rich quick”, to feeling that the bitcoin technology is moving too slowly in comparison to fast-moving altcoins. However, bitcoin beginners are not always able to see through the misleading marketing surrounding many altcoins.
If the pros to the altcoin are true (for example, that the altcoin is faster or cheaper than bitcoin), there are typically less obvious trade-offs as well. At the core of most altcoins is centralized development, which allows for altcoins to be developed rapidly, but comes with the risk of lower security. Understanding the risks of new and flashy altcoins is essential. If it sounds too good to be true, then it probably is!
Running into Scams
Due to a lack of experience, bitcoin beginners are inherently more susceptible to scams. There are various types of scams that are known to take place in the digital currency world, and getting familiar with the common tactics will help you protect your funds. For more information on cryptocurrency scams, read “How to Spot a Cryptocurrency Scam.”
At the heart of most mistakes made by bitcoin beginners is a lack of knowledge. By understanding the basics of the technology, its volatile nature as a currency, how to store your coins securely, and the common scam and hack tactics, you can be armed with the information you need to avoid these mistakes. There are plenty of resources for learning about bitcoin before you decide to purchase the currency. The amount of time you spend researching and learning should depend on the amount of bitcoin you plan to purchase and your tolerance for risk.