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Note: This post has been written by a WazirX Warrior as a part of the “WazirX Warrior program“.
The worldwide economic situation is uncertain now, and none knows how things will unfold in the coming months. The impact of the pandemic is really unpredictable. The problems of the traditional financial system are getting exposed every day. There has been trepidation regarding the value of precious metals also in recent times. But the interest in cryptocurrency has been bolstered with an astounding growing trend, and Bitcoin has become the best performing asset class of 2020. The pandemic has changed the way we travel, work, and shop. We are spending more time online. We are also getting more opportunities to plan our financial health.
“I am very intrigued by Bitcoin. It has all the signs. Paradigm shift, hackers love it, yet it’s derided as a toy. Just like microcomputers.” —Paul Graham, Creator of Yahoo Store
Any investment has inherent risks. Cryptocurrency also has a lot of risks associated with it. Nobody knows basically how the market will behave the next day. That doesn’t stop people from investing, but it is very important to invest wisely after structured decision making. Cryptocurrency is not a traditional asset class. The newbies often find it difficult to judge their investment decision in cryptocurrency. It takes time to find your feet in any new investment type. Cryptocurrency is no exception to this.
Let us explore a few important tips to secure your cryptocurrency investment.
‘Never invest in something which you don’t understand’
This is a famous quote by Warren Buffet, and it is applicable to any kind of investment. There are so many cryptocurrencies besides Bitcoin. You need to understand the fundamentals before investing your hard-earned money. It is very important to understand the potential risks and rewards associated with a particular cryptocurrency.
Do your own research
DYOR (Do your own research) is a popular crypto lingo. You need to spend a good time on research before investing. You should go through the website of the project. Find out the team details and social media profiles of the project. You should go through the whitepaper of the project too. The whitepaper is an official document issued by any blockchain project informing about the technology, product, and service method. Understanding the technical details of the whitepaper may not be very easy for you but you can always understand the basics. You can also go through various YouTube videos and articles found by searching over the internet.
Select your exchange carefully
Cryptocurrency is a highly unregulated sector. You need to select your centralized exchange very carefully for trading. Check what fiat currency gateway they are providing. Check how long they are doing business with what kind of reputation. It is a truth that many exchanges got hacked and shut down shops in the last few years.
Understand keys and wallets
Please understand that your centralized exchange isn’t your wallet. It is very convenient to hold the fund in exchange, but you don’t own the keys when you hold your funds in exchange. Many people hold a considerable portion of their funds in their personal wallets for the long term. When you create a cryptocurrency wallet, you get a private key and public key. The public key is viewable to the public, but the private key is like your password. Store your private key in a secure place. Many wallets provide you with a mnemonic phrase to remember the private key. You can write down the mnemonic phrase in a piece of paper and store it securely. Avoid exposing your private key or mnemonic phrase to anybody. Not your keys, not your coin. Always remember the sacrosanct crypto proverb. Cryptocurrencies can be stored via a cold wallet or a hot wallet. There is a difference between the two kinds of wallets. No, the temperature is not the differentiating factor! Hot wallets are online wallets. Hot wallets are easy to access but these are more prone to hacks. Cold wallets are more secured, and these use physical hardware. If you are planning to hold a particular cryptocurrency for the long term, it is always suggested to hold it in a cold wallet. A hot wallet can be used if you are planning to use it regularly.
Get ready for a volatile ride
The cryptocurrency market is significantly volatile. Get yourself ready for a volatile journey. You’ll observe price swings, which are not very common in traditional markets. Have patience while you trade. Don’t trade on the basis of your emotion.
Avoid a bad investment
It is always cumbersome to distinguish between a bad and good investment. Crypto trading is unregulated, and so a lot of pump-dump activities happen. There are many so-called crypto influencers who keep on shilling different coins periodically on social media. Please be smart to judge well. Prepare your trading strategy. Understand two useful words properly: FOMO and FUD. FOMO is Fear of Missing Out, and FUD is Fear, Uncertainty, and Disinformation.
Keep your fund secure
I’ve already discussed that you need to store your private key in a secured place if you are using a personal wallet. When you are trading on centralized exchanges, please activate 2FA or two-factor authentication. It is always better to use Google Authenticator/Authy type software-based authentication system rather than using SMS OTP based authentication. When you are using a software-based authentication system like Google Authenticator, please store the authentication key in a safe place. If your exchange login ID/password is compromised by chance, the hackers will find it very difficult to log into your exchange account if you keep 2FA activated. Also, it is important to use a strong password for your exchange. Avoid having the same password of your email ID for exchange login.
Maintain a portfolio
Bitcoin is the most popular cryptocurrency, but there are numerous other cryptocurrencies. Don’t invest in a single asset. Maintain a balanced portfolio with the objective of maximizing returns. It is always good to hold a significant amount of Bitcoin in your portfolio. Altcoins are obviously riskier. Invest according to your risk appetite. If you are a novice trader, start trading with the most popular crypto assets with higher market capitalization.
Use an alternative email
You shouldn’t use your regular email address for cryptocurrency trading. Avoid unnecessary exposure to data breach risk. Create a different email address for cryptocurrency-related work.
Be cautious with mobile trading
It is very convenient to trade from a mobile device. Various cryptocurrency trading apps make the job very easy, but your mobile device is more prone to become compromised. If the device gets stolen, you are going to have a bad headache for sure. Don’t compromise on the security parameters when you are trading a large sum of assets.
I’ve tried to enlist some tips which can be useful for a beginner trader. A starter should always trade on reputed centralized exchanges due to the ease of trading. They provide you with the fiat gateways, so you can deposit money from your bank account and withdraw from the exchange easily. Don’t experiment much in the initial trading days. Take pride in your research and trade carefully to be part of the next generation financial revolution.
WazirX Warrior Author: Paragism
