The Dangers of Investing in Crypto
The world of technology and money has forged together with the popularity of cryptocurrencies in the past few years. This decentralized form of money has provided an alternative way to invest and gather assets, but it has also come with significant risks you may have seen in the news cycle. If you have money in cryptocurrencies or are considering investing, this article can give you some insight into some of the dangers you should be aware of.
When you’re dealing with money, expect scams coming your way. Unfortunately, the world of cryptocurrency isn’t free from it. When you invest in this digital currency, you must be aware of scams that aim to steal your personal information and/or your funding. Scammers have evolved over the years and have developed many sophisticated methods to do so. Some use fake apps, websites, and wallets. Phony crypto influencers have even come on the scene. Of course, these scammers have also used the tried and true method of phishing emails.
In 2020, there was a Twitter hack related to cryptocurrency. Then there was also the BitConnect lending platform and the OneCoin Ponzi scheme. When it comes to cryptocurrency, do as much research as you would with any other investment. If something sounds too good to be true, it usually is. So verify your resources, ask for references, check the Better Business Bureau, and do anything you can to check you’re using something legitimate. You can even use free tools that let you check for honeypots hidden within the code of a crypto project to help avoid such scams.
Technical Protocol Failures
The ability to even use cryptocurrency is an example of just how much technology, particularly financial tech, has advanced in a short amount of time. As with any other technical tool, there’s a possibility of dealing with technical protocol failures. Such failures put your financial and personal security at risk. They can also affect the overall value of such cryptocurrencies. These usually result from bugs or errors in their system.
When such failures happen, cryptocurrency investors may be privy to transaction delays or reversals. They can also become victims of hacking or double spending attacks. The DAO hack of 2016 and the Parity wallet freeze of 2017 are two examples of protocol issues. Like any other investment, don’t put all your money in one basket. If you’re enjoying investing in cryptocurrency, play it safe by diversifying your portfolio across different currencies and platforms. Stay up to date as possible latest developments, failures, and issues that are happening within this element of the financial tech industry.
Dangers of Physical Theft
If you think of cryptocurrency, you may not think about the danger of physical theft. Such currencies are stored in digital wallets controlled by private keys. However, if somebody were to gain access to these private keys, they would have access to your cryptocurrency. You can always store your private keys offline in hardware wallets. Like other financial accounts, you can use a PIN or other biometric authorization to access it. Whatever you do, keep that information as private as possible, and don’t share it with strangers or on online platforms.
Cryptocurrency is not exempt from taxes. Some tax rules can be complex and change based on your local or state jurisdiction. It can also change based on the type of cryptocurrency transaction that you’re making. If you are aware of those rules and regulations, consult with your accountant or hire a tax advisor to help you. Doing so can prevent breaking any tax laws that may later come back to haunt you. Those financial professionals hope you keep accurate, up-to-date records of all of your crypto transactions so that you’re properly reporting any related income or losses.
Understand that cryptocurrency is not a foolproof solution for gaining wealth. It comes with a great deal of volatility you should be aware of. So protect yourself and your hard-earned money by being aware of the scams and other problems that can occur with this type of investment.