What is a cryptocurrency?
A cryptocurrency is a virtual or digital currency that is used as a medium of exchange. This means that you can use it to buy goods or services, invest and accept it as payment for goods and services. Cryptocurrencies use cryptography to secure its transactions. Examples of Cryptocurrencies include Bitcoin, Ethereum, Ripple, Litecoin and many more.
Blockchain technology, the technology underlying cryptocurrencies, is the most talked about technology in the world today. Many perceive it to be the “next internet”. The growth in its cryptocurrencies has been the most popular in financial sector and this has increased interest in people who want to participate in this exciting space. However, there are mistakes that newbies need to avoid making when joining this revolutionary technology, which in most cases can resort to dire consequences.
Some of these mistakes include:
- Not doing adequate research
Blockchain, together with its cryptocurrencies ecosystem is complex. It requires one to invest a lot of time to do research and study how it works. Doing your own research and not relying on hearsay from friends and social media sites can be of great help as it helps one understand what the whole ecosystem entails. You get to learn the invention of cryptocoins, how to use and trade them, and above all, how to invest and reap benefits from them.
Never invest your hard-earned money into something that you have no idea how it operates. More so, if you rely on a friend to buy you Cryptos because he is more conversant with them, be sure that you will also rely on them to sell your Cryptos too. Do your own research and join this space with a clear mind of what to expect and what is expected of you.
- Losing private keys
This is the biggest mistake that you can make. Private Key is a randomly created number that acts as a “pin” or password to your specific crypto wallet. You can only prove ownership of cryptocoins using the private keys. It is important to note that these keys are not like some bank account password where by when you lose/forget your password all you need to do is dial a customer care number and within minutes, you have a new password. Losing the keys means that you have completely lost your cryptocurrencies. Blockchain has no customer care services thus recovering your lost keys is impossible.
Losing private keys is the most common mistake that crypto beginners make. This is mostly because they lack understanding of the importance of the Private keys, which most definitely arises due to mistake number one.
- Storing cryptocurrencies in an online wallet
Many activities nowadays are carried out online. Hence, most individuals are always seated behind computers with different intentions in mind. Anything stored online is prone to hacking. A mistake that most newbies make is, signs up with an exchange, buy cryptocurrencies and forget to remove their coins from the website of the exchange. Storing your cryptocoins in an online wallet is not safe. You may be the owner of the coins but you do not have full control of the coins. Cyber criminals and hackers target online wallet where they know it is easy to steal valuable cryptocoins. The best way to store cryptocurrencies is through an offline wallet. Open an offline wallet and once you have purchased your coins, transfer them to the offline wallet for secure storage.
- Not keeping hard copies of important information
When trading or evaluating your cryptocurrencies, you can only do so using a computer or a smartphone. These two devices are prone to crashing or being stolen. As a newbie, it is advisable to write all your important addresses and information, such as the private keys and other passwords, on a word document, print it in duplicates and store them separately in a secure place where only you can access. In a scenario where your computer crashes or your smartphone gets lost, you will still have access to your information from your back up plan.
- Selling cryptocurrencies when the prices are high
The prices of cryptocurrencies keep on fluctuating. You can buy them and within a week, the price has doubled. When buying cryptocurrencies have an end game in mind and stick to it. Plan on how you will be selling your cryptocoins. Do not rush to selling your coins just because the prices have increased with some few coins from the price you bought them at.
- Putting all the eggs in one basket
As much as investing in cryptocurrencies seem to be a rewarding investment, do not use all your life savings to purchase them. Another mistake that beginners make. We have heard of people who took loans to add to their life savings in order to invest in a particular line of business only for it to collapse after a few months.
The investors rule “always risk what you are ready to loose” is a rule that a beginner should never forget. Take an example, a person who had invested his savings in bitcoins. The price of one bitcoin in December was $20,000, in January it dropped by half and currently the price is at $7,864.69. One thing that is for sure is that such a person does not sleep well at night. Reason being the prices of Bitcoins (something that holds his fortunes) keep on depreciating and there is no clear guarantee that the prices will shoot back to the $20,000 mark.
Note: one may think that investing in different cryptocurrencies is cool, do not be fooled because the prices somehow are tied to each other. When investing, do so in different types or lines of business.
- Fat-finger error
This error occurs when someone presses the wrong key on a smartphone or a computer keyboard. The most common fat-finger error committed my newbies is entering wrong trades especially the ones with a decimal point on trading platforms. Additionally, the error also occurs when sending cryptocoins to the wallets. Pressing the wrong button can lead to sending the cryptocoins to the wrong wallet. It is advisable to be very keen and keep counter checking when entering figures to avoid such mistakes, bearing in mind that cryptocurrency transactions are irreversible.
- Lack of patience and expecting huge profits
Investing in crypto space requires patience. Do not expect to reap huge profits within months. Most beginners invest in blockchain expecting to make profits immediately. Nothing good comes easily so they say, and that the patient is the most rewarded.
For instance, those who bought bitcoins in August 2012 when the price was $13.31, and waited patiently until December 2017 when the price hit $20,000, reaped overwhelming profits.
There you go. Those are the most common mistakes that every newbie should avoid. Most importantly, they should keep up with blockchain and crypto news to be updated on what is happening in the space.