Investing in cryptocurrencies and digital assets is now easier than ever. Different online platforms, centralized and decentralized exchanges offer investors the ability to buy and sell tokens without going through a traditional financial institution and the heavy fees and commissions that come with it.
Since cryptocurrencies were created in order to function in a decentralized manner, there are no authorities that can guarantee the security of your assets. The custody and security of digital assets are the responsibility of each investor.
To protect themselves from unnecessary losses, cryptocurrency investors and traders must be careful not to make certain simple and easily avoidable mistakes. These are some of the most common:
- Loss of security keys:
Losing the keys is one of the most common mistakes crypto investors make. According to a report, more than 20% of the Bitcoin mined to date has been lost due to forgotten or misplaced keys.
As we said in previous paragraphs, the responsibility for the protection of digital assets falls on each of the holders of these, therefore, safely storing the cryptographic keys of their digital wallets is a vital part of preserving their investments.
Unlike a traditional password or PIN, crypto wallet private keys cannot be reset or recovered if lost, as they act as a unique identifier to prevent unauthorized access to your cryptocurrency wallet. Considering that, on the blockchain, digital transactions are created and signed using private keys, it is extremely important to keep your keys safe and secure, as losing them would mean losing access to all digital assets stored in the wallet.
- Do not keep a hard copy of your seed phrase:
When generating a private key for a cryptocurrency wallet, it is necessary to write a seed phrase, which consists of 12 to 24 randomly generated words in a specific order. This seed phrase can be used to generate the private keys and access the cryptocurrencies, in case of losing access to the wallet.
To prevent unnecessary capital losses due to damaged hardware wallets, defective digital storage systems, device change, etc., it is essential to keep a written record of the written seed phrase on paper. It is recommended to keep at least two copies in safe places.
- Not understanding what you are investing in:
Investors often tend to underestimate the market, so one of the most frequent mistakes made by beginners is the lack of knowledge that leads them to make bad decisions, since the world of investments is much more complex than they think.
It is essential to investigate, inform yourself and understand the basic concepts of how cryptocurrencies work, before investing.
Lack of knowledge and understanding of the assets in which you are investing makes it impossible to achieve long-term investment success.
- Invest above the possibilities:
Investing in cryptocurrencies should be made with money that is not needed and even that you are willing to lose, so that they only constitute a small percentage of the investment portfolio.
However, due to lack of knowledge or being carried away by emotions, some people invest larger sums of money than they can afford, and some even go into debt to acquire the assets to invest.
Some beginner investors are not aware that investments can take time to bear fruit and you will not become a millionaire overnight, also that it is common to lose money along the way and that you can fall for scams, especially when the first steps.
- Big toe mistake:
When an investor accidentally enters a trade order that is not the one they intended, it is known as a big toe mistake. For example, an extra zero or a single misplaced decimal can lead to significant losses.
That was the case with the DeversiFi platform, which made a big mistake when it mistakenly paid a commission of 24 million dollars. It also happened with the highly coveted Bored Ape NFT, which accidentally sold for $3,000 instead of $300,000.
- Send to the wrong address:
When sending digital assets to another person or wallet, great care should be taken, as if the sender is inattentive when entering the wallet address, they may lose their assets, as there is no way to recover them if they are sent to the wrong address. Transactions on the blockchain are irreversible and, unlike a bank, there are no customer service lines to help fix the error.
- Excess diversification:
Given the number of Altcoins that can be bought and traded through popular exchanges, diversification is always a suitable option. However, many cryptocurrency investors often end up over-diversifying their portfolio, which can have immense consequences, as over-diversification can lead to an investor holding a large number of underperforming assets, which can cause significant losses.
It is critical to diversify into crypto only when the fundamental value is clear and you have a good understanding of the different types of assets and how they are likely to perform in various market conditions. The best thing to do when starting to invest is to do it with one or two currencies, which have good support and good growth projections.
- Make decisions based on emotions:
Making decisions based on the fear of losing everything or the thrill of winning is one of the biggest mistakes newbies make. The crypto market is very volatile, and emotions often play a trick that can lead to heavy losses. Panic can be one of the worst motivators to make the right move.
- Choosing the wrong platform to invest:
Using the wrong cryptocurrency storage platform can lead to assets not being secure, withdrawals not going through, or trading markets inaccessible at the worst time.
On the one hand, it is important to know that not all cryptocurrency exchanges are designed to be used with various altcoins, and although there are sites that can be trusted, there are others that cannot, and making transactions on them can put you at risk. your assets.
On the other hand, although centralized exchanges are probably the easiest way for investors to acquire cryptocurrencies, they do not give access to the wallets that contain the tokens, but offer a service similar to that of banks, which makes you vulnerable to attacks on the platform and puts you at risk. Well, although the user is technically the owner of the coins stored on the platform, they are still in the hands of the exchange.