Cryptocurrency is among the best-performing assets of 2021. The market capitalization of cryptocurrency stands over $564 billion, which makes it a more valuable commodity than top-rated banks like JP Morgan and Goldman Sachs.
It is expected that by the end of 2020, the top-performing cryptocurrency Bitcoin will hit its highest-ever record. As the price of cryptocurrencies skyrocket, it is important that people do their own homework before investing in this virtual currency.
1. Cryptocurrency is Extremely Volatile
Investments in cryptocurrency are highly speculative. If you are thinking of investing in newer crypto assets, know that a majority of these will fail and become worthless. Although there are true stories of investors striking it rich, investing in cryptocurrency at the wrong time can mean extremely high losses.
On Oct 1, 2020, Bitcoin prices closed at $10,552.04. On Dec. 20, Bitcoin traded at $23,653.13, showing it more than doubled in value in less than three months.
Although the chance of earning big with cryptocurrency remains a real possibility, new investors should understand the market is extremely volatile and they may suffer big losses.
2. Cryptocurrency is Virtual
Cryptocurrencies are virtual and are decentralized, which means it is possible for you to fall victim to theft, cybercrime, and a host of other technical issues. For example, something as simple as a computer crash without a backup can mean the destruction of all your cryptocurrency. If you lose the private key to your crypto wallet, it means you may lose access to your cryptocurrency irrevocably. It can also be easy for scammers to hijack your account or for hackers to transfer your SIM card to be transferred to another device.
Most of the time, the threat to your cryptocurrency is typically through your digital cryptocurrency wallets. These wallets do not store your coins but give you a private key with which you can trade cryptocurrency online. Anyone who gets their hands on the private key can steal your coins and perform fraudulent transactions. Hence, making your wallet safe is paramount:
- Using a “cold” wallet, which is not connected to the internet, can reduce the risk of cyberattacks. Storing your private key in a cold encrypted wallet is one of the easiest ways to keep your account secure.
- While trading cryptocurrency, it is important that you use a secure internet connection and a VPN when using your home network. With a VPN, you can change your location and IP address, making your browsing activity protected from external threats.
- In addition, it is also a good idea to keep your digital devices updates with strong antivirus and firewall protection to deter hackers.
- Do not underestimate the importance of maintaining a strong password and changing it regularly. If you have multiple crypto wallets, use different passwords for each of them. Also, opt for two-factor and multi-factor authentication for added security.
- Phishing scams through harmful emails and ads are the most common type of illegal cyber activities. While trading cryptocurrencies, make sure you do not open any strange or suspicious links.
3. Cryptocurrency is Operated on Blockchain Technology
A blockchain is a decentralized digital ledger that allows digital information to be recorded, duplicated, and distributed, but not edited. Through this technology, investors can perform transactions without the need for a centralized authority that can devalue or seize their assets.
In addition, blockchain technology is run by the people who use it and it cannot be faked or double-spent. So people who invest in cryptocurrency can trust that the money has some value.
However, because of a lack of a centralized authority, cryptocurrency trading has some drawbacks like an increased crime rate.
4. Many Big Companies are Interested in Cryptocurrency
There are several ways you can take advantage of blockchain innovation. Aside from buying over-the-counter or investing in blockchain startups, some of the biggest public companies in the world, like Facebook, MetLife, American Express, Walt Disney, IBM, Ford Motor Company, and Amazon, have already dipped their toes in cryptocurrency trading. In fact, Facebook launched its own cryptocurrency named Libra (now changed to Diem) in mid-2019 in order to make it easier and more accessible for people to transfer money online, which might increase traffic to the social network.
In addition, the cryptocurrency will benefit Facebook by making Facebook advertising more appealing and hence more expensive.
5. Know the Difference Between Hot and Cold Wallets
A hot wallet is a cryptocurrency wallet that has a connection to the internet. Because of this, hot wallets are easier to set up, access, and use for trading. However, they are also more vulnerable to cyberattacks.
In contrast, cold wallets are not connected to the internet and are more secure. However, they do not accept as many cryptocurrencies as hot wallets. Cold wallets also cost about $80 while hot wallets come free of charge.
If you are thinking of investing in more than $100 worth of Bitcoin or any other cryptocurrency, it is a good idea to invest using a cold wallet.
Cryptocurrency trading is a hot topic in the global financial markets and a strong indicator that people are considering it as an investment. However, investors need to understand that this type of investment is not without its risks because of high market volatility and cyberattacks.
To keep your cryptocurrency secured, we recommend you consider all the above factors and do some additional research when investing in cryptocurrency; otherwise, you may end up losing a fortune.
However, the good news is that with some due diligence, there is a good chance of getting high returns in the long run.