Cryptocurrency investing tips for beginners
Cryptocurrency, also known as crypto-currency or crypto, is any type of digital or virtual currency that employs cryptography to secure transactions. Crypto currencies lack a central issuing or regulating authority and instead rely on a decentralized system to keep track of transactions and issue new units.
There is no denying that crypto currencies have established a new investment sector. Crypto currencies are of great interest to the mainstream media, consumers, and investors, with Bitcoin reaching a value of over $69,000 USD.
Those at the vanguard of investing recognize the value of including these high-risk cryptocurrency investments in their portfolios.
How does cryptocurrency function?
Crypto currencies use block chain, a distributed public ledger that keeps track of all transactions updated and possessed by currency holders.
The process of mining is used to create cryptocurrency units. It includes solving complex mathematical problems using computer power that creates digital coins. Users can also purchase them from brokers, hold them, and spend via cryptography wallets.
If you own cryptocurrency, you do not physically own anything. What you hold is a key that lets you transfer a record or a unit of measure from one individual to another without a reliable third party.
Common cryptocurrency scams
Certainly, recognizing common cryptocurrency scams is crucial for anyone involved in the crypto space. Here are some details on these scams:
-
Ponzi Schemes and Pyramid Schemes
Ponzi Schemes: These scams promise high, guaranteed returns to early investors, but they pay these returns using the capital of new investors. Eventually, the scheme collapses when there aren’t enough new investors to pay the promised returns.
Pyramid Schemes: Akin to Ponzi schemes, pyramid schemes rely on bringing in new participants. Participants are required to recruit others, and those at the top of the pyramid benefit from the investments of those at the bottom.
-
Phishing and Social Engineering Attacks
Phishing: Scammers create fake websites or emails that appear to be from legitimate crypto currency services. They want to fool people into giving away their login information or private keys.
Social Engineering: Scammers manipulate individuals into revealing sensitive information through psychological tactics. They might impersonate someone trustworthy or create a sense of urgency to deceive victims.
-
Pump and Dump Schemes
In pump and dump schemes, manipulative traders or groups artificially inflate the price of a low-value cryptocurrency through coordinated buying (pumping). Once the price has risen, they sell off their holdings (dumping) at a profit, leaving unsuspecting investors with worthless assets.
-
Fake Initial Coin Offerings (ICOs)
Scammers create fake ICOs, complete with professional-looking websites and marketing materials, to attract investors. Once they’ve collected a certain amount of funds, they disappear, leaving investors with nothing.
-
Impersonation and Fake Profiles
Scammers may impersonate influential figures in the crypto industry on social media or through fake profiles. They may ask for donations, investments, or personal information, often under the guise of giveaways or promotions.
-
Cloud Mining Scams
Some platforms offer cloud mining services where users can rent mining power to earn crypto currencies. However, many of these platforms turn out to be fraudulent and do not provide the services they promise.
-
Fake Wallets and Exchanges
Scammers create counterfeit wallet apps or fake cryptocurrency exchanges that look convincing. Users who deposit funds on these platforms risk losing their assets.
-
Investment Clubs and Telegram Groups
Some scam groups operate on platforms like Telegram, claiming to be investment clubs or trading experts. They ask users to join and invest in their schemes, but they often disappear after collecting funds.
To protect yourself from these cryptocurrency scams, always conduct thorough research, be cautious of offers that sound too good to be true, and verify the legitimacy of any cryptocurrency-related service or investment opportunity.
Educating yourself and staying informed about the latest scam tactics is crucial to safeguarding your cryptocurrency investing projects.
Tips to remember before investing in cryptocurrency
Before investing, as with any other type of investment, one needs to know what they are getting into. Here are a few pointers to consider before beginning to trade crypto currencies:
-
Caution first
The crypto market is still in its early stages since it is just a decade old. As a result, it is significantly more volatile and is unregulated by the government.
This makes recovering any investments in the event of fraud or hacking almost impossible. Furthermore, it is relatively simple to create a cryptocurrency that appears real but is actually a cryptocurrency scam.
-
Never risk more than you are able to lose
Crypto currencies are highly volatile, at one moment your crypto holding may be worth thousands of dollars, and the very next moment, it would be worth hundreds of dollars.
Although such volatility offers ample opportunities for you to make a quick buck, however, there is an impending threat that they could also make huge losses. Thus, you should invest the amount of money in the crypto market that you are willing to lose.
As a thumb rule, invest 2% of your annual earnings deducting after taxes and other expenses in the crypto market.
-
Conduct your own research
It is all too easy to invest blindly based on advice from friends or acquaintances. However, keep in mind that this is your money, and no one will rush to your aid if the investment fails. As a result, before investing any money in the cryptocurrency market, it is best to first comprehend it.
Learn about Ethereum, Tether, Polygon, Bitcoin, and other of the most well-known crypto currencies. Learn about the potential and use cases of investments before making any decisions.
-
Make use of a trusted exchange
Cryptocurrency exchanges are frequently hacked or used to defraud investors. Make your account with a large exchange that has a proven track record and has insurance in place in the event of a hack.
-
Understand the technicalities
If you are more serious about Bitcoin investing, you should learn how to design your own digital wallets or buy a trustworthy hard wallet to protect your investments.
Understand liquidity mining, staking, decentralized finance, and other topics to extend your horizons.
Conclusion
Doing your homework is the first and most important step you should take before entering into crypto investing. Investors frequently worry about missing out on large gains and invest their money without thinking twice.
This is avoidable because you are gambling your hard-earned money. First, ensure your financial security with other reputable and regulated instruments.
Prioritize research, diversity, and security to protect yourself from cryptocurrency scams. Be careful of potential cryptocurrency scams and fraudulent schemes that prey on the naïve.
You may navigate the bit coin world more confidently and lower your chances of falling prey to a cryptocurrency scam by remaining informed, performing due diligence, and getting professional help when necessary.
Your financial security and success in the cryptocurrency world are dependent on your ability to make informed and prudent investment decisions.
Cryptocurrency investing FAQ
What do I need to know before buying cryptocurrency?
Because cryptocurrency is a risky investment, you should be aware of any potential hazards. Virtual currency is volatile and highly unregulated, and there are various unknowns about how this new type of currency will evolve in the future.
What should you be seeking in a cryptocurrency to invest in?
Every cryptocurrency is unique, so the best choice is dependent on your personal needs. With that being said, novice investors may want to look into well-known currencies, as there is a bucket full of information readily available about their operations and their performance over time.
As a newbie, how much should I invest in cryptocurrency?
Never put more money into something than you are capable of losing. To limit crypto-specific risks, it is recommended to maintain no more than 2% of your whole portfolio in any cryptocurrency.
