Can cryptocurrencies go negative? Can cryptocurrencies be hacked? Can they even disappear from your wallet, never to be seen again? These questions highlight the usual concerns of individuals who are new to the cryptocurrency world. They stem from a desire to make as much money as possible and also the fear of not losing it all.
Can I lose my cryptocurrencies? (Source: masterthecrypto.com)
However, for a cryptocurrency trader, all these rolled together can really be unhealthy: cowards die many times before their deaths, they say. The unhealthy combination of paralyzing fear and unrestrained greed, oftentimes, leads to a self-fulfilling prophecy: coins are lost and money is not made.
So, how can you lose your cryptocurrencies? And, how can you not?
Ways of Losing Cryptocurrencies
20% of all Bitcoins in circulation, an equivalent of about 3.8 million, is estimated to be forever lost. That means that those Bitcoins can never be accessed by their owners again. If you do not want your cryptocurrency holdings to go down the same route, you have to make conscious efforts to protect them. However, first, you need to know those ways via which you can lose them. They are discussed below:
- Hacking: The foremost way via which cryptocurrencies are lost is hacking. Exchanges, most especially, are the biggest targets of hackers. In early 2019, for example, $530 million worth of NEM was stolen by hackers from the Japanese cryptocurrency exchange, Coincheck. Besides, in a related manner, a lot of cryptocurrencies and cryptocurrency funds are also lost via phishing, catfishing, and malware.
- ICO fraud: In January 2019, the SEC halted the ICO of AriseBank, the so-called “first decentralized bank,” which originally aimed to raise $1 billion from retail investors. It was later found to be a $600 million ICO fraud. As you would expect, because of the decentralized, anonymous nature of the cryptocurrency ecosystem, the scope of ICO scams is difficult to track.
- Pump and dump: If you are a stock trader, you would already be familiar with this. A pump and dump is a fraudulent scheme in which the price of a token, a “shit coin,” is hyped up by fraudsters who then trigger a dramatic sink in its price with massive sell-off after they have sold their own holdings. Those fraudsters profit while those that bought and held at higher prices record massive losses. Shit coins have no value or real use-case.
- Misplacement of private keys: Every cryptocurrency wallet has two keys: public and private. While public keys are made available to everyone at no risk, private keys are for the exclusive use of users and enable them to access their cryptocurrency wallets. Therefore, you should not make your private key available on the public domain.
- Losing or damaging cold storage devices: Although using hot storage (an internet-connected cryptocurrency wallet) makes you vulnerable to viruses, hacking, phishing, and other malware, cold storage also is not without its problems. For example, you can lose or damage your cold storage, your hardware wallet, or even carelessly throw it away.
Protecting Yourself from Loss
So, how can you protect yourself from those ways via which cryptocurrencies are lost? The following tactics would help:
- Use secure passwords and 2FA. Make your passwords safe by using numbers, letters, and special characters in them. Activating 2FA will also add an extra layer of security to your account against potential hackers.
- Before committing your funds to any ICO project, do thorough research. Study its white paper or website and look for red flags.
- The easiest protective measure against pumps and dumps is to avoid ICO tokens or small-cap cryptocurrencies.
- Never share your private key. Whoever has access to your private key has access to your cryptocurrencies and funds.
- Store your private key offline. It is safer. However, ensure you do not carelessly lose your hardware wallet or damage it.
The information on this website and all associated literature are for educational and informational purposes. It does not constitute a fiduciary duty or obligation between Uncut Lab and you. Please consult your financial and investment professional for your specific situation.