How much are you aware of?
Cryptocurrencies have many names. You've probably read about the most popular types of cryptocurrencies such as Bitcoin, Litecoin, and Ethereum. Cryptocurrencies are becoming more and more popular as an alternative to online payments. Before converting real dollars, euros, pounds, or other traditional currencies into ₿ (the symbol for Bitcoin, the most popular cryptocurrency), what are cryptocurrencies and the risks of using cryptocurrencies? , and how to protect your investment.
What are cryptocurrencies in simple terms?
What is cryptocurrency? A cryptocurrency is a digital currency that is an alternative form of payment created using cryptographic algorithms. By using cryptographic technology, cryptocurrencies can function both as currency and as virtual accounting systems. To use cryptocurrencies, you need a cryptocurrency wallet. These wallets may be cloud-based services or software stored on your computer or mobile device. A wallet is a tool used to verify your identity and store cryptographic keys that are linked to cryptocurrencies.
Risks of using cryptocurrencies
What are the risks of using cryptocurrencies? Cryptocurrencies are still relatively new and the market for these digital currencies is highly volatile. Because cryptocurrencies do not require regulation by banks or other third parties. They are typically uninsured and difficult to convert into some form of tangible currency (such as US dollars or euros). Also, since cryptocurrencies are technology-based intangibles, they can be hacked like any other technology intangible. After all, you store your cryptocurrency in a digital wallet, so if you lose your wallet (or you don't have access to your wallet or a backup of your wallet), you lose your entire cryptocurrency investment.
Steps to protect Cryptocurrencies
- Look before you jump! Before investing in cryptocurrencies, understand how they work, where they can be used, and how to exchange them. Read the website of the currency itself (Ethereum, Bitcoin, Litecoin, etc.) to fully understand how it works. Also, read independent articles about the cryptocurrency you are considering.
- Use trusted wallets. Choosing the right wallet for your needs requires some research. If you choose to manage your cryptocurrency wallet using a local application on your computer or mobile device, you need to protect that wallet at a level commensurate with your investment. Just like you wouldn't carry a million dollars in a paper bag, don't choose an unknown or lesser-known wallet to secure your cryptocurrency. You need to make sure you are using a trusted wallet.
- Do you have a backup strategy? Think about what would happen if your computer or mobile device (or where you keep your wallet) is lost, stolen, or otherwise inaccessible. Without a hedging strategy, there is no way to get your cryptocurrency back and you may lose your investment.