This question has been on people’s minds a lot lately – from the meteoric rise of Bitcoin and cryptocurrency to the recent ‘breaking news’ about hackers demanding millions of dollars worth of ransom in Bitcoin. This is an extremely complicated topic for beginners.
However, every coin is not created equally, and if you’re willing to conduct some due diligence before investing in crypto like Bitcoin, you can learn that it’s not as scary at all.
Cryptocurrency Is a Digital or Virtual Currency That Uses Cryptography for Security
Without getting too technical, crypto is based on “cryptography” which is the practice of encrypting information to make it unreadable by anyone but the intended recipient.
What Is Cryptocurrency? A Brief History of Crypto and How It Works
Cryptocurrency uses this “public key encryption” technology to transfer money securely and anonymously. You can send cryptocurrency from one person to another without going through a bank. This enables cryptocurrency trading on sites like https://www.okx.com/markets/prices/ethereum-eth.
Ever since the first crypto, Bitcoin, was created by an unknown individual or group of individuals using the alias Satoshi Nakamoto, there has been a tremendous amount of interest in virtual currency from investors and pundits alike.
Is Crypto Safe? The Risks of Investing in Cryptocurrency
However, crypto comes with a lot of risks, just like any other investment. If you’re planning to invest in crypto, you need to understand the risks, so that your investment is a calculated one.
These risks include:
1) Being scammed by a fraudulent ICO (Initial Coin Offering) that sounds too good to be true and disappears before you can get your money out. CoinMarketCap lists more than 800 crypto (and new ones are being created every week).
2) Being hacked by a hacker who steals all your money or data. Hackers are notorious for targeting the biggest and most vulnerable investors first (think big multi-million-dollar ICOs or exchanges), so you need to do some due diligence on crypto before purchasing it.
3) Not having enough knowledge to properly store and secure your cryptocurrency. There have been many high-profile heists where hackers have stolen millions of dollars in crypto because they were not storing and securing their coins properly.
4) Not understanding the difference between cryptocurrency and virtual currency. Virtual currency is a type of cryptocurrency (a subset of it). Virtual currency can be used to purchase goods and services, whereas cryptocurrency is a tradable asset (i.e., it’s not just a medium of exchange).
This is far from an exhaustive list of potential risks, but these are the primary risks that you need to take into consideration before investing in crypto. Otherwise, you could find yourself losing out.
Cryptocurrency Is a Risky Investment but Has the Potential for High Rewards
The risks outlined above will vary depending on your investment. For beginners, it’s usually recommended that you start with smaller investments when you first get started with crypto, so you can learn how the technology works and gain some hands-on experience doing it.