It's not hard to make mistakes in the crypto world. People do it all the time. Sometimes they're careless, sometimes they're misled, and sometimes they're just plain stupid. Here are some of the most common mistakes people make in the crypto world, and how to avoid them.
1. Using the wrong wallet for your currency
There are hundreds of wallets out there. You can get one for nearly any currency, but the wrong choice can cost you your money. For example, if you use an Ethereum web wallet like MyEtherWallet to store your Eth, then you're trusting that someone out there is keeping your private key safe. What happens when they get hacked? You could lose all your money, but even with high security, it's possible for hackers to intercept transactions and drain funds.
The safest thing would be to download the full client (like Geth or Parity)—or even better, one of the newer hardware wallets—and store your coins on a local machine where they'll be safer from attackers. Unfortunately, with enough work, even these can be breached with malware. If you want 100% protection against every threat imaginable (including quantum computers and people who try to tell you that the CIA is injecting people's brains with nanobots), your best bet would be to create a paper wallet and store those in a fireproof safe (or some other, similarly extreme measure).
If you're not 100% sure of what kind of wallet or storage system you need, ask an expert. Don't just listen to anyone on Reddit telling you they found a new magic trick that makes wallets secure.
2. Leaving money on exchanges
This is probably one of the most common mistakes I've seen so far. It all starts with good intentions: People want to buy coins but don't have a wallet set up yet, or maybe they heard about this hot new exchange that everyone is talking about and want to try it out. So they deposit their coins into the exchange's "vault" and leave them there for a while, presuming that since it's an exchange with a lot of traffic, their funds are safe.
Here's the problem: Exchanges hold your private keys. If someone gets in and manages to steal your keys (through hacking or social engineering), you could lose everything—the thief would be able to drain your wallet immediately. Even if the exchange has good security, there's still a risk that they will go out of business or get hacked themselves.
Some exchanges offer two-factor authentication or require users to sign messages—both of these improve security somewhat—but ultimately they still hold your keys and thus pose some risk if someone manages to get them. The best option for long-term storage is to download a wallet like Jaxx and store your coins there.
3. Not verifying the sender's address
When you're sending or receiving coins, it's important to verify that the sender's address is correct. Otherwise, you could end up sending your money to the wrong person. This can happen if you're not paying attention, or if you're using a QR code and don't check to see that the address displayed matches the one on the screen.
It's also important to make sure that the recipient's address is correct when you're receiving coins. If you send them to the wrong address, they'll be lost forever.
4. Not backing up your wallet
This one is pretty obvious, but it's still worth mentioning. If you lose your wallet—whether it's because your computer crashes, you lose your flash drive, or someone steals your phone—you'll lose all your coins. That's why it's important to back up your wallet regularly, either to another computer or an offline storage medium like a USB drive or paper wallet.
5. Not using a strong password
If you're not using a strong password, someone could easily steal your coins by guessing your login information. A strong password should be at least 16 characters long and include a mix of upper- and lowercase letters, numbers, and symbols. You can use a program like KeePass to create and store strong passwords.
6. Trading on Margin
Trading on margin can be profitable if you know what you're doing, but it also magnifies your losses if the market moves against you. For example, if you have 1 BTC and you put down a margin of 0.2 BTC, you have 20% of your funds on loan from the exchange to trade with. If the price shoots up to $5 all of a sudden, you've lost money—because your entire account is on loan at an interest rate of 5%.
One positive thing about trading on margin: If the market keeps going up (like we saw through much of 2017), and especially if it goes way up fast (like we saw in early January 2018), it can be very lucrative for short-term traders who buy and sell quickly before moving their coins back to safety.
7. Buying high and selling low
Psychology plays a huge role in the market, and many people lose money just because they go against the herd mentality. If everybody else is buying, you should probably buy too—and vice versa. The market seems to be ruled by fear most of the time (when will those crazy bitcoin prices stop going up?), but all it takes is one good "crash" to make investors lose their heads and start selling everything they can get their hands on.
It's also important to remember that the price of a coin is not the only thing that matters. You should always do your own research before buying any coin because there's no guarantee that it will go up in value. In fact, most coins don't increase in value over time—they may even decrease in value. So be careful not to get caught up in the hype and invest more money than you can afford to lose.
8. Not diversifying your portfolio
If you're only investing in one or two coins, you're taking a big risk. Coins can go up or down in value for no reason whatsoever, so it's important to spread your risk out by investing in a variety of different coins. This also means that you should never put all your eggs in one basket—don't buy anything with money you can't afford to lose.
9. Keeping large amounts of coins on an exchange
Some exchanges charge fees for every coin you move off the exchange, and some don't let you withdraw less than a certain amount (which is usually pretty small). This means that if you're holding a large number of bitcoins on an exchange, it could be expensive to spend those bitcoins or even impossible to sell them. For best results, keep only as much bitcoin as you need on exchanges (or better yet, transfer them to your own self-hosted wallet after buying) and the rest in cold storage.
Again: If something goes wrong with the exchange—a hacker attack, a power outage, or just plain incompetence on the part of the exchange owners—you could lose everything. So it's always a good idea to have a backup plan.
10. Failing to keep up with news and technology
Cryptocurrency is a rapidly-changing space, and if you're not keeping up with the latest news and technology, you're going to be left behind. For example, Bitcoin Cash (BCH) was created in August 2017 as a hard fork of Bitcoin (BTC). If you didn't know about this beforehand and didn't take appropriate action (such as selling your BTC for BCH), you would have lost money when the price of BCH skyrocketed soon after the fork.
Likewise, new coins are created all the time, and most of them will eventually die off. But some of them could become huge successes—so it's important to stay informed about what's happening in the crypto world.
In conclusion
These are just a few of the many things you need to know before investing in cryptocurrency. So do your research, be patient, and don't invest more money than you can afford to lose. And most importantly, remember that the market is constantly changing, so nothing is ever guaranteed. Happy trading!
