• Market Cap: $266b

  • Jun 19, 2024

Chapter 9.0

Do's and Don'ts

Cryptocurrencies are the future. This is an undisputed fact. The massive boom in the price of Bitcoins has attracted hundreds of thousands of new users towards the cryptocurrency markets.

Do's and Don'ts

Cryptocurrency Do’s and Dont’s: How To Trade Safely:

Things to Keep in Mind before investing in Cryptocurrencies:

You are taking a risk:

Yes, the markets are very lucrative. What was just a few hundred dollars at the beginning of the year is now over $7000. There’s a massive return if things go well. However, the fact of the matter is that there is a major risk in investing in cryptocurrencies. The price might go down at any point of time. If the markets crash, the falls might set you back by a significant amount! Invest only what you are willing to lose. Don’t put in your life’s savings into the markets, but only a portion of your income which you are ok with losing and it won’t hurt you even if it doesn’t give any returns.

Besides the drop in value, there are a number of other risks such as exchange shutting down, government policies changing, among many others. Exchanges are also subject to getting hacked and users can also be phished if appropriate safety measures are not taken.

No One Can Predict The Markets:

There are many who claim to be expert traders and have been trading for a long period of time. These people tend to give ‘market tips’ and even charge a fee for it. However, the fact of the matter is that markets are unpredictable and no one can say for sure what is going to happen to the cryptocurrency prices.

There is no law, no economic theory, no pattern, no trend or no rule which governs the price of the cryptocurrencies. It is purely demand and supply - which is again, largely influenced by the sentiments of the markets. Any international event can trigger off massive disinvestment which might lead to the price dropping by thousands of dollars. This is absolutely unpredictable. It is essential to keep in mind that nobody, no matter how long they’ve been investing or trading, can predict how the price of the cryptocurrencies is going to move.

Always Re-Verify Everything You Do:

While this might sound like a stupid thing to do and we are always confident of what we’re doing, it is essential that you double check all the details. Are you buying the right amount of Bitcoins? Are you putting in the right amount of money? And most important of them all - always make sure you are entering the correct wallet address. If you enter a wrong wallet address and your currency goes to some other person, it is an irreversible transaction and you will never be able to even find out who it went to.

Moreover, also make sure when you’re transferring altcoins, you’re sending it to the right wallet. Basically, you can’t transfer currency between a Bitcoin Wallet and an Ethereum Wallet (or any other cryptocurrency wallet for that matter). It can be transferred from an Ethereum Wallet to another Ethereum Wallet or from a Bitcoin Wallet to another Bitcoin wallet. If you send it between two different currencies, the currency will be lost in transaction and will be gone forever, another irreversible move. Make sure you double check everything you do.

Before Investing, Know Your Currency:

Many people tend to lose out money when they invest in new coins which come out after an ICO. Sometimes, people invest in coins they don’t even know about because the chart shows a good growth at that point of time. This is something that should be totally avoided. It is essential to know which coin you are investing it and whether it has a long-term potential or not. Again, the success of the coin cannot be determined by anyone. However, it is necessary to know what the coin stands for. Cryptocurrencies are created for a specific purpose. There’s SiaCoins which are useful for purchasing Sia cloud storage services. There are other coins which are aimed at specific tasks such as purchasing adult content, etc.

If you believe that the company behind the coin is standing for a cause that has some kind of potential, only then invest into it. When you’re studying the tech behind the coin, ask yourself this question - is this a technology you would be interested in using? Is this something that can stand the test of time for at least 5 years? If your answer to these two questions is yes, only then think of investing into it. Many new coins come out with attractive pamphlets and videos as a marketing gimmick but it is critical to do your own research before investing.

Do Not Panic:

‘Panic Selling’ is a term you’d often see being used in various Bitcoin communities and forums. This is something that many new users tend to face. Whenever the price of the currency drops even by a small percentage, panic selling begins as new traders begin to sell out their currency in the fear of a bigger drop where they might make a loss. When a large number of people began to ‘panic sell’ the price of the currency automatically drops.

It must be kept in mind that drops in the price do happen and if you’ve invested in a currency give it some time. There are many fluctuations in the value of currencies over time and most popular currencies do recover in a short term. For instance, Bitcoin fell from $4500 to $2900 and then when it recovered it broke all-time high records and went up to $7500.

How To Secure Your Cryptocurrency Wallet?

There are broadly two major things we want to focus in this section:

  • Enabling 2FA

  • Backing up your wallet.

However, before we dive into that, let us take a detailed look at what distinguishes the different kinds of cryptocurrency wallets.

The biggest differentiating factor between different kinds of wallets is the way they handle your key.

  • Some wallets tend to store your key on their web servers

  • Some wallets store your key on an external web server

  • Some wallets store the key on your PC

  • Some wallets have keys printed out on paper

  • Some wallets store keys on external devices

It is always safer to use hardware wallets where the key remains with you, on an external device. This gives only you the access to your credentials, which ensures that your wallet cannot be hacked or phished. However, many users prefer to use web-wallets where the key is stored with either the website’s servers or on a third party. These wallets are easily accessible and are usually easy to use. However they are the least secure.

Let us now take a look on securing the wallet:

Enable 2 Factor Authentication (2FA):

Before we get to it, let us first discuss what 2 Factor Authentication (2FA) means.

2FA, which stands for 2 Factor Authentication is quite critical when it comes to securing your wallet. It ensures that just your password/key isn’t enough. Even if a perpetrator gets access to the password you use to log into your exchange, they would still need to enter one more bit of information that can verify your identity.

Almost every wallet allows you to enable 2 Factor Authentication. This is a setting that you must enable to safeguard your wallet.

2 Factor Authentication comes in various ways.

  • Some wallets offer 2FA security in the form of fingerprint verification

  • Some wallets send you a text message with a code

  • Some wallets make use of the Google Authenticator

The Google Authenticator is one of the most popular means of setting up 2 Factor Authentication. Every time you want to log in to your wallet, you would need to first provide your ID and Password, following which you would be asked to enter a code from your Google Authenticator app. This code keeps changing every sixty seconds and ensures only you have the unique six digit combination to log in to your account. This is something we strongly recommend to safeguard the security of your account.

Backup Your Wallet:

It is important to backup your wallet from time to time, especially after big transactions. Backing up your wallet ensures that in case your physical device gets lost or stolen, or begins to malfunction, you still have a backup and can easily retrieve your funds. There are a number of ways to backup your wallet. However the most popular way to back up your wallet is by backing up the wallet.dat file. Here’s a look at how to do it:

  • Backing up Wallet.dat

One of the most common ways to back up your cryptocurrency wallet is by backing up the Wallet.dat file. The file contains data such as all your spending details, addresses, information of transactions and other important metadata. The file is located in different places on your PC based on your OS.

  • %APPDATA%\Bitcoin folder in Windows

  • ~/Library/Application Support/Bitcoin/ for mac users

  • ~/.bitcoin/ for Linux users

Back up your wallet.dat file and save it on any external device you trust. This can be a CD, Flash Drive, etc. You can even back it up on an online storage but again it’d be risky as that can be hacked. It is best to store it in an external storage.

Restoring Your Backup:

In case you need to restore your wallet, you can simply do so by replacing the existing wallet.dat file!

This is how you restore your backup.

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Chapter 9 - Do's and Don'ts