Cryptocurrencies are generally based on blockchain technology. Blockchain describes how transactions are recorded in “blocks” and time-stamped. It’s a fairly complex technical process, but in the end, it provides a digital record of cryptocurrency transactions that is difficult for hackers to falsify.
In addition, transactions require a two-factor authentication process. For example, you may be asked to enter a username and password to start a transaction. Then, an authentication code sent via SMS to your cell phone may need to be entered.
Although security measures are in place, cryptocurrencies are not immune to hacking. Several high-profile hacks have cost cryptocurrency startups dearly. Hackers attacked Coincheck for $534 million and BitGrail for $195 million, making them two of the largest cryptocurrency hacks of 2018.
Unlike government-backed currency, the value of virtual currencies is determined entirely by supply and demand. This can create wild swings that produce big gains for investors or big losses. In addition, cryptocurrency investments are subject to far less regulatory protection than traditional financial products, such as stocks, bonds and mutual funds.
Five keys to invest in cryptocurrencies safely
According to consumer reports, all investments carry risk, but some experts consider cryptos to be one of the riskiest investment choices. If you’re considering investing in cryptocurrencies, these tips can help you make informed choices.
Understand the fundamentals:
Before you put money into any cryptocurrency, you should first look into how it and the blockchain work. This may sound boring at first glance. But it is a complex field. There are many books available to learn about these technologies.
Educate yourself on trading platforms:
Before you invest, learn about cryptocurrency exchange platforms. It is estimated that there are over 500 exchange platforms to choose from. Do some research, read reviews, and talk to more experienced investors before you jump in.
Find out how to store your digital currencies:
If you buy a cryptocurrency, you need to store it. You can store it on an exchange platform or in a digital wallet. While there are many different kinds of wallets, each has its own advantages, technical requirements and security. As with trading platforms, you should consider your storage choices before investing.
Diversify your investments:
Diversification is essential in any good investment strategy, and that’s especially true when you’re investing in cryptocurrencies. Don’t invest all your money in Bitcoin, for example, just because that’s the name you know. There are thousands of possibilities, and it’s best to spread your investment across multiple currencies.
Be prepared for currency volatility:
The cryptocurrency market is very volatile, so be prepared for fluctuations. You will see dramatic price swings. If your investment portfolio can’t handle them, or if your temperament doesn’t sit well with these jolts, cryptocurrencies may not be a wise choice for you.