The question of ‘is cryptocurrency safe’ is a persistent one. Potential and experienced investors alike are wary of the potential pitfalls of dabbling in crypto.
In light of the above, this article will look broadly at the issue of whether these digital currencies are safe. We will start by introducing the issue and then go into the various ways in which safety is maintained within the crypto ecosystem. Thereafter, we’ll end with some quick tips on how to maintain the safety of your crypto assets.
Is Cryptocurrency Safe: The Issue Of Cryptocurrency Safety
Generally speaking, the blockchain technology behind cryptocurrencies adds vastly increased security and prevents criminals from exploiting any central node in the network. Even if some users’ accounts have been compromised, the database as a whole remains secure.
However, there are still continuing issues concerning security (not to mention market volatility). Most people seeking to invest or trade in cryptocurrencies need to be assured that what they are doing is suitably safe. Holding cryptos, especially on an exchange, can be the source of much anxiety for some.
There are countless examples, many true, that detail the worst-case scenarios of holding cryptoassets on an exchange. There are stories of millions of dollars’ worth of bitcoin (or altcoin) being suddenly taken from the investment accounts of traders after a hack. In some cases, the accounts are simply lost. It’s for a very real reason that investors are concerned about what they are entering into and ask the question of is cryptocurrency safe.
Cryptocurrency thefts can reach a few billion per year in assets stolen, and this has grown over time as world trading volume has increased. Due to the sheer number of new and/or flawed currencies or exchanges out there, there are bound to be security weaknesses.
As a result of this, the issue of security is an ever-increasing problem, causing a greater hesitancy in those wishing to invest in these digital assets. Security, therefore, appears to be the biggest hurdle for mass adoption.
Moving Toward Increased Safety And Security
To rectify and answer, is cryptocurrency safe, the crypto community has created a range of options to suit different use cases. The safe storage of cryptocurrency (along with its regulation and market volatility) has been the biggest issue since the adoption of these digital currencies.
Crypto is stored in digital wallets that contain their private keys. These private keys enable access to the currency, and they also enable transactions to be authorized.
The storage of cryptocurrencies can come in a few versions. There are “self-custody” software and hardware options, as well as the option to store cryptocurrency on regulated or unregulated exchanges. They all have different vulnerabilities and issues to be aware of. Choosing how to store your cryptos will depend entirely on what you are seeking to do with them.
Firstly, there are hot wallets, which are software storage tools that act as the medium for crypto storage. The “hot” in their name refers to their being connected to the internet. As they generate and store private keys, they help with the facilitation of transactions along with providing the necessary security measures to protect your investments.
Being connected to the internet translates to easier and quicker transactions, as well as creating a better user experience. The flip side to this is that once transactions are broadcast to the network, they are vulnerable to potential hacks. As a result, there have been many instances of theft when using hot wallets.
There’s an alternative form of wallet available known as a cold storage wallet. These secure your cryptoassets by generating private keys offline, which are kept separate from any network. These are primarily used by investors to store large or long-term sums, thereby enabling investors to better secure their funds from other parties.
The problem with this form of storage lies in its separation from the marketplace. If you are seeking to increase your investments you will need to pair your frozen assets to exchanges or brokerages before being able to trade. This means that you may miss out on investment opportunities over time. In some cases, it’s even possible to hack these storage mechanisms, but this occurs far more rarely than with hot wallets.
Cold storage wallets often come in the form of a specialized USB drive created specifically for the storage of cryptocurrencies. Well-known variants include TREZOR and Ledger. They enable safer storage by being wholly decoupled from the internet, although these drives can be lost or damaged via other means.
As for exchanges, there are both centralized and decentralized types that investors can use, which have varying levels of security to provide more peace of mind when considering is cryptocurrency safe.
Centralized exchanges have a central authority monitoring the day-to-day trading of currencies on the exchange. They often offer their own wallet service as well. Although not all platforms treat security as their main business, so you will need to do your research before investing.
There have been many instances of exchanges being hacked and vast sums being lost. If you store your assets on these exchanges, your private keys are often in co-ownership with them. This means that your assets are potentially at risk depending on the strength of the exchange and the persistence of third parties.
There are also decentralized exchanges that don’t have a central authority. These exchanges enable direct movement of crypto between traders, which means they don’t keep your assets or private keys. This effectively results in your cryptocurrency being safer from harm. A downside to these exchanges lies in the lack of a central authority to rely on if something were to happen to your assets.
Therefore, be careful in choosing which exchange you are going to use, as they have varying levels of security to go with their many uses.
Is cryptocurrency safe? Well, the above hints at the range of security options available for the potential investor. You will need to weigh your needs against the safety of each type of storage before investing.
Do you want quick access to your assets for day-to-day trading? Then you will more than likely need a hotter form of storage.
Are you seeking to create long-term investments? Cold storage will be the way to go.
Cryptocurrency can be safe generally. The blockchain technology and authentication systems that underpin the digital currencies are the most secure in the world. But there are persistent security issues (and problems surrounding regulation) that could impact your investments. However, some recent developments in policy development and regulations have made them generally safer.
At the end of the day, despite the volatility of the market, cryptocurrency can be relatively safe depending on the actions of the user. Consequently, there are a few things that one can look out for to maintain this safety.
Is Cryptocurrency Safe: How To Invest Securely
Investments tend to be risky endeavors, especially in the case of cryptos. But most people go in realizing this, and if you know what you’re doing you can make relatively safe investments. If you are seeking to invest in a currency, it’s worth considering the below points.
Do Some Research
Before investing any of your money into a currency, you need to do your due diligence on the relevant cryptos and the exchanges on which they are traded.
Take note of the reputation of whichever crypto or exchange you are seeking to use by reading reviews and seeking the opinions of experienced investors. This potentially saves a lot of pain in the long term by eliminating obviously problematic options.
Diversify When Investing
Just like traditional investment, diversify your portfolio to protect yourself from the vicissitudes of the market. It’s also a good idea not to put all of your investments into these digital assets alone.
Choose The Best Storage For Your Needs
Knowing the best way to store your cryptocurrency according to your purposes is an important part of the process. The wallets go a long way in answering is cryptocurrency safe.
As detailed above, different wallets have different levels of safety, and choosing one depends on how you weigh security against utility. Each wallet comes with its benefits, levels of security, and requirements.
Go Online Only When Necessary
Depending on your needs you can decouple your assets from the internet if you are investing in long-term and/or large sums of crypto. This option is not necessarily available when you are seeking to day trade on an active basis, however.
Embrace The Fluctuating Market
And lastly, due to the market being incredibly volatile, you should be prepared to lose what you put in. Don’t expect to come away with riches, as it’s anyone’s guess what could happen to particular cryptocurrencies in the long term. Knowing this, protect your assets accordingly.
This article has broadly outlined the issue of is cryptocurrency safe, and how safety can be maintained depending on the actions of the user. We discussed the different safety options within the world of cryptos, along with some quick tips on how to mitigate risk.
As has been shown, there’s a justifiable cause for wariness when investing in digital currencies. But any worries over whether crypto is safe can be mostly dispelled with appropriate research and planning.