Common Mistakes That You Should Avoid While Investing In Crypto- Part 1
Getting deeply involved in crypto is quite a journey. We have all gone through our share of fear and uncertainty. There is no predefined playbook on how to do well in crypto. We have all learned from our own mistakes. In this 2 series article where I list down some common mistakes, people make during their crypto journey.
1. Choosing the incorrect first purchase: During your first purchase, you are not well researched. You must purchase a small amount of only those coins which have passed the test of time (Bitcoin, Ethereum, etc.). Observe the trends for the next 6 months, trade cautiously, and test deeper waters.
2. Not understanding the fundamentals: Crypto investment is fundamentally different from stocks. In the former, you are investing in the potential of technology and not in the stocks. Most of the coins are utilities and are not directly linked to the profit performance of the projects. Hence, as you are investing you need to gradually develop an understanding of whether the token utility makes sense.
3. Getting Scammed: One of the biggest risks in crypto for beginners is getting scammed. You can get scammed in multiple ways (some are basic and some advanced)
a. Fishing Websites and Contracts: Fishing websites caused some of the biggest scams during the ICO phase in 2017. These websites tweaked the title of the original website a little and ranked higher in Google (as an Ad). To recognize the true website and also the right address here are 2 tips
i. Use Coinmarketcap to identify the legitimate website.
ii. Use Coinmarketcap or EtherScan to find the right contract address
b. Telegram Scammers: Cryptoresides in Telegram and Twitter. Beware of anyone who pings you randomly on Telegram or Twitter and requests you to contribute to a project with returns that are too good to be true. Never share your private keys with anyone. Any legitimate project will not need your private keys.
c. Pump and Dump Groups: There are lots of Pump and Dump groups in Telegram. Though they portray themselves as a group who can manipulate the markets, the actual market is manipulated by bigger whales and hence mostly, if you join these groups, you will lose money. Paid groups are a strict no!
d. Rug Pulls: These aremore difficult to identify. These are DeFi or NFT projects who lock your crypto promising high yields or NFT drops but later vanish once they collect the money. Always do your diligence and research on the people behind the project you invest in. Also do not get influence by Youtube influencers.
4. Keeping crypto on centralized platforms: The idea of crypto is “Be your Bank”. This ideally means that you can hold your crypto and perform transactions without the intervention of a third party. However, newcomers need exchanges to buy their first crypto. Note that these exchanges keep your crypto in their wallet. There have been multiple instances of exchange hacks, ramp downs, and also the government pulling them down. Many a time these exchanges take your crypto down with them. You need to slowly move to private wallets (Metamask for Ethereum, Anchor Wallet for EOS, Polkadot.js for Polkadot, Temple Wallet for Tezos, etc.). In case you plan to hold certain crypto for a very long time uses a private wallet. Hardware wallets are known to be maximum security. Each of these wallets will give you a unique private key or seed phrases. You will have to keep them safe. If you lose them, you will lose your crypto.
In Part 2 of this series, we will cover in detail on what are the common mistakes people make while trading, we will also talk about how to make your crypto work safely and securely without taking high risks like in Yield Farming.
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