Cryptocurrency have many names. You’ve probably read about the most popular types of cryptocurrencies such as Bitcoin, Litecoin, and Ethereum. Cryptocurrencies are becoming more and more popular as an alternative to online payments. Before converting real dollars, euros, pounds, or other conventional currencies into cryptocurrencies, you need to understand what cryptocurrencies are, the risks of using cryptocurrencies, and how to protect your investment.
Cryptocurrency Fundamentals
What is cryptocurrency? A cryptocurrency is a digital currency that is an alternative form of payment created using cryptographic algorithms. By using cryptographic technology, cryptocurrencies can function both as currency and as virtual accounting systems. To use cryptocurrencies, you need a cryptocurrency wallet. These wallets may be cloud-based services or software stored on your computer or mobile device. A wallet is a tool you use to store cryptographic keys that verify your identity and link it to your cryptocurrency.
What are the risks of using cryptocurrencies? Cryptocurrencies are still relatively new and the markets for these digital currencies are highly volatile. Because cryptocurrencies do not require regulation by banks or other third parties. They are typically uninsured and difficult to convert into tangible currencies (such as US dollars or euros). Also, since cryptocurrencies are technology-based intangibles, they can be hacked like any other intangible technology. After all, you store your cryptocurrency in a digital wallet, so if you lose your wallet (or you don’t have access to your wallet or a backup of your wallet), you lose your entire cryptocurrency investment.
Here are some tips to protect your cryptocurrencies:
- Before investing in cryptocurrencies, understand how they work, where they can be used, and how to exchange them. Read the website of the currency itself (Ethereum, Bitcoin, Litecoin, etc.) to fully understand how it works. Also, read independent articles about the cryptocurrency you are considering as promising.
- Use trusted wallets. Choosing the right wallet for your needs requires some research. If you choose to manage your сryptoсurrency wallet using a local application on your сomputer or mobile device, you should protect that wallet at a level commensurate with your investment. Just like you wouldn’t carry a million dollars in a paper bag, don’t choose an unknown or lesser-known wallet to secure your сryptocurrency. You need to make sure you are using a trusted wallet.
- Have a backup strategy. Think about what would happen if your computer or mobile device (or where you keep your wallet) is lost, stolen, or otherwise inaccessible. Without a hedging strategy, there is no way to get your cryptocurrency back and you may lose your investment.
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