Understanding Cryptocurrency Risks of Buying & Investing

Cryptocurrency is challenging to understand when you’re starting out. Due to its nature as a dynamic form of investment, many of money’s traditional rules don’t apply.

The average worker’s relationship with money is changing dramatically. According to a recent study, at least 60% of Millennials believe they’ll be working part-time during their retirement. More people than ever before want flexible and accessible ways to make money. Cryptocurrency is a fantastic solution to today’s money’s problems, but only when you understand the risks upfront. 

Now is a fantastic time to strengthen your financial literacy. We’re going to break down the cryptocurrency risks of buying and investing below with some helpful tips.

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Quick Definition of Cryptocurrency

Cryptocurrency still holds a little mysticism around its nature. Put simply, cryptocurrency is a form of digital assets whose value fluctuates depending on the market. The only worth cryptocurrency has is what a buyer wants to pay for it. 

Cryptocurrency is a modern extension of the traditional stock market, designed to be more accessible to the average person. Depending on how well you follow market trends, you could enjoy significant investment from your cryptocurrency. On the other hand, you could also lose money overnight. 

How do you mitigate these risks, anyway?

Tip #1: Understand Cryptocurrency Dynamics

Cryptocurrency value will change depending on where the wind takes it. Wildly fluctuating prices is the nature of the game, so you may not enjoy cryptocurrency if you’re very cautious.

Also known as boom and bust periods, these rapidly changing prices respond to immediate supply and demand. Trying to research said supply and demand isn’t always easy, either. A single viral TikTok trend or change in the economy could impact your cryptocurrency investment.

If you’re comfortable taking risks and pivoting on a dime, we highly recommend investing in cryptocurrency. If you’re worried about boom and bust periods, these digital assets might be more frustrating than fruitful.

Related: Is Mainstream Crypto Adoption On The Horizon?

Tip #2: Become Comfortable With Less Security

Traditional bank accounts give you a very nice safety net. Everything from identity fraud protection to customer service is available at the click of a button.

Cryptocurrency is still pretty new, so it doesn’t enjoy the same amount of security than more established banking systems. Your security begins and ends with the laws of your platform…and even that’s not entirely reliable. Country and state laws are in constant flux in response to the dynamic nature of cryptocurrency.

It’s up to you to use resources to protect your investment. Using and storing your cryptocurrency comes in the following form:

Hot Wallets

Do you trade, invest, and store constantly? Hot wallets are similar to a banking checking account, designed for regular activity.

Cold Wallets

If you prefer to save and wait, use a cold wallet. These handy digital wallets allow you to securely store cryptocurrency (just make sure you have a hard drive backup). 

Tip #3: Cryptocurrency Regulation is Still Developing

As we touched on before, cryptocurrency regulation is regularly in flux. The lack of a centralized network for cryptocurrency is both a boon and a barrier.

On one hand, you enjoy significant freedom in trading and investing your assets. On the other hand, you have little to no government oversight if you’re a victim of theft, fraud, or hacking. If you lose your entire investment in the span of an hour, you’ll just have to live with that. 

Related: Purchase Litecoin With Your Bank Account

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Tip #4: Protect Yourself Against Scams

Have you been the victim of a financial scam in the past? If you’re worried about constantly being the target of malicious parties, cryptocurrency will only add to your paranoia.

Cryptocurrency scams have skyrocketed the past several years, with many scammers banking on a user’s lack of knowledge. Common forms crypto scams take include (but aren’t limited to):

  • Fake cloud mining platforms
  • Phishing emails
  • Exit scams

Tip #5: Environmental Damage

A justified criticism against current cryptocurrency measures is environmental damage. Due to the nature of digital assets, both electricity and extensive mining are needed to maintain crypto.

The carbon footprint for cryptocurrency is getting higher by the minute, raising concerns about eventual environmental damage. If you want a greener investment, cryptocurrency should fall to the backburner until more sustainable solutions are offered.
Related: Why It’s Time To Get Unbanked

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Conclusion

Understanding cryptocurrency risks of buying and investing is easier said than done. A mindset shift is needed to properly dive into cryptocurrency.

Cryptocurrency is characterized by creativity, flexibility, and networking. This field is also known for being volatile and unpredictable. If you’re considering going into cryptocurrency, get back in touch with your main reasons. 

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Are you searching for a new hobby to improve your financial literacy skills? Perhaps you want to save up for retirement. Whatever reason you choose, let it be your guiding beacon in the beautiful, yet turbulent seas of cryptocurrency.
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