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Cryptocurrencies are incredibly safe data storage systems. They keep a detailed ledger of transactions wide open to the public, but only for reading. Inserting new transactions requires some heavy-duty computing, and high-quality encryption ensures that nobody can change existing records.
Unfortunately, these ultra-safe cryptocurrencies are tied to imperfect trading systems. Despite their best security efforts, every crypto exchange is vulnerable to painful combinations of clever hacking and human error. Just last week, for example, the popular Bybit exchange lost $1.4 billion of Ethereum (CRYPTO: ETH) to a well-known North Korean hacker group. The hackers used some sophisticated technical know-how, but the hack was ultimately only possible because the attackers tricked several human transaction managers into signing a bad digital contract.
Just like with the internet and social networks, you have to be careful with cryptocurrency investing. According to a recent Motley Fool research report, Americans lost $3.9 billion to investment scams in the first three quarters of last year, and one-third of the scams involved cryptocurrencies. And I know the feeling after a moment of weakness nearly erased my crypto holdings in 2023.
Here’s how you can make safer crypto investments, avoiding the scams and social engineering that lurk around the market’s edges.
Any investment comes with a certain amount of risk. That’s the deal — investors provide capital to businesses, hoping to profit from future success while accepting the risk that things might not work out.
In most cases, investors are protected by regulations. The crypto market doesn’t have those safeguards yet, and the cryptocurrencies themselves are treading-brand new paths in a global economy dominated by traditional banking systems.
So crypto investments come with more investor risks than most asset classes. This sector may be too hazardous for some investors. That’s all right. Your situation is probably very different from mine, and maybe you’re best served by safer stuff such as index funds and income-generating Dividend Kings.
Once you decide to invest in crypto, you need to pick a secure trading platform. Leading names like Coinbase (NASDAQ: COIN) and Robinhood (NASDAQ: HOOD) make it easy to get started, and their accounts are wrapped in many layers of additional security. Actual trades are only possible after several double-checking steps, including two-factor authentication and email-based identity checks.
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