5 Stupid Crypto Mistakes (and How to Avoid Them)
Despite its recent acceptance as a legitimate investment option, cryptocurrency and the surrounding world of Web3 is still a Wild West. Every day, new crypto investors face a steep learning curve filled with rookie mistakes.
These basic mistakes, whether due to bad actors or individual negligence, often result in significant money being lost or stolen. In some cases, people can lose all the cryptocurrency they own.
Read on as we cover five of the dumbest mistakes to make in crypto and advise on how to avoid them.
Give your seed phrase and get scammed
With all good comes evil. Today’s crypto environment is littered with hackers and scammers looking to steal your hard-earned money. Even industry experts have fallen for the simplest of scams, letting greed and temptation overturn their sense of judgment.
Many of these scams revolve around users giving a hacker their seed phrase – a series of words that give a user access to all currencies and data held in the wallet, including funds and private keys. Beginners often get scammed into entering their seed phrase on a site they think is legit or safe, but it is actually a duplicate phishing landing page.
Let this be the first of many warnings. No one should already ask you for your seed phrase. If they do, “x” leaves the site immediately or does not respond to the message. Do not click on links or download files from DMs on platforms such as Twitter, Discord or Telegram.
Giving away your seed phrase is the fastest way to lose all your money.
Keeping your cryptocurrency in a hot wallet
There are two types of crypto wallets: hot wallets and cold wallets. Each wallet comes with its private key – a cryptographic password that allows users to access their funds.
Hot wallets are digital, always online and connected to the blockchain. While these allow for quick and easy transactions, their “always-online” nature leaves hot wallets relatively prone to hacking. Generally, it is risky to use a hot wallet to hold any amount of money that you are not comfortable losing.
Cold wallets (specifically hardware wallets) are physical devices that store your crypto offline and can only be connected to the blockchain using your private key. For no more than $150, hardware wallets that look like USB drives such as Ledger and Trezor can store multiple cryptocurrencies and significantly reduce your risk of being hacked.
Some additional security tips for wallets:
- Always have two-factor authentication (2FA) on all wallets and exchanges that allow it.
- Never give out your private key.
- Don’t keep your crypto on an exchange unless you plan to actively trade it. The only thing standing between a hacker and your funds is your basic password.
Sending your cryptocurrency to the wrong wallet
Sending money to the wrong wallet address is one of the simplest, most careless, and most common mistakes beginners make. A wallet address is a mixed string of letters and numbers usually ranging from 20 to 42 characters, depending on the cryptocurrency.
Here is an example of an Ethereum address: 0x89205A3A3b2A69De6Dbf7f01ED13B2108B2c43e7
When sending money from an exchange to your personal wallet or vice versa, always use the “Copy address” function or copy and paste the address into the “Recipient” field. The same is true when sending a payment to a friend or family member. Don’t try to type each character one by one, as this leaves a lot of room for error. Once you are ready to send your cryptocurrency, verify the address once more. Then check again.
Even if a character is incorrect or in the wrong place, your money will be sent entirely elsewhere. It’s worth the extra time to make sure you got it right.
Wasting money on excessive gas charges
“Gas” is a fee individuals must pay to reward cryptocurrency miners for the computing power needed to verify and execute transactions on a blockchain. Gas charges are calculated based on network congestion, so the more network activity there is at the time of the transaction, the higher the charge. This can turn a simple, inexpensive transaction into an expensive nightmare, with the gas sometimes costing more than the value of the transaction itself.
Some transactions such as timing transactions or NFT currencies are time sensitive. But others, like moving tokens from one personal wallet to another, can be much less urgent. For those who can wait, always make sure to find a time when the gas is low. Otherwise, you are just burning money in cyberspace.
A great way to avoid paying excessive gas fees is to use Etherchain’s GasNow tool to find a time when gas is relatively low.
Fall victim to your emotions
It’s easy to fall for the get-rich-quick lure of cryptocurrency and let your emotions get the better of you. You’ll often hear two terms floating around the internet: FOMO and FUD.
FOMO is the fear of missing something. Every day there are stories of people getting richer from new investments. Remember: hearing someone else’s success story is do not an investment thesis. Always do your own research and have a plan for your investments.
The same logic applies to FUD (fear, uncertainty and doubt). Don’t let someone else’s negative investment analysis influence your own decisions. The same traders who give in to FOMO and buy at record highs often fall victim to FUD when they impulsively sell at a loss.
Above all, never invest more than you can afford to lose. Markets are volatile and in some cases quite unbalanced, opening up many opportunities for price slippage and over-leverage. Don’t let greed get in the way of good judgment, and always remember to take your profits.