Despite its recent acceptance as a legitimate investment option, cryptocurrency and the surrounding world of Web3 are still very much a Wild West. Each day, new crypto investors face a steep learning curve filled with beginner mistakes.
These basic blunders, whether through bad actors or individual negligence, often result in serious 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 be made in crypto and advise you on how to avoid them.
Giving Out Your Seed Phrase and Getting Scammed
With all good comes the bad. The current 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 overthrow 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 currency and data held in the wallet, including funds and private keys. Beginners often are scammed by entering their seed phrase into a site they think is legitimate or secure, but is actually a duplicate phishing landing page.
Let this be the first of several warnings. No one should ever ask you for your seed phrase. If they do, "x" out of the site immediately or do not answer the message. Do not click links or download files from any DMs on platforms such as Twitter, Discord or Telegram.
Giving out your seed phrase is the quickest way to lose all of your money.
Keeping Your Crypto Wealth in a Hot Wallet
There are two types of crypto wallets: hot wallets and cold wallets. Along with each wallet comes its private key – a cryptographic password that provides users with access to 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. As a general rule of thumb, it's 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 similar to USB drives such as Ledger and Trezor can store multiple cryptocurrencies and significantly reduce your risk of getting hacked.
A few additional wallet safety tips:
- 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 easiest, careless and most common errors beginners make. A wallet address is a mixed string of letters and numbers generally ranging from 20 to 42 characters, depending on the cryptocurrency.
Here's 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" feature or copy and paste the address over into the "Recipient" field. The same applies when sending payment to a friend or family member. Do not try to type in each character one at a time, as this leaves a significant margin for error. Once you're ready to send your cryptocurrency, check the address one more time. Then check it again.
Even if one character is incorrect or in the wrong place, your money will be sent somewhere else entirely. It's worth the extra time to ensure you've got things right.
Wasting Money on Excessive Gas Fees
"Gas" is a fee that individuals must pay to reward cryptocurrency miners for the computational power needed to verify and execute transactions on a blockchain. Gas fees are calculated based on the network congestion, so the greater the network activity at the time of the transaction, the higher the fee. This can turn a simple, inexpensive transaction into a costly nightmare, with gas sometimes costing more than the value of the transaction itself.
Some transactions such as well-timed trades or NFT mints are time-sensitive. But others, such as moving tokens from one personal wallet to another, can be much less urgent. For the ones that can wait, always make sure to find a time when gas is low. Otherwise, you are just burning money in cyberspace.
One great way to avoid paying overly excessive gas fees is to use Etherchain's GasNow tool to find a time when gas is relatively low.
Falling Victim to Your Emotions
It's easy to fall into the get-rich-quick allure of the cryptocurrency and let your emotions get the best of you. You'll often hear two terms float around the internet: FOMO and FUD.
FOMO is the fear of missing out. Every day there are stories of people getting wealthy from new investments. Remember: Hearing somebody else's success story is 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 anyone else's negative investment analysis influence your own decisions. The same traders who concede to FOMO and buy at all-time highs often fall victim to FUD when they impulsively sell at a heavy loss.
Most importantly, never invest more than you can afford to lose. The markets are volatile, and in some cases, fairly imbalanced, opening up plenty of opportunities for price slippage and overleveraging. Don't let greed get in the way of proper judgment, and always remember to take your profits.