Please note that Middlesex Savings Bank is not offering investment or legal advice regarding an individual’s decision to invest in cryptocurrency and the following article is intended for educational purposes only.
Since the first Bitcoin was mined in 2009, a diverse and complex network of companies offering crypto-related products and services has emerged and continues to skyrocket. With thousands of different crypto assets available today, it’s important to consider several factors when thinking about investing in digital currency.
1. Educate yourself
With more regulation and potential guidelines developing around crypto assets, you should stay up-to-date on the latest news and current events. You should also consider carefully before investing, and never invest more than you are prepared to lose. Consider seeking the advice of a licensed financial advisor to weigh your risks and determine your best options.
If you are interested in using cryptocurrency, there are a number of exchanges that streamline the ability to purchase and use the assets. If an exchange has security information available to examine like audit reports or summaries, be sure to read through them. Conduct your own due diligence before signing up with a cryptocurrency exchange, and make sure you understand the terms you’re agreeing to, as well as any exchange policies or fees.
2. Beware of scams
With over $14 billon lost to crypto-related scams in 2021, it’s no surprise that cryptocurrency attracts sophisticated scammers. While there are a number of crypto-related scams to look out for, remaining vigilant against phishing attacks and safeguarding personal information is critical.
One area where cryptocurrency is often referenced is in illegal transactions. Ransomware demands are often in Bitcoin, as there are fewer obstacles for payments. Cryptocurrency has a reputation for use in illegal ventures, though many people transact in cryptocurrency on a daily basis for completely legitimate goods and services.
3. Take proper security precautions
If you’re interested in investing in cryptocurrency, you should be aware of possible security risks involved. The money being held by crypto assets are not backed by an organization like the FDIC and therefore if the exchange goes bankrupt or an insider disappears with the exchange’s cryptocurrency holdings, the user often has no recourse and has lost that money.
Similarly, you need to apply strict security protocols around your holdings and accounts, which could include:
- Using an appropriately strong password or passphrase that is never used on any other site.
- Securing accounts with multi-factor authentication, with the following methods that range from least to most secure: a pin delivered via SMS, a pin collected from an authenticator app on a mobile device, or a hardware security key.
- Securing the device used to access the exchange with strong antivirus and antimalware or using a dedicated computer for financial operations.
- Storing cryptocurrency holdings offline to mitigate against exchange failure or insider threat through the use of a cold storage wallet
- Applying standard computer security protocols to defend against malware infection or phishing attacks (e.g. think before you click).