You may have heard the names, “Bitcoin” and “Ethereum” bandied about. Possibly even Ripple (XRP) and Litecoin (LTC). That’s not surprising, given how cryptocurrency has become a buzzword in South Africa, with increasing numbers of investors entering the market.

As a reminder, cryptocurrency is a digital or virtual form of currency that uses cryptography for security. Instead of using traditional currencies that are issued by governments (think rands, pounds, and dollars), cryptocurrencies operate on decentralised networks based on blockchain technology, which is intended to ensure that all this virtual money remains nearly impossible to alter or hack.

While the potential for profit is enticing, so are the risks. Security is a major concern, with many crypto investors falling victim to scams and hacks.

If you’re thinking of investing in cryptocurrencies or are already engaging with this increasingly popular investment opportunity, then take a few minutes to review the best practices required to keep your investments safe.

Understanding The Risks // Weighing Up The Risks Vs The Benefits

Investing in cryptocurrencies is becoming more appealing by the minute, not least because of the ease of access, the promise of significant returns, the fact that cryptocurrencies present an attractive way to diversify your portfolio, and of course, the possibility of using this investment to hedge against inflation.

That said, we have to acknowledge the risks. For instance, the cryptocurrency market is unregulated in South Africa. Added to that cryptocurrencies are considered highly volatile, so you could be in for serious losses.

Perhaps most concerning of all, though, is the security risk. According to the Blockchain Research Institute, over $1.7 billion worth of cryptocurrency was stolen worldwide in 2018. This isn’t to say that blockchain technology is totally unreliable. It is considered to generally be quite secure, however the platforms where cryptocurrencies are traded are vulnerable to hacking.

How To Safeguard Your Investments

The best thing to do is make sure that you are following safe practice, so that you’re doing what you can to protect your investments. With that in mind, here are four best practices to keep in mind as you explore this financial trend.

Use A Secure Exchange

As mentioned, the exchange platform matters a great deal. Choosing a reputable cryptocurrency exchange is the first step in protecting your investments. While we suggest talking to your financial advisor, it has been reported that well-known exchanges like Luno and VALR in South Africa provide robust security features like two-factor authentication (2FA) and encryption.

Tip: Look into the security history of an exchange before committing, checking specifically for a track record of strong security measures and minimal breaches.

Secure Your Wallet

Crypto wallets are how you can store your digital assets, and there are two types. This first is known as a “hot wallet,” and these are connected to the internet, while “cold wallets” remain offline. Obviously, hot wallets are more convenient, but as you can imagine, cold wallets provide better security.

Tip: It’s worth exploring the use of both, and relying on a cold hardware wallet, such as Ledger or Trezor, to store your cryptocurrency offline and away from hackers as part of your long-term storage solution.

Two-Factor Authentication (2FA)

This is a critical layer of security, in that enabling it on both your exchange and your wallet accounts reduces the likelihood of someone accessing your funds without permission.

Tip: We suggest that you use a separate device for your 2FA code generator, such as a mobile phone dedicated solely to security purposes.

Beware Of Phishing Attacks

Phishing scams have been around for years and years, which can make people complacent. However, these scams are rampant in the cryptocurrency world and the cons have become quite sophisticated. Fraudsters go to extreme lengths, often creating fake websites or emails that mimic legitimate services to steal your login credentials.

Tip: The surest way around this is to bookmark the legitimate websites of your exchanges and wallets and to double-check URLs before entering any sensitive information.

Feeling informed?

This is truly an exciting space to watch and for those who are engaging with cryptocurrency investment opportunities, the rewards do appear worth the risk. However, the best way to ensure that your investment adventure doesn’t turn into a cautionary tale is to take proper security measures.

Importantly, we urge you to invest cautiously and only what you are willing to lose as you grow your digital investments.

Don’t forget that AA Inform is home to a range of useful financial tools and resources that can assist you along the way, including access our Loan Repayment Calculator, free guides on how to handle the world of cryptocurrencies, property valuation reports, and much more.