17 November 2020
Keeping your coins safe can be tricky for newcomers to the world of cryptocurrencies. There are various risk at every step of the process. You have to be cautious when buying, selling and especially when holding long term. There's a lot to consider! We hope this list will serve as a good starting point.
Please leave comments below if you have any questions!
1. Buying Cryptocurrencies
a. Choose A Reputable Exchange
There are many exchanges to choose from, and some are certainly better than others. You will need an exchange that supports the currency you wish to deposit as well as the currency you wish to buy. For most most of us here in South Africa, that would mean an exchange that support the South African Rand (ZAR). There are many exchanges in South Africa that support but we as Koinexpert primarily make use of Luno.com and Valr.com.
2. Selling Cryptocurrencies
a. Understand Order Types and Fees
Limit orders and market orders, for starters, work differently. It is important to understand the difference between these types as well as any types you may be using. If you don't understand the impact a order can have, you might not realise the impact it might have on your profits. Or worse, if you use leveraging incorrectly, for example, you could actually get liquidated.
3. Investing Cryptocurrencies
a. Scam Coins and Scam ICOs
With so many ICOs failing and an entire platform dedicated to naming them, you better be sure you know what you are getting into when you invest into an ICO. An ICO (Initial Coin Offering) is a fantastic way to raise money for a new venture, but unfortunately, many ventures fail to materialize and investors are left poorer.
How to stay safe:
- Always do your own research and never invest more money than you are willing to lose.
- Use platforms like deadcoins.com to spot bad coins early!
4. Holding Cryptocurrencies Long-term
a. Cold Storage
If you are planning on keeping your cryptocurrencies for a longer period of time, it is highly recommended to use cold storage. There are many different cold storage options but the easiest would be to consider a Trezor or a Nano Ledger.
5. Your Computer
a. 2-Factor authentication
2-factor authentication is a mechanism whereby you use a second means to add an additional layer of security to your login. After you have logged in with your username and password, you will be asked to enter another code before you finally gain access. This code can be sent to you in various different ways, depending on what methods the website supports. The most popular methods include:
- SMS
- An app (like Google Authenticator, or DUO etc)
The added level of security is a major hurdle for hackers. In theory, no one can access your account without having the code provided to you by your authentication method. If you use SMS, this means only someone with access to your phone an get access to the website. The same goes for an app. Only the phone with the app on it and configured correctly will allow access to your account.
It is crucial to become familiar with 2-factor authentication as you are likely to use it on all transaction websites you use.
b. Phishing
A phishing scam is when a malicious user creates an e-mail that looks similar to that of a company they are trying to impersonate. They then send this e-mail to clients of the company with the hope that the client will click on the links and either provide their login details or other personal information which they then use for nefarious purposes.
How to stay safe:
- Always make sure you end up on the right website. If you click on a luno.com link, make sure your browser says LUNO.com at the top.
- Keep up to date with phishing scams by using websites like badbitcoin.org and cryptoscamdb.org
(Tip: have a look at what Luno is doing to fight phishing here)
c. Malware And Viruses
More malware and viruses are produced every day. These can do anything from locking you out of your computer and demanding money (Ransomware) or it could steal your personal information and access accounts that could ultimately lead in actual cash or crypto being stolen from you.
How to stay safe:
- Make sure you use a good anti-virus program. Don't use a FREE one. Spend the money and opt for a good paid option.
- Install an anti-malware program like Malware Bytes.
- Consider switching to Linux, which is generally considered to be harder to hack than Windows.
6. Schemes and Scams
a. Ponzi schemes
Ponzi schemes or pyramid schemes offer high returns for a small initial investment. There is also a strong emphasis on recruiting new members because the initial investors are paid with the investments from new recruits and so on.
How to stay safe:
- Start by understanding what a ponzi scheme is - this will help you identify a ponzi as and when it comes your way
b. Pump and Dump Schemes
There seems to be a strong opinion that Thorecoin is essentially a pump and dump scheme. The article explains it in more detail, but you should be able to easily get the picture by opening the graph on coinmarketcap.com. The coin grew over 6000% in only 3 months. That in itself is not entirely impossible, but if you look at the order book, it is extremely suspect.
How to stay safe:
- Be very careful of any new coins and follow the advice from the previous points to do additional research
c. Competitions and Giveaways
Koinexpert.com is running a competition through Compsaurus.com where you can win R5000.00 worth of Bitcoin. Here are the reasons how you can tell this is legit:
- There is no entry fee to enter the competition - scam competitions often charge a fee
- The competition is hosted on a reliable platform where you can see who the previous winners are.
If you do your own sanity checks and stay away from companies that charge an entry fee, you should find competitions that are legitimate and actually give you a fair chance of winning something.
(Tip: here's another competition where you can win some Bitcoin, also on the Compsaurus platform)
7. Laws and Taxes
a. Should I be paying tax on my Crypto earnings?
We cannot and do not provide financial advice. To find out if tax is applicable to you, you will need to speak to your accountant or tax practitioner. In South Africa, SARS provides guidelines on this page. It has been updated several times over the years, so it is worthwhile checking back from time to time.
b. Where can I find out more about the legalities in my country?
For South Africa, this page is a good starting point.
8. Watch out for
a. Making assumptions
It's easy to make assumptions and it can easily backfire. Here are some assumptions to watch out for:
- Assuming it won't happen to you - always always always do your research, no matter how convincing your friend sounds.
- Assuming that a coin will turn eventually - some coins are going to die and not come back.
b. Sending the wrong currency to the wrong address
When you are sending crypto to another exchange, always make sure you are using the right address for the right coin. If you are sending Bitcoin, make sure the deposit address is a Bitcoin address. It is very difficult, and often impossible, to recover crypto that was sent to the wrong address.
c. Not double-checking the coin codes
I'll explain this using an example of what actually happened to me.
There was a tool on Koinexpert.com that looked at price differences across multiple exchanges. The tool has since been removed. The tool worked well, but I made a mistake using it. I thought I hit jackpot when I saw REP was 17 USD on Kraken, but only a few US Cents on Yobit. I proceeded to purchase a bunch of REP on yobit and then attempted to send it to Kraken so as to cash in on the price difference.
I should have known it was too good to be true but I got a bit overexcited. I normally test these types of things with a really small amount, but this time I just saw crypto dollar signs and bought a bit more than I should have.
I hit my first wall when I tried to withdraw the coin. I thought the exchange was duping me. It took me surprisingly long to realise that REP on Kraken is Augur, but REP on Yobit is RepubliCoin. Not my smartest moment, but I've double-checked and even triple-checked coin codes ever since.
d. The "memo" field
Another way I lost some cash was when I first saw the "memo" field. This was quite a while ago, I was still new to crypto and I assumed it was just a "note" field and not really required. I left it out and off I sent my coins with no memo. It never arrived at the other exchange but the exchange was kind enough to offer to recover my 50 USD worth of crypto for the convenient fee of 70 USD. I obviously told them to keep the crypto and just bought 50 USD more of the coin.
Moral of the story: the memo field is important. Make sure you use it correctly if the coin you are dealing with has the option.
e. Slight Coin Variations
If you send Bitcoin Cash ABC coins to a Bitcoin Cash SV address, you could lose your coins or at least have a hard time getting them back. Be aware that even if a coin has the same same code and name on an exchange, it might not actually be the same thing.
f. Network Variations
Bitcoin can be sent to Binance using one of two types of networks: BEP2 and BTC. Make sure you use the right type when you do your sending, or you could again, lose your coins, or have a very hard time getting them back.
g. Getting Locked Out
Losing your password, losing access to your e-mail address or losing your phone with your 2factor authentication codes on can quickly put you in a situation where you don't have access to your account.
This almost happened to me when I owned a domain name that expired. I used an e-mail address on this domain name and when the domain expired, I could not do a password reset or get the 2fa code they e-mailed to me. Luckily the domain had not yet gone into redemption and I was able to re-register it again. I would have lost about 500 USD of BTC.
h. Dying
Ending it off on a really morbid note, but this also ties in with the previous point. No one likes talking about death or planning for the day they die, but if you are heavily invested in Crypto, your death could result in those coins being lost forever.
This is a difficult one to solve as anyone that knows your passwords, has the potential to steal it. Perhaps there are services out there that cater for this, but for me that just moves the problem to another entity. Perhaps getting insurance is a better route to take? For me, I'm just going to hope I don't die for the time being and that my family is smart enough to figure out how to get into all my accounts when my day comes.
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