Top 5 mistakes people do with cryptocurrencies

Cryptocurrencies are getting more popular year after year. Now everyone wants to explore and invest in cryptocurrencies. We have to first understand that people have a perception that Bitcoin is the same as cryptocurrency. That's how they all start and gradually learn that Bitcoin is just one coin inside this huge cryptocurrency ecosystem. For people who are joining this ecosystem, it can take some time to understand the ecosystem and get used to this.

There are many common mistakes that people can make after starting their journey. This article is going to take about the top 5 mistakes people do with cryptocurrencies. I will also try to cover how people can avoid such mistakes.

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Not securing the wallet

Unlike regular bank accounts, crypto wallets are different. There are a few wallet concepts like hot wallet, cold wallet, exchange wallets, etc but people get to know about all of them slowly. Initially, they think their wallet keys are just passwords and sometimes don't keep them secure. One of the most common mistakes people make with cryptocurrenices is not properly securing their wallet, which can leave it vulnerable to hacking or theft. It's important to use a strong and unique password, enable two-factor authentication, and make regular backups of your wallet. Some wallets provide a passphrase that might look simple but are very good in terms of security. But people will have to keep them safe.

Not understanding the volatility

The second mistake people do is not understanding how the crypto markets work. Most of the cryptocurrenices are highly volatile and will have price fluctuations, which can be both a blessing and a curse. People who invest in cryptocurrenices without understanding this risk can be caught off guard when prices drop and may panic and sell at a loss. One of my office colleagues entered the crypto world by purchasing Bitcoin when it was at its peak price and then got panic when the price started dropping and finally ended up selling it for a 50% loss. He decided he would never enter the crypto world again.

Not diversifying

When people start their journey they start with Bitcoin and think that they understand Bitcoin very well and might as well think that other coins are not safe to invest in. Similar to traditional investments, it's important to diversify your portfolio, which means not putting all your eggs in one basket. Investing a large portion of your assets in bitcoin can be risky. Diversifying the assets to multiple other cryptocurrenices and crypto projects that have potential is very important.

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Falling for scams

Scammers can easily get a newbie who is just getting started. It is important to understand which one is a scam and which one is legit. Having someone experienced as your crypto advisor is good. As cryptocurrencies become more mainstream, scam artists are becoming more sophisticated in their tactics. People need to be aware of common scams such as Ponzi schemes, phishing, and fake wallets and be very careful when investing in any scheme that promises high returns with little or no risk.

Not keeping track of taxes

Taxes are very important. Some governments have a ban and other governments are very strict about the tax system they have imposed on cryptocurrenices. Crypto transactions are subject to taxes, and people who don't keep track of their transactions can end up with a large tax bill. It's important to keep accurate records of all cryptocurrency transactions and to consult with a tax professional if you're unsure about how to report your gains or losses.

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