Now that bitcoin is more recognized by the general public it makes sense to learn things like security and best practices. Risk management is slightly different with this new form of digital money. A bank account has its perils of skimming and other dangers. Bitcoin also has its own class of hazards to consider.
Keeping your money in a safe wallet
Bitcoin and other cryptocurrencies are kept in digital wallets. This means they are bearer assets. Like pickpockets out in the physical world, there are undesirables that also want to get your money out of your digital wallet. One way to mitigate the risk is to use seed phrases with your digital wallet. This may sound odd, but it works. The now-defunct paper wallet is rarely used as it is hard to manage.
Managing risk by not keeping your Bitcoin in an exchange.
For those that remember Mount Gox, this was the first time that a Bitcoin exchange was hacked in a big way. A total of 640 thousand Bitcoins were stolen from this exchange. The exchange lasted for around three to four years and had to announce bankruptcy for this theft. This should have been enough for people to learn from using centralized exchanges with their Bitcoin. Unfortunately, it was not. Not only Bitcoin exchanges but Ethereum exchanges have been hacked since the days of Mount Gox. What is the lesson here? Do not leave your Bitcoin on an exchange. A popular saying these days among Bitcoin advocates is, “Not your keys. Not your Bitcoin”. The key being mentioned here is the cryptographic key that is connected to the digital wallet used for storing Bitcoin. Using an exchange, the keys to the Bitcoin are with the exchange. Andreas Antonopoulos is clear about this. If you do not control the keys, it is not your Bitcoin.
Risk management involves using good computer sense
Although there are hardware wallets that increase the security of digital money, they require correct usage. This means learning a bit about computer security. Loading a Bitcoin wallet onto a computer that is connected to the internet many hours a day may not be a good idea. If you are a person who is good with computer security your Bitcoin will be relatively safe. If not, learning the basics about computer security or getting a hardware wallet like the Trezor Model T will be a safer path to take. Do some shopping around. There are other hardware wallets that are highly rated as well. The Ledger Nano X comes with high ratings to help protect your Bitcoin investment.
Selling and buying Bitcoin with individuals
Just like with any other commodity, you should only deal with trustworthy people. Buying and selling Bitcoin on Craigslist or other online trading systems comes with the common everyday risk. Only deal with people who have good online reviews. This may seem obvious, but Bitcoin is gaining in popularity and with that popularity come more scammers. Avoid Bitcoin sellers who have zero reviews online. If you absolutely have to deal with a stranger in buying Bitcoin, make sure to do the purchase in more than one step. This is smart risk management for your hard-earned money.