Managing Risk in Crypto Apps: Best Practices for Safe Investment

Since the world of cryptocurrency is booming, people are getting more and more inclined towards crypto apps for investing their money. These apps offer convenience and access; but sadly, they can also mean a great deal of risk. 

There are plenty of reported incidents where cyber-attacks and fraudulent activities aimed at the growing number of crypto investors who deal through these apps. For that reason, it has become imperative to learn how one can manage risks prudently while investing in digital assets via a cryptocurrency app.

Today, we will walk you through some of the best practices when investing in crypto apps to give you the right clues on keeping your assets safe from bad elements.

The first step: understanding crypto risks

Being aware of the risks associated with trading crypto assets is an imperative part for all players brave enough to navigate through this volatile market. 

Because of the very nature of cryptocurrencies, they can be extremely speculative and volatile, and change rapidly based on market sentiment or specific news.

That level of volatility means we as investors need a solid risk management structure, since losses have the potential to be significant. This uncertainty is further exacerbated by regulatory risks, as governments can quickly change the legality of a digital asset, impacting its liquidity. 

Luckily, all these factors can be mitigated by the vigilance of individual investors and the adaptability in their investment strategy. Hence the need to be aware of the specific nature of cryptocurrency.

Security risks & digital assets

Beyond the dangers associated with the very nature of crypto, the truth is that digital assets can also be exposed to technological vulnerabilities, such as hacking and phishing attacks. This reveals a pressing demand for improved security mechanisms to save depository tokens.

In that regard, it is essential to understand different aspects related to crypto, such as the different types of digital assets and how they are stored. For example, knowing the most common types of storage options and the risks associated with each of them is crucial.

Custodial vs non custodial storage options

One of the main classifications on storage alternatives for crypto is the one that divides custodial and non-custodial options. 

Non – custodial options mean that your assets are held by a third-party, such as an exchange or wallet provider. On the other hand, with a custodial solution, you are the one handling your crypto assets.

Investors also need to be caution about the risk when you store your crypto assets on exchange or hot wallets (connected to the Internet). Hot wallets are more of a risk in terms of being hacked than cold wallets, which are offline storage devices.

Furthermore, investors need to keep a careful watch over what they are invested in – because who else will look after their digital assets? The decentralization of cryptocurrency means that there is no central authority who can safeguard against malpractices such as phishing or hacking.

Essential security measures you need to adopt

Now that we’ve had a look at some of the most common problems that can occur when you’re handling cryptocurrencies, let’s see some of the best practices for handling them.

Keep Your Private Keys Secure

The most crucial security measure you must follow while dealing with your cryptocurrency is protecting your private keys. A series of long unique codes, these are the main tool that allows you to send transactions from your cryptocurrency wallet. 

Why are they important? Basically, all your assets can be stolen if someone gains access to your private keys. Do not share them, and if at all possible, keep them stored somewhere that doesn’t have access to the Internet. Most people recommend writing them down on a piece of paper that you carry with you.

Use two-factor authentication

If you’re using any kind of exchange or hot wallet, it is always a good idea to enable two-factor authentication for your cryptocurrency. This will require you to enter a code or confirmation from another device to grant access to your account, thus providing additional security. 

If you implement this extra verification step, you could protect your assets even after having your login information leaked, since hackers likely won’t have access to your account anyway.

Be wary of phishing scams

One of the ways hackers go about acquiring information, which may include cryptocurrency accounts, is through phishing scams. The end result for these scams typically involve fake emails or websites impersonating real ones, intending to get users to enter their login credentials.

For example, you could receive a message asking you to input your private keys on a website. Avoid at all cost making the mistake of clicking on links or disclosing personal information over the internet, and you should be safe from phishing scams.

Choose your exchange wisely

If you end up deciding to use a cryptocurrency exchange, then it is very important that you do proper research about the specific platform you’ll choose before depositing your funds. 

We’ve put together a table showing some of the factors you need to take into account:

Diversify your investments

Diversifying is crucial for several reasons. First, it can be very valuable as it decreases the risk that goes along with hacks. Think about it: if all of your funds are in one exchange and it gets hacked, you may lose everything.

Also, a different factor of risk minimization would be diversifying your portfolio between various cryptocurrencies/altcoins. Here are some of the ways you can implement diversification in your strategy:

• High-risk vs. Stable investments: When adding high-risk assets to the mix, it can be a good idea to have a resilient crypto portfolio that can be sustained even if your volatile assets face tremendous losses.
• Sector diversification: Investing in different industries and blockchain technologies helps protect against a downturn in a specific sector.
• Regular rebalancing: Adjusting your portfolio every so often keeps your investment’s risk to reward relationship in line with your goals. This is important for adjusting to rapidly changing market conditions and increasing your odds of maintaining whatever risk-reward profile you desire.
• Investment tactics: Additionally, using investment tactics such as dollar-cost averaging (DCA) lessens the mental strain of dealing with market timing and short-term volatility.

In any case, there are different views on how the risks of investing in a cryptocurrency should be managed; but the best strategy will always be to use an overarching approach inclusive of strong security practices, platform research and an ongoing dialogue about the risks.

Following these recommendations will significantly improve the future safety and sustainability of your investments in the always ambiguous cryptocurrency world.