How people lose money in Crypto and how to mitigate risk

When you view Cryptocurrencies as what it's shaping up to be - An investment and an asset class - It's important to make RATIONAL decisions. Crypto, more than any other asset class, is an extremely emotional playing field. The story of it is an emotional one ("replace Wall Street, you can be free!" etc.) and the decisions people make are emotional too. The pitfalls people fall victim to are emotional as well. Therefore it can be a valuable refresher for many of the most common ways people lose their money and how to avoid it.

Just use the search function of this subreddit and look through posts stating they have been scammed or hacked. It's almost always a massive disregard for proper security which is the most important topic in the unregulated wild west of Crypto. Crypto is volatile enough, not paying attention to your security is risk squared. Luckily, pretty much all risk factors are easy to avoid.

• Do not click on random links from questionable sources. Use bookmarks.

• Always log out of your accounts.

• Use a proper e-mail provider to mitigate risk of your data being leaked. I recommend ProtonMail over other random freemium providers.

• Don't use the same password with slight abbreviations you've used for thirteen years on every platform. Password managers are an option, but don't download a random one from the App store if you chose to use one. Don't be cheap on proper security. Or use pen and paper.

• Do not store your seed phrase digitally, ever. Not even for a minute. Write it down and store it safely. A piece of paper cannot be hacked. Almost all scams occur because someone either stored their seed phrases online, gave them away or put them into a website. Search for "scammed" or "hacked" in this subreddit and read all those stories, it's always the same pattern. This is the largest risk factor.

• Sim Swap Risk: Do not use 2FA with your phone number. Google Authenticator or other number generators are your friend.

• Beware of social engineering. Never engage with random DMs. Make yourself familiar with common social engineering scams.

• If you have a question or need help on reddit, never switch to DMs. Customer Service Reps will never ask you for your seed phrases.

• A cold wallet is always purchased directly from the manufacturer, never from ebay or a third party seller. If the wallet is not wrapped in plastic when it arrives, don't use it.

Did I forget anything in the common sense department?

Next, there are more technical and financial risk factors:

• Taxes. Don't forget them. The tax authorities always finds out and you'll end up in jail. Document your trades: What was the Date, what did you buy and how much of it, the value in Dollar/Euro/etc. Switching one Crypto for another is a taxable event in many countries. If you daytrade, stop.

• Staking with disregard to taxes can kill you. This applies to every POS Coin. Depending what the laws are where you live, you absolutely have to factor in taxes when you choose to stake. An extreme example: If you stake a random shitcoin that promises you 100% APY and you put $5,000 in, you have to pay taxes on your 5k staking rewards if you staked for a year. If that shitcoin inevitably gets rugpulled and you lose 100%, you lost more than you invested initially. You still owe taxes on the 5k staking rewards and your initial investment went to zero on top of it. Shitcoins are a guarantee you'll end up being the exit liquidity for someone else, but staking Shitcoins is as risky as shorting a stock. Have enough cash ready to pay taxes without selling your staking rewards.

• Speaking of unrealistically high APY, do not chase yields. Getting 3% on Coinbase by staking ETH is better than the chance of 15% by participating in a random liquidity pool. If you want to use DeFi platforms, do your due diligence. Ask victims of FTX, Celsius or Terra Luna. These will not be the last names we hear and you can avoid this risk by thinking twice and thrice if you really want to engage with DeFi. If you do, only use crypto you can afford to lose.

• Understand the individual risks that come with DeFi. Liquidity Pools have the risk of impermanent loss. Lending doesn't guarantee you get your coins back. High Staking Rewards can indicate ridiculous token inflation.

• Smart Contract Risk. Do you really, really understand the Smart Contract you're engaging with? There are countless stories where someone lost their holdings because they enabled a Smart Contract which allowed others to have access to your wallet in this subreddit alone. Airdrops are timebombs because of that.

• Beware of APIs, always delete them if you linked your hot wallet somewhere.

• Crypto is an emotional wild west, but you should treat it for what it is: A rational investment. Have a system and a time horizon and stick to it. Don't be married to your investments, there's never the need to engage in emotional debates.

• Stay far away from margin trading.

• Diversifying into 15 different piles of shit is not diversification. If you want to invest into precious metals, gold and silver is sufficient. If you want stocks, a world ETF and an emerging markets ETF is enough. Same goes for Crypto, don't spend your hard earned money on stupid shit, namely shitcoins and other obscure small cap coins. Bitcoin and Ether is enough.

• If you want to 100x your net worth, invest in your earning power, earn more than you spend and set yourself smart goals for the next 10 years. Learn a new skill that's in demand, invest in your education. If you want to make 4k ROI, It's easier and much safer to get 4% on $100,000 than making 40% on $10,000 or 400% on $1,000. You will not earn 4,000% on your last $100, please don't try it and play it safe. Continuously gambling away small amounts of money for incredibly high risk investments with a seemingly high reward is just a shitty lottery ticket that keeps poor people poor.

Hope you all make smart and rational decisions!