Is cryptocurrency safe?

If you're wondering about getting into cryptocurrency, you're not alone.

Many people are scratching their heads over these new blockchain assets and saying: What are they — and is cryptocurrency safe?

Another way to explain it is that people are often nervous about things they don't fully understand. So it makes sense for them to be cautious of crypto because cryptocurrency is one of the most confusing types of assets out there.

First of all, it's a kind of digital money. Secondly, people have questions about the blockchain and what that is.

Third, they have real concerns about volatility or fluctuation, and it’s sensible to be worried about that when you're getting into the cryptocurrency world.

So let's talk about cryptocurrency, what it is, and where it will likely go.

What is cryptocurrency?

Cryptocurrency is digital money that lives on a digital ledger called the blockchain.

The blockchain is a database that stores data in blocks, linking those blocks together in chains. The resulting digital ledger stores all of the transactions on computer networks that use a blockchain, and distributes this to all involved parties in a decentralized way. 

Cryptocurrencies are often denominated in coins or tokens that are interchangeable with one another.

A particular cryptocurrency on its own blockchain has a market cap showing how big that digital treasury is — how much of this stuff is floating around in the world. Then the currency also has a value that changes over time with the market. 

Because cryptocurrency is digital, people keep it in specialized digital wallets. They can buy, sell, and trade the assets or hold them in the hope that they’ll gain interest. They can also use crypto for various kinds of online gaming. 

What are the risks of cryptocurrency?

Here's where the risk isn't — with cryptocurrency, you don't have the same theft risks that you have with cash. You have private keys that establish you as the owner of your digital assets.

When you hold them in certain kinds of cold wallets, they are pretty safe, as long as the wallet itself is secure.

Some of the risks worth knowing about:

• Exchange and platform risk: "rug pulls," where someone hypes a project then disappears with the funds
• Hacking: malicious actors gaining access to systems and the private keys stored on them
• Volatility: coin prices can swing dramatically in both directions. People who bought Bitcoin at its roughly $60,000 peak, for example, have seen their holdings' value drop to about a third of that at times

What are the benefits of cryptocurrency?

Although the above risks exist with cryptocurrency, you can also see some specific benefits.

• Easy to buy and sell, and usable for merchant transactions
• A store of value, which is why companies like MicroStrategy and Tesla have used it for digital capital reserves
• Verified through open, consensus-based agreement rather than a single central authority. Similar to 300 wedding guests all vouching a marriage happened, even without a certificate
• Access for the "unbanked," who can bypass costly conventional banking systems
• Independence from Federal Reserve policy, which is why some people hedge against inflation with crypto

What are the most secure ways to buy cryptocurrency?

Some digital asset opportunities are more secure than others.

One of the safest ways to buy cryptocurrency is by using something called a "self-custodial wallet."

Unlike custodial wallets, the self-custodial wallet allows the holder to have full control of their crypto. The self-custodial wallet (also called “non-custodial”) involves the asset owner having the keys to the asset themselves.

In addition, many experts would say that you're best off keeping your cryptocurrency offline in a cold wallet.

It can't go anywhere when it's not connected to the internet. You should be in good shape if you keep your physical hardware in a safe place and maintain access to your keys.

Most secure crypto coins

What are the most secure cryptocurrencies? Well, one way to put it is that you want to focus on cryptocurrencies that don't have as much volatility.

For example, Bitcoin rose to $60,000 and then sunk back to $20,000 within the past couple of years. It might be back at $60,000 next year, or it might be at $200,000. It might also be at $6,500 like it was in March of 2020.

• Lower-volatility coins like Litecoin and certain Ethereum hard forks tend to see smaller price swings, so you're less likely to lose value quickly
• Newer blockchains like Solana, often used for NFT production, can also be more stable
• Stablecoins like USDT are pegged to the U.S. dollar, though critics note they're less decentralized than Bitcoin's original design

Conclusion

You have a lot to choose from when it comes to cryptocurrencies. Do the research around a particular coin and look at its past chart value. How much does that go up and down?

Look for coins that are steadily establishing themselves as either payment media, stores of value, or other utilities in the market, like NFT minting currencies.

By knowing more about what cryptocurrency is and isn't, and by knowing the risks and benefits, you can make a smarter and safer decisions.