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Monday, May 13, 2019

5 Newbie Bitcoin Mistakes (and How to Avoid Them)

Experience is the best teacher, or so the saying goes. But being a newbie in the world of Bitcoin can come with life-changing consequences. Here are five of the most common bitcoin mistakes that newbies make and exactly how to avoid them.
1. Storing bitcoin in an exchange wallet Many bitcoin exchanges offer a wallet service that lets you store bitcoin without the hassle of remembering a private key. However, while these wallets are easy to use and highly convenient, they aren't a recommended way to store large amounts of bitcoin over the long term.
Why?
Unlike a software or paper wallet, you don't actually own an exchange wallet. You must trust a third party (the exchange) with the security of your bitcoin and your wallet's private key. If the exchange is hacked, as can happen, you could lose your bitcoins.
How to avoid making this mistake If you purchase substantial amounts of bitcoin, the standard advice is to transfer your them out of your exchange wallet as soon as possible and into a wallet that you control. For example, if you purchase Bitcoin on Coinbase, you can transfer it into a software wallet from Bitcoin.com for safe keeping.
It's worth noting that not all exchanges are equal. Coinbase, for example, has never suffered from a major hack and has spent a ton of money keeping things that way. You can also check which exchanges offer insurance. Coinbase offers insurance on all cryptocurrency deposits and stores 98 percent of its customers' deposits in cold-storage wallets offline.
2. Failing to back up your passwords or private keys securely One reason for the popularity of exchange wallets is that they have familiar usernames and passwords just like people are used to. Many newbies hear that exchange wallets aren't a safe place to store significant amounts of Bitcoin so they download a software wallet and transfer their funds over. However, with software wallets, you alone are responsible for securely storing the private key for your wallet.
One of the most common newbie mistakes is not storing or backing up exchange passwords and wallet private keys securely. It only takes one mistake to lose everything. Some people lose the piece of paper they wrote it down on. Some people accidentally throw it out or even have it stolen. Some newbies even store their private keys on a cloud-based service such as Dropbox or Google Drive!
How to avoid making this mistake There are a number of ways to keep your private key or seed phrase safe that you should know. One option is saving them to an encrypted USB flash drive. You can also save a hard copy in a safe or secure secondary location. Ideally, you should buy and start using a hardware wallet. These physical devices store your private keys and never reveal them when you sign transaction online, even if your connection is unsafe. Hardware wallets generate their own recovery seed phrases so you can recover your details should your device be lost, stolen or otherwise destroyed.
3. Not using two factor authentication (2FA) on every account and device Most newbies have enough sense to enable 2FA on every exchange account that they create. This helps the exchange verify that it really is you who is trying to access the account. However, many newbies don't enable 2FA on their email accounts or other financial accounts that they use in conjunction with the cryptocurrency exchange.
For example, if you register with an exchange using your Gmail email address, the exchange will send you an email with a confirmation link every time you log in via a new device or from a new location. If you don't have 2FA enabled on your Gmail account and someone manages to hack your account, they could take control of your exchange account without even having access to your phone.
How to avoid making this mistake Always enable 2FA wherever possible, especially on the email account linked to your cryptocurrency exchange account. If you use your phone for 2FA, always save the restoration code in case you get a new phone or have to use another device. Neglecting to back up your 2FA is a classic newbie mistake you'll want to avoid.
4. Paying too much in fees If you're just starting out with Bitcoin, you understandably want a popular, reputable exchange to buy, sell and trade from. You've heard the horror stories about exchange hacks and you're smart, so you pick a trusted exchange like Coinbase. The trouble is, the deposit and withdrawal fees charged by established exchanges can be very high and, if you're interested in trading, these fees can quickly rack up. We've all been there and it's a steep learning curve so here's how to avoid it.
How to avoid making this mistake For starters, established exchanges such as Coinbase charge ~4 percent when buying or selling via credit cards or PayPal, but typically charge much lower rates (~1.5 percent) when you use bank transfers. Look carefully at the charges and pay in the most economical way.
In terms of avoiding high withdrawal fees, look at solutions where you can trade on platforms that are operated by the same company, instead of buying on a fiat-to-crypto exchange and then transferring to a crypto-only exchange. For instance, you can sign up for a regular Coinbase account and then apply for a CoinbasePro trading account. This makes sending your bitcoin to your trading account instant and free, helping you avoid paying extortionate withdrawal charges.
Lastly, place a 'limit order' instead of a 'market order' wherever possible. Market order options usually carry a default fee (~0.3 percent) whereas limit selling entails choosing the amount and price point you want the order to execute at, helping you avoid this charge. If you're a frequent trader, this tip can save you a chunk of change over the long term.
5. Using a phishing link, site or app The golden rule of accessing any cryptocurrency-related website (or any website for that matter) is to always navigate there directly or from a bookmark in your browser that you created and therefore know to be the legitimate site. Never access a site by clicking on a link from an unknown source. Always check the green site identity icon to the left of the URL on any site you visit.
Phishing scams range from fake websites that resemble genuine exchanges to fake confirmation emails that aim to trick people into entering their account details. The latest threat to look out for is malware that replaces the desktop application used by hardware wallets with a malicious one. According to hardware wallet manufacturer Ledger, they have detected such malware that replaces their Ledger Live app with malware that asks users to enter their 24-word recovery phrase after conducting a fake update.
How to avoid making this mistake Always navigate directly to an exchange and, once there, check for the site identity icon. Bookmark the site and then only return to it via the bookmark in your web browser. Never click on links sent to you via email or social media. Remember: If you enter your private key into a phishing site, you'll lose control of your funds and this probably won't be covered by the exchange's insurance policy as it's considered a user error.
Overall, your best bet is to use a hardware wallet to sign all your bitcoin transactions as these never expose your private keys. However, as the latest malware threat affecting Ledger hardware wallets shows, you should always remain vigilant and refer to the latest best practices from the wallet manufacturer.
Conclusion Hopefully, these five tips should help you learn the ropes in the world of bitcoin without losing your shirt. Always read and learn as much as possible about the companies, exchanges, and devices you use so that you can avoid everything from high fees to malware and more. With an open mind and a determined approach, you'll be able to shed your bitcoin newbie badge in no time!