How To Avoid Risks Associated With Blockchain And Crypto?

11 May 2021

#Blockchain

#Idealogic Insights

#Trends

#Useful Information

Blockchain technology keeps gaining momentum around the globe — from fintech and land administration to government management and NFTs. However, the volatility and lack of stability and predictability on the crypto market prevent the masses from swiftly and firmly believing in blockchain technology. Unfortunately, it is still quite often associated with scams or something detached from reality (that’s one of the reasons why crypto and fiat are still not married today). So, what are the blockchain risks and risks associated with crypto in particular? And, most importantly, how to avoid or at least mitigate blockchain risks while also enjoying the technology itself?

What are the blockchain risks?

In its essence, blockchain is a technology that is inherently quite logical in the operation. So basically, there are no risks in using the technology itself. However, from the general point of view, there are a few shortcomings associated with blockchain:

  • Complicated integration. Blockchain is a relatively new technology, so blockchain protocols sometimes require additional effort for smooth integration. For instance, if there is a need to share data from Hyperledger Fabric Protocol to Ethereum Protocol, an additional integration layer is required to manage the two different enterprise systems.
  • Lack of standardization. The broad range of blockchain frameworks implies that there is little to no standardization — in what applies to crypto, Initial Coin Offerings, frameworks, etc. As for the ICOs, they suffer the most from the absence of standardization — their investors make quite risky investments due to the absence of proper legal protection and control.
  • Dependence on crypto popularity. Since most people know blockchain for hosting crypto, the popularity of blockchain technology significantly depends on the crypto market trends. It’s great when the bitcoin price surge fuels blockchain development, but it wasn’t really good when, for example, blockchain’s creditworthiness suffered from the massive number of ICO scams in 2017. Such dependence will probably decrease soon — when more and more people come to an understanding that blockchain is not only the platform for crypto trading but also a widely applicable technology itself — in asset management, land administration, payments, government, and healthcare, among others.

Crypto risks in particular

Yes, it really is quite possible to get hefty pockets by investing in cryptocurrency — Bitcoin’s 3x price surge in just a year and Ethereum’s recent 4x rise being prominent examples. However, crypto trading can also be detrimental to your purse — you can lose a lot if you are not lucky or unless you invest wisely. As we have already said, the crypto market is quite volatile and thus comes with a bunch of risks while also enabling vast rewards.

Action plan to mitigate crypto and blockchain risks

Before we start, it is vital to differentiate “crypto” and “blockchain” domains despite they may seem identical if you’re not a blockchain enthusiast or a tech-savvy person. Risks of making a mistake in the integration process when you build a new product may cost much more than you may lose as an individual while trading crypto but you will have much more time to consider all the possible pros and cons. That being said, we encourage you to check our blog for the Blockchain tag because a couple of articles may help you to educate yourself in this area quickly and with no stress.  

First of all, you have to always learn as much as possible about the domain you want to deal with — be it blockchain, crypto, or whatever. Ignorance is definitely not bliss in that matter.

Secondly, scam is omnipresent, so you should always keep your eyes peeled and dig into the details of the projects you want to engage in. Also, be extra cautious with very young companies (especially those launched a few days or weeks ago — while those could be real and good, a lot of them tend to be deceitful).

Thirdly, work with proven services and tools only and remember to always turn on your inner critic — especially when you get extraordinarily profitable offers.

At Idealogic, we have been working with crypto startups for a long time. However, we are not biased by that fact and do understand that young companies in that domain can act in a bad faith — or simply be unable to become successful, even if they have every desire for this. There comes our fourth piece of advice: don’t invest or engage in what is either strange or completely unknown for you — or both. If we are talking about an investment in some crypto project, it’s always better to know the founder in person and to be confident in his plans and intentions.

Rules for crypto trading

Every second person today seems to be a crypto trader, but not everyone understands how the market works and what are the basic rules. We’ve identified the most important pieces of advice that will help you save both your time and money — and also your nerves.

  • If you want to engage in crypto trading, learn more about crypto itself, market rules, and recent trends. Are you a crypto evangelist who believes in its prosperous future and thinks that in just a few years crypto will be ubiquitous and easily understood by most people? That shouldn’t affect your preparation measures. No matter if you are bullish or bearish, you should always be careful and take every precaution to make sure that your actions (especially in what relates to investments) are well-considered.
  • Don’t invest all your money, even if you truly believe that your target asset will soon surge. You can’t know the future for sure, so the golden rule of investing is to never invest money that you cannot afford to lose.
  • Remember that you should always have a properly diversified portfolio to offset potential losses from one asset by the other’s performance.
  • Also, use only reliable platforms and tools. If you have sizeable crypto assets, use cold wallets for storage — to prevent your capital from unexpected theft. To this end, you should also enable two-factor authentication (2FA) on the exchanges that you use and provide your personal documents for KYC only when it’s absolutely necessary.
  • And last but not least, remember that it’s always better to slowly but steadily grow than to rise to the stars in a matter of days or months but then fall as much or even lower than you had been. As it is said, it’s better to arrive later than not at all.

Summary

Although it is not yet evident to everyone, blockchain technology will most likely have a very promising future with lots of useful applications for all of us. Meanwhile, it’s essential to be realistic when it comes to crypto and blockchain risks or shortcomings and take every measure you can to ensure smooth usage of the technology. The most important takeouts from this article should be: the more you know, the better, and your inner critic is your best friend.

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