The crypto world is full of opportunities but can also pose risks. Whether it’s market volatility, cyber threats, or human errors, managing these risks is key to navigating the long game of crypto.
Let’s delve into the fundamentals of risk management and security in crypto and take a closer look at some actionable strategies Kenyans can use to protect their investments for the long term.
The importance of risk management in crypto
Cryptocurrency presents a revolutionary approach to finance, but just like any other financial instruments and platforms, it comes with significant risks. Mastering risk management is not just an option for those venturing into crypto; it’s a necessity.
The decentralized nature of blockchain, while empowering, also removes traditional safety nets, exposing investors and users to unique vulnerabilities that require a proactive, informed approach.
Price volatility risk is one pain point to consider, and we have discussed how to manage these risks here and here. Other major risks have to do with safety and security of your digital assets. Let’s take a look at some of the most prominent risks and useful tips to handle them.
Hacks and security breaches
Criminals can break into wallets, exchanges, or blockchain networks by exploiting vulnerabilities in their security systems. These are technical, often highly sophisticated attacks that use malware, phishing links, or direct code exploitation to siphon funds.
According to Statista, over 60 percent of all cryptocurrency losses between 2021 and 2024 can be attributed to hacks.
Fraud and scams
Unlike hacks, fraud relies on deception, where criminals trick victims into willingly handing over their funds. Fraudsters prey on trust, fear, and greed, exploiting human vulnerabilities rather than technological gaps. Common scams include Ponzi schemes, fake investment opportunities promising unrealistic returns, phishing attempts posing as legitimate entities, and rug pulls, where developers abandon projects after collecting investor funds.
Combating fraud requires vigilance and education. Verifying projects, avoiding unsolicited offers, and understanding common red flags (such as “guaranteed” high returns) are essential. Below are some of the ways Kenyans can use to lower the risk of falling into fraud.
Research the team behind a project
Verify the credentials and history of the team members behind any project you consider for investment. Genuine projects have transparent, verifiable teams, while scams often feature fake profiles or anonymous developers.
Follow official project channels, such as their website or verified social media accounts, for updates. This helps you differentiate legitimate announcements from phishing attempts.
Be wary of social media impersonators
Scammers often impersonate well-known figures or companies on social media platforms. Be skeptical of unsolicited messages or posts offering free giveaways or investment opportunities. Official accounts typically have verification marks.
More risk management and security practices
The crypto space evolves rapidly. Fraud and hacks often exploit outdated knowledge, whereas misinformed investing strategy can result in grave losses.
Stay informed by following reputable blogs and newsletters: Binance Academy, Binance Research, Messari, and The Block are excellent resources.
Keep yourself updated by joining communities. Reddit’s r/cryptocurrency and Telegram groups often discuss emerging threats. Explore Binance’s official community channels here.
Practicing simulated trading is also vital. Use platforms like Binance Futures Testnet to continuously hone your skills without risking real money.
Emergency planning is also something to have in mind to be prepared for the worst-case scenario. Consider assigning a trusted family member or legal representative to access your crypto in case of emergencies. Use tools like Casa Covenant for inheritance planning to pass your cryptocurrency to your loved ones.
Risk management and security are not just optional considerations – they’re the foundation of a successful, long-term crypto journey. By hedging your investments, adopting a layered approach to security and staying educated, you can safeguard your digital assets while navigating the ups and downs of the crypto market.
Remember, crypto is a long game. Protect your investments, plan for the unexpected, and equip yourself with the tools and knowledge to thrive in this volatile but rewarding space. For more in-depth guides, check out Binance Academy and the rest of The Long Game of Crypto series.
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Kyrylo Khomiakov is the Regional Head CEE/CIS/AFRICA at Binance
