Welcome to the final chapter in this series, where we summarize and give you an exhaustive list of things you must keep in mind during your journey in this exciting atmosphere. Hold your breath, and let us take you along! 🫂
FOMO will be your downfall 📉
FOMO (fear of missing out) is accurate, and this holds true for the web3 universe as well. Lucrative assets in the web3 world didn't become a thing overnight. It's similar to a play of stocks- the more the users invested in a particular cryptocurrency, the more popular the currency got. The driving thought in most transitioning web3 users is that if they can do it, so can I. But to their dismay, this is hardly ever the case. 😔
Without fully appreciating the risks, FOMO may drive some investors to join the herd on a well-liked cryptocurrency project or other high-growth venture. But in the world of investing, fads are prevalent. What is surging in value one second can drop precipitously the next, and FOMO can change from being concerned with missing out on enjoyment to being involved with losing hard-earned money‼️
Don't fall into the trap of FOMO without research! 📚
Research is critical in the web3 world. What might work out for some people might not work out for you simply because many factors are involved.
Let's give you a very relatable example.
While deciding about a university where you’d want to study, you would have made a list of factors to keep in mind. You would have included the fees, courses offered, location, faculty, ranking, and other factors. After doing your research, you would have concluded which university would be the best option. So why not DYOR when it comes to web3 too? 🤔
Now you would agree that picking a university simply because that university is the trend amongst your classmates in school, is, honestly, not a wise decision! Your decision has to be based on so many other factors. 💯
Similarly, giving in to the trend and investing in the most popular cryptocurrency at that instant without prior research can be disastrous. 😥
It's also crucial to diversify your crypto holdings to maximize profits- instead of going all in and investing all your money in one cryptocurrency, consider redistributing it based on your research.
Have wallet backups if you lose access to your current one, and go that extra mile to safeguard your seed phrase.
Finally, as a web3 user, keep yourself updated about important events, and verify (double verify) the news you see on social media- it's not always what it seems like! 🔍
The crypto market is highly volatile, as we know. A responsible web3 user should constantly update oneself about important events and strategize his/her/their investments in the right market conditions. 🧮
Don't FOMO into high APYs
‘APY’ defined
APY, or Annual Percentage Yield, which accounts for compound interest gained over and beyond your initial investment, is your annual return on investment. Accordingly, you will receive interest on the initial investment and the interest earned.
But how is it related to crypto?
It is a savings account where you can deposit Bitcoin or any other money or tokens and receive a set return after a set period.
For instance, investing 10,000 USDC at 10% APY will result in an annual return of 11,000 USDC. In most cases, interest is accumulated regularly, whether daily, weekly, monthly or on any other timetable. ⌛
Depending on the circumstances, you can either take interest out of your account or accrue it to broaden the base for calculating the annual percentage yield (APY).
If something sounds too good to be true, it's probably suspicious 🤨- the same goes for APYs too!
A DeFi project token called WhaleFarm, which promised users unheard-of returns in exchange for staking its pool, fell 99% in minutes, robbing investors of $2.3 million worth of cryptocurrencies. 🤑
APYs offering extremely high investment returns is a warning sign to look for. Think about it practically. No cryptocurrency exchange would offer you that high a price because a) the market forces entirely run the cryptocurrency exchange, and b) no market forces would allow such a high percentage of APY.
Keep yourself updated
Don't FOMO into Rapidly Rising Prices
There's absolutely no doubt about the fact that we're engineered to work towards making more money. 💵 While investing in crypto, we'll also focus on the price and look toward maximizing our profits.
But here's a piece of advice- don't FOMO into rapidly rising prices!
The crypto market is highly volatile, and several factors drive this volatility. ⬇️
- For starters, the lack of a centralized regulatory body to govern the market forces of demand and supply is one. Users are responsible for the prices because they create the forces of demand and supply. The higher the need for a cryptocurrency, the higher its value and worth!🚀
- Although cryptocurrencies have become more well-known globally in recent years; as an asset class, they are less widely used than conventional assets like stock or gold. Market maturity and rising acceptance go in hand. 🤝🏼
The value of Bitcoin plummeted when Tesla said that cryptocurrency would not be accepted as a form of payment. However, Dogecoin's value increased after Tesla CEO Elon Musk typed "Doge" in a tweet.
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Similar to how share prices tend to increase when a famous investor purchases stock in a specific business, such influencing events or personalities increase volatility.
Protect Your Seed Phrase - It's the Key to Your Money 🗝️
The seed phrase is the most crucial element regarding the security of your cryptocurrency. If someone gets their hands on it, they can access all of your cryptocurrency and disable your account. Giving someone your seed phrase, either knowingly or unknowingly, is the same as giving them your debit card and PIN. 🚨
Hence, securing your seed phrase is extremely, extremely important. Here's a list of dos and don'ts when securing your wallet! ⬇️
DOs:
- Storing seed phrases offline in a physical vault is one of your safest bets for securing your seed phrase.
- Consider seed phrase splitting. It's a concept that involves splitting your seed phrase into two or more portions and securing each section separately. This is possible both physically and virtually. However, it's safer in the physical mode!
DON'Ts:
- Storing your seed phrase online is disastrous- don't even give it a thought!
- Never give anyone access to your seed phrase- if you don't trust yourself, secure it in a safe, physical space.
Choose the right wallet - don't choose too many!
As a web3 user, it is advisable for you to store your assets in crypto wallets, either hot wallets or cold wallets. Users can also opt to have multiple wallets to increase overall security.
But how do you decide amongst a plethora of options to choose from?
Crypto wallets can be distinguished into two broad types- self-custodial and non-custodial. As the term explains, self-custodial wallets imply that the wallets you choose will have custody over your keys.
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Self-custodial wallets also assure customers that they will only lose access to their money if they remember or lose their password. Providers or exchanges can reset your password by asking you a few security questions.
But the major drawback with self-custodial wallets is that a third-party website has access to your private keys and is stored online, implying that cybercriminals are always at risk of being hacked.
Non-custodial wallets, on the other hand, give you complete authority over your private keys. Non-custodial wallets include hot wallets like Metamask and Coinbase and cold wallets like Ledger and Trezor. Cryptocurrency users have total control over their private key and their money while using non-custodial wallets. Seasoned cryptocurrency users prefer non-custodial wallets since they are generally a little more complex than custodial wallets.
Choosing which features in a wallet is most significant to you can help you decide between a non-custodial and a self-custodial cryptocurrency wallet type.
Did you know?- crypto exchanges are a type of non-custodial wallets!
It’s extremely crucial that one must choose the right crypto exchange, and here’s why. ⬇️
FTX, one of the world’s largest crypto exchanges, collapsed. What were the factors that led to its doom? 🤔
According to a leaked balance sheet from Bankman- Fried's quantitative trading company - Alameda Research - a substantial amount of Alameda's assets were valued in tokens that FTX itself had produced. Although it was previously well known that FTX and Alameda were closely related, there needed to be more concrete proof, and authorities had not taken any significant action to look into the connections.
Then, FTX's main rival, Binance, declared it would sell off a sizeable portion of the FTX tokens left over when Bankman-Fried acquired Binance's interest in FTX in 2021.
Binance's sell-off increased public worry about FTX's stability, leading to a sharp decline in the price of the FTX token and a rush of consumers with funds in the exchange to the bank. In a few days, Bankman-Fried (CBF) approached Binance to request a bailout. Binance offered it but withdrew a day later, citing evidence of ‘mishandled corporate cash’ and other irregularities that had surfaced during their due diligence procedure. Bankman-Fried resigned, and FTX filed for bankruptcy.
Check the link to know more!
What factors do I have to keep in mind while choosing the right exchange?
- Liquidity: Finding an exchange with liquidity—the capability to quickly convert your cash into coins, or vice versa—without incurring a significant markup, is crucial. This is especially relevant given how quickly prices fluctuate in digital assets. You'll want to know if your buy order is filled fast and at a price comparable to the one you see quoted on your screen when the price of a coin you want to acquire is skyrocketing. 🚀
- Gas Fees: Most cryptocurrency exchanges impose fees for each deposit, trade, and withdrawal. Depending on the type of transaction and your payment method, costs per trade might range from 0% to 5%. The percentage you pay often decreases as the size of your business increases, and fee tiers are typically dependent on your total trading volume over a 30-day trading period.
- Security: Cryptocurrency exchanges are known to be subject to hacks, so it makes sense not to invest money in one with a long history of theft or cyberattacks. Users can also look for cryptocurrency exchange options that offer enhanced security features, like master codes at every step, document verification, biometric proof, etc. 🔐
Web3 scams you should be aware of
Phishing scams
Phishing attacks are by far one of the most prominent scams that exist in the web3 world. Malicious actors aim to obtain private user data by hacking into your system or misleading you into providing confidential information!
You can read more about phishing scams here.
NFT scams
Scammers frequently construct bogus NFT stores by replicating well-known NFT markets like OpenSea. Even a seasoned NFT buyer can be misled by these websites, which often seem almost identical to the originals, into shelling out a lot of money for a fake piece of art that has no real value.
Here is one way to differentiate between legit and fake (wannabe) sites- Fraudulent NFT stores will host unverified buyers. More prominent vendors will get a blue verification checkmark next to their usernames on official marketplaces, similar to what you'd see on Twitter or Instagram.
Scams on Discord
In the Discord scam, the scammers first attempt to appease the target by filling the unwanted message with fun emojis and including comprehensive instructions — along with a code — for receiving a gift of digital currency. The message contains a link for signing up on the alleged digital currency trader's exchange.
The link directs victims to a well-designed website resembling a cryptocurrency exchange, with information about exchange rates, charts, order books, and trade history.
Users often fall prey to such scams by providing their private details and losing their assets due to the process.
How can you avoid falling prey to such scams?
- Always double-check the links you access, email addresses, and URLs. Once you are sure you are on a legitimate page, bookmark it to lower the likelihood of clicking on a fake site.
- Legitimate web3 sites will never require your seed phrase unless it's for a transaction. Be aware of websites that maliciously try to obtain your seed phrase!
- Never click any links that you find to be suspicious in emails or other communications.
Almost There
We have successfully equipped you with all the necessary knowledge about the web3 space. We're pleased to see that you've made it this far, and we can't wait to take you along the journey ahead!🥳
Go ahead and put your knowledge to the test by attempting your very first quiz!