Guest Contributor – Exponential Investor (United Kingdom) –
There are some very simple steps everyone should take when sending and storing cryptos. But to save myself a couple of minutes, I decided to skip a major one.
So far, skipping that step has cost me £881. But that figure is rising all the time.
I’m going to show you how to avoid making the same mistake I did.
This is fairly basic knowledge. But it still catches a lot of people out – as I can attest.
So if you have any money in cryptos, or if you’re thinking about investing, today’s issue should be well worth your time.
Buying into Vertcoin: September’s biggest hypecoin
On 21 September I traded into a promising new cryptocurrency called Vertcoin.
Well, I say new; it has actually been around for a number of years. But it was only really in September it started getting a lot of interest.
Vertcoin is an old fork of bitcoin. At one time it was worth more than litecoin, but in September it was worth less than £1.
Vertcoin’s main selling point is that it’s “ASIC resistant”. What that essentially means is ordinary users can be just as good at mining it as the big Chinese mining farms.
In September it had a successful test of “atomic swaps” – exchanging vertcoin for litecoin or bitcoin without using an exchange – and people started getting excited.
Then came the news that it was developing a wallet to be used on the Tor network (the “dark web”) that would give its users optional anonymity.
This, with the fact it was incredibly cheap compared to both bitcoin and litecoin – especially litecoin, given its history – meant it was getting a lot of hype.
On 21 September I bought 244 vertcoin at £0.78. A couple of days later I decided to transfer my coins off the exchange… and that’s where the trouble started.
The five fundamental rules of crypto
When trading, transferring and storing cryptos there are five very basic rules everyone should follow.
The problem is, many people don’t. Here are the rules:
1. Don’t type the name of your exchange into Google, type it directly into your browser’s address bar.
Reason: there are a lot of phishing sites out there that buy ad space. They set up an ad that looks like one of the popular exchanges but links to a scam site. This site looks identical to the real one, but is set up to record your login details and steal your cryptos. This isn’t some obscure occurrence either. It happens all the time.
2. Don’t leave your coins on an exchange.
Reason: when your coins are on an exchange they aren’t really yours at all. They are in the exchange’s wallet. If the exchange gets hacked or goes bankrupt, it can take your coins with it. Again, this has happened many times in the past, with the most notable hack being Mt. Gox.
3. Backup your wallet and test the backup before transferring anything in.
Reason: a cryptocurrency wallet isn’t like an email address or a bank account. No one else controls it except you. This is both good and bad. Good because it gives you privacy and control. Bad because if you lose your backup no one can help you get it back. Your coins are lost forever.
So, when you make a new wallet, download the backup and then try restoring your wallet from the backup to check it works.
4. Transfer a very small amount at first to check you have all your addresses right. Only then transfer the full amount in.
Reason: it’s very easy to get addresses wrong because they are just random strings of characters. And if you send your cryptos to the wrong address, they are usually gone for good.
It’s best to find out you got your address wrong when sending £2 of cryptos than to find out when you send £2,000 worth.
5. Keep multiple copies of your backups at different physical locations.
Reason: you could get burgled. There could be a fire. You could get flooded. You could even just throw your backup out by mistake. Anything can and does happen to wallet backups, so you need to have more than one.
Like I said, they are all fairly simple rules, and they are all easy to follow. But many people slip up or just get lazy.
I remember watching a documentary about war photographer James Nachtwey. In the documentary they mention how most photographers that get shot on the job tend to be very new, or very experienced.
The new ones make silly mistakes because they don’t know any better. The experienced ones make silly mistakes because they get complacent. It’s probably true of most things. It certainly is with cryptos.
The typo that cost me £881
So, which rule did I break?
The truth is, I didn’t just break on rule. I broke two. Go me.
I created a wallet and backed it up, but I didn’t check the backup worked. Then I sent all my vertcoin at once into my new wallet.
When I logged out of my wallet, I couldn’t log back in again. No problem I thought, I’ll just restore my wallet from my backup. It was only then I realised my backup wasn’t really a backup at all.
It turns out that when I made my wallet I got a typo in my email address or my password, or both. And given that my email address is essentially just my name, it was a pretty stupid mistake to make.
I tried many times to recreate the same typo, but I just couldn’t work it out.
I even went as far as to get my friend who’s a computer scientist to write a program to try to hack my wallet.
We created a word list of all the possible typos I could have made and used that to try hundreds of combinations a second. It was a complicated process and it took a couple of days to complete. It didn’t work.
And then the price started going up – really going up. At time of writing it’s up over 350%.
Source: BlockfolioI’d resigned myself to losing £200. I’d made peace with that when I decided to invest in such a risky play. But I was less happy losing almost £1,000.
Your mind is tricky like that. It doesn’t see an event like this as a £200 loss (which is what it is in reality) but as a £881 loss.
And because it would have been so easy for me to not mistype my email address, my mind feels more regret.
The science of regret
It’s explained very well in a book called The Undoing Project. The book is about the two psychologists – Daniel Kahneman and Amos Tversky – who created the field of behavioural economics. Kahneman went on to win a Nobel Prize.
They showed the amount of regret we feel about something is governed by how close it came to not happening.
Here’s a thought experiment they used to investigate it, taken from the book:
Mr. Crane and Mr. Tees are scheduled to leave the airport on different flights, at the same time. They traveled from town in the same limousine, were caught in the same traffic jam, and arrived at the airport thirty minutes after the scheduled departure time of their flights.
Mr. Crane is told that his flight left on time.
Mr. Tees is told that his flight was delayed, and just left five minutes ago.
Who is more upset?
The situation of the two men was identical. Both expected to miss their planes and both had. And yet 96 percent of the subjects to whom Danny put the question said that Mr. Tees was more upset…
The emotion was also fed by its proximity to another reality—how “close” Mr. Tees came to making his flight. “The only reason for Mr. Tees to be more upset is that it was more ‘possible’ for him to reach his flight,” Danny wrote.
The closer something came to happening, the more likely your mind thinks it was to actually happen, and the more regret you feel.
Don’t be that person who “almost bought into bitcoin”
There are two takeaways from my tale.
The first, and most obvious, is stick to the rules I outlined above when moving and storing cryptos.
The second is less obvious, but it could save you a lot of heartache in the long run.
You’ve probably seen a lot coverage of bitcoin and other cryptos in the last few months. And you probably know that bitcoin has jumped from around $3,000 in early September, to over $7,000 today.
Most of our editors at Southbank Investment Research have been covering this story. Eoin Treacy and Sam Volkering predicted bitcoin would top $7,000 weeks ago.
You can see in Sam’s book, Crypto Revolution, why he believes bitcoin will go a lot higher than $7,000.
You have a choice now of learning more about bitcoin and other cryptos, or of closing your ears and pretending it all isn’t happening.
The problem is, your brain is always going to remind you of this day. You’ll always remember the time you could have bought into bitcoin when it was at “just” $7,000.
Just like I’ll always remember the time when I could have snagged £881 of vertcoin for just £200.
Of course, it could all come crashing down, and it may well. But despite the efforts of China, JP Morgan and various other detractors, that just doesn’t seem to be happening.
And with this week’s news of a bitcoin future exchange in the US, it seems bitcoin might finally be going into the big leagues.
If it does hit the highs Sam is predicting, today’s price will seem very cheap.
I’m not saying you should invest. But I think it’s definitely worth getting a copy of Sam’s book, so you can find out what it’s all about. Then you can decide for yourself if you want to get in or not.
Until next time,