What have I learned while investing in cryptocurrency?

It’s a gamble most of the time

ICO and cryptocurrency remind us of the dot-com bubble, when anyone with a Powerpoint could raise millions of dollars without customers or even a product (how ICO market has grown). Change dot-com to ICO, substitute Powerpoint for whitepaper, and multiply the hype and you get an idea of the ICO market today.

Invest money you can afford to lose

If you could buy a $500 ticket that gives you a 5 percent chance of winning $10,000, would you buy it? It is helpful to think of ICO investment in terms of this problem. How much money would you be willing to lose with a small chance of reaping a large reward (Thinking Fast and Slow, a book by Daniel Kahneman, provides many examples of how we decide on gains and losses).

Do not borrow or use credit to buy crypto

Since ICO is a risky investment, borrowing money and using credit to invest in Bitcoin or ICO is crazy. Prices for all cryptocurrency are tied to the price of Bitcoin or ETH. Since there are only few places where you can exchange major coins into cash (Coinbase is the largest) the market is prone to a rapid sell off. During the sell off, networks are overloaded and transaction times increase. Coinbase becomes one of the biggest bottlenecks.

Avoid being scammed

Scammers are part of the ICO process. If you’ve participated in the ICO process, you know how crazy the Telegram channel becomes. Scammers try to appear as admins or company representatives and lure you into sending coins to the wrong address. Some create admin-like posts in public chat in hopes that someone will get confused and send their funds to the wrong address.

Learn the rules of the particular ICO and double and triple check everything, especially if the ICO is at night. The Telegram channel is the preferable way to communicate during the ICO. Most companies announce ICO rules and policies using pinned messages in the group.

Improve security

Your private key is the only way for you to ever recover your wallet (and your funds) — period. Minimize the use of centralized wallets such as Coinbase. Use a decentralized wallet, like Trust, that doesn’t store your private keys on their servers. Use encryption software, like 1password, to protect your private key.

Regardless of craziness, blockchain technology has a great potential.

The dot-com bubble didn’t kill the internet and internet startups. Yes, many companies died and many investors lost their money. It happened because founders, investors, and other players on the market forgot about the fundamentals — customers, product, and revenue. This is what happens now in ICO. People invest in companies that don’t have products, customers, or revenue. What even most important is that we invest in ideas we hardly understand. And we do that only for a small chance (or hope) of making a quick buck.

To learn more about ICO and cryptocurrencies, check out an amazing list of articles and resources gathered by the Andreessen Horowitz team.

I’m looking forward to more stable and mature ICO markets, where legitimate companies will build legitimate products by improving technology and applications behind blockchain.