Crypto is popping these days. Everyone is looking for the next shitcoin to make millions from, and my inbox is filled with people asking me if they should buy Bitcoin.
This sounds like the perfect time to give you my top 10 ways you will lose all your life savings with crypto!
Before we dive in, hi 👋 I’m Tony, I’ve been in the space since 2014. I made some good money over the years, but more importantly, I’ve seen all of my OG crypto friends lose millions of dollars in the most creative ways.
In this article, I will break down exactly how they did, so you can avoid the same miserable fate. Hopefully.🤞
1. Using Sketchy Exchanges
You’re just getting started buying crypto. You’ve been told by wise people like me to ONLY use Coinbase or Binance. But this is not enough for you. You want that new memecoin that is only available on some obscure Romanian exchange. You load up your VPN, open up Google Translate, and create an account.
A few months later, you try to log in to said exchange, and you get a greeted minimalist “penis” message on a blank page. Or a 404 error. Or an FBI notice. Whatever it is, your money is gone along with the exchange itself.
Pro tip: As a beginner, stick to Coinbase and Binance only.
2. Not Using Offline 2FA
You’ve learned your lesson. You’re sticking to Coinbase as your platform. But you didn’t enable 2-Step App Authenticator. Your only authentication methods are your email and your phone number.
You make some money and brag about it on Instagram. Hackers find your personal information from the many data leaks about you available on the dark web.
They have your phone number, email, date of birth, and SSN. They call your phone provider and use social engineering to bypass security measures and get control of your SIM card. In a few minutes, they use SMS authentication to reset your Gmail and Coinbase password and drain your accounts while you’re sleeping.
Pro-tip: DISABLE SMS AUTHENTICATION — IT IS NOT SAFE. Use App Authentication instead. And use the Tofu app. Not Google Authenticator, as it is linked to your Gmail account, which can be compromised. Not Authy either, which is linked to your phone number, which can be compromised. Also, enable whitelisting and address books in all of your platforms.
3. Losing Your Private Key
No more exchanges. You adopted the mantra: Not your keys, not your coins. You download Trust and Coinbase Wallet on your phone. You install MetaMask on Chrome, and you start playing with the decentralized Web!
When installing those apps, you’re given a string of 12 random words, a public key (your address), and a private key (your password). You see a message saying it is VERY IMPORTANT that you save that information. And then you…
- Don’t save the info.
- Save it in a TXT file on a USB drive, which your new girlfriend accidentally dumps in the trash a year later while cleaning up.
- Write it down on a sheet of paper, leave it at your mom’s place, and it tragically burns in a house fire.
Regardless, years later, your phone breaks. You buy a new one, reinstall the apps, and realize you don’t have the info to access your account anymore. Your money is forever gone, and there’s no customer support to call. Thanks, decentralized web!
Getting Your Private Key Stolen
You learned your lesson. This time, you create a new wallet, and you save your information somewhere it can’t be lost! Maybe you saved it in a text file on your Dropbox, iCloud Notes, or Google Drive. You even named it something silly to avoid bringing attention to it.
And then:
- Your laptop gets stolen at the train station, thieves break your password and find the file.
- Dropbox gets hacked and your data is dumped on the dark web, where a hacker finds it with a software scrubbing for anything that looks like a private key.
- You download a Chrome extension that has nothing to do with Crypto. But it has a keylogger, which captures everything you copy and paste, including your private key.
In all of these cases, the thieves drain your accounts and you have no idea how it happened.
Pro Tip: Save your private keys and recovery codes in secret places, on devices that are offline and password protected. Make sure to have a copy in at least 2 places, so you don’t lose your money if anything happens to it. If you write on paper, be IRRATIONALLY CAREFUL, and test restoring your account from that sheet of paper, so you know you didn’t make any typos. Never copy and paste your private key in full, especially if you have universal clipboard. Finally, don’t be this guy:
4. Sending Money to the Wrong Address
OK, you have secured your decentralized wallets. Now you want to send crypto from an exchange to your wallet.
You find and copy your address. You go to your Coinbase, paste the address, send the coins, and then…
Nothing. The coins never came. What happened?
Oh! Did you not realize that, when you pasted the address, you accidentally hit the backspace and deleted a very important letter of the address?
Or maybe you sent it to an address that requires a Memo? Oh, you didn’t know what a Memo is?
Or maybe you sent it to the right address, but the wrong network? Did you not know that a crypto like ETH can operate on different networks, like Ethereum, Polygon, and Avalanche? Or that there is a difference between the Binance Beacon Chain and the Binance Smart Chain? Oops!
Whatever the reason is, too bad. You just lost your money, and there is nothing anyone can do about it.
Pro-Tip: ALWAYS send a test $1 transaction before sending any significant amount of money. Even if the fees are high. Wait until the test transactions completes before sending the full amount. When signing up to a new exchange, send test transactions IN and OUT, so you know you can actually withdraw your funds.
5. Fomoing into MemeCoins
You invest $10 in some memecoin as a joke, and make $1000! Hurray! Then you have this brilliant idea:
“If I’d put $10,000 instead, I’d be a millionaire now!”
After all, meme coins seem to do a 100x every single day right now. Your buddy Greg just made $50k on the Joe Boden coin, and he’s a total moron. Why couldn’t you do it? So you find the latest, hottest memecoin on Twitter, and fomo all your life savings in it. Then, the next day, you wake up to this beauty:
Pro-Tip: Understand that buying shitcoins is not investing. It’s gambling. Assume you can lose 100% of the money you gamble. If you’re not comfortable with that, don’t buy it.
6. Trading
Ok, lesson learned, no more fomoing. Instead of hoping for a lucky 100x, you have a new strategy:
“If I can make a 10% consistent profit every day by trading, I‘ll be a millionnaire. Crypto always go up and down. I just need to buy low, sell high. Easy!”
So you open up a Coinbase Advanced account. You watch a few YouTube videos about charting and trading patterns, not understanding that it’s essentially astrology for men.
You start trading low-volume pairs. But you don’t understand this is a Player-vs-Player game where you are absolutely outmatched. After all, how could you know that you’re competing against quantitative Chinese trading firms with dozens of Ph.D. students from Stanford and MIT, working with advanced blockchain surveying tools and AI-powered trading bots, which operate at lightning speed with FULL VISIBILITY on the market, supply & demand metrics, and who are actively looking to destroys newcomers like you? Or that the VERY EXCHANGE you are trading on is also actively trading against you?
You went against all of this not even knowing what a low-volume trading pair was in the first place. Now, you’re surprised when 90% of your trades end up losing you money? Maybe this wasn’t for you, after all. 🤷🏻♂️
Pro tip: Don’t trade.
7. Taxes
Ok, no more trading. But you’re not out of the woodwork yet.
At the end of the year, your accountant tells you a pleasant surprise: you have to pay taxes on every single trade you did, because it turns out all crypto trades are taxable events!
Since you were trading with crypto that was already up a bunch, you find out you need to pay 30% in taxes on every single one of the 2000 trades you did. Your taxes are going to be a nightmare. And the payout adds up up pretty nicely to the 90% of the crypto you lost while trading.
Oh, you’re not reporting those trades? Don’t worry, Coinbase and all of your US-based exchanges already took the initiative to report them to the IRS for you! 🥰 And for good measures, they also reported all your outgoing crypto transactions to your private wallets addresses, so the IRS can also track those pesky on-chain trades you made with their new, state-of-the-art, advanced blockchain surveying tools. How nice of them!
Pro tip: Trade as little as possible, and report all of your trades at the end of the year. Use tools like Bitcoin.tax to track and optimize your taxes. You can save money by reporting your losses! If you’re in the US, do NOT mess with the IRS.
8. MetaMask Spoofing
You heard of a new decentralized platform where you can stake your coins to make some unbelievable 50% return and buy PNGs of monkeys for what is essentially a down payment on your dream house!
So you log in to the latest Pancake Swap and Raydium exchanges. You get some LP tokens, and start getting those sweet staking rewards — not realizing you are ultimately losing money because of impermanent loss. You never even heard of in the first place! But that’s beside the point.
Then, one day, you open your MetaMask, and everything is gone. What happened?
Did you not realize that last Thursday, the link you clicked on Google was not pancakeswap.finance, but it was actually exchange.pancakeswap.com? Turns out scammers duplicated the page, and paid Google ads to be the first search result on that day.
And that transaction you signed that you didn’t read? Yep. It gave them full access to all of your savings. Tough luck!
Pro tip: Never access platforms and exchanges from Google links. Always bookmark your websites. Use a separate browser for your crypto that is not your main, day-to-day browser (I recommend Brave). Don’t add random extensions to your crypto browser. Always check the URL of the websites you’re using. And ALWAYS READ transactions before signing them.
9. Too Good to be True
Ok, no more decentralized staking. Instead, you found out about this new private platform that can do the staking for you! There used to be bunch of them: Celsius, Block.Fi, FTX. I wonder what happened to them. 🤔
Or maybe your cousin Greg dmed you on Instagram about this new investment opportunity he got, from this millionaire 20-year-old who lives in a mansion in Miami, and has a green Lamborghini.
They all have one thing in common: they promise an unbelievable 20% return on your crypto investment! This is 2x more than what you pay on your mortgage. So why not remortgage your house, invest with them, and make a 10% profit from the delta in interest rates. Clever!
Then one day, you wake up to this.
Congrats! For the next 5 years, you will receive a bunch of emails tracking the class-action lawsuit in hope of getting some of your money back (you won’t, the lawyers will get it).
Oh, and be careful with those emails! Because the court had to make the list of plaintiffs public, which includes you and your email address, making you a perfect target for scammers trying to steal from people who already lost all of their savings. 🤗
Pro-tip: Anything that gives you more than 10% interest is likely a scam. If not, you could still lose money to some obscure concepts like impermanent loss. Avoid.
10. Dying
Alright! You’ve been 10 years into crypto, and you somehow managed to avoid every single exit scams, rug pulls, bankruptcies, lost wallets, stolen keys, sim swaps, hacks, bad trades, and market crashes.
You’ve made millions of dollars in crypto, and kept everything secure! Nobody can ever find the keys to your private wallets, except for you.
Then, you get hit by a bus. And as you lie dying on the street, it dawns on you: Nobody can find the keys to your private wallets.
Not your parents, not your wife, not your siblings, not your kids.
All of those risks, all of that stress, all of those efforts, are gone with you. You leave nothing behind — which was the reason you got in crypto in the first place.
But perhaps it won’t happen to you. After all, we all subconsciously know that dying only happens to other people. Not you, you’re young and immortal!
Pro-Tip: Some companies offer crypto estate planning. Otherwise, you may want to add the keys to your wallet to your will. But don’t let your notary see them! Don’t trust anyone that isn’t family. You may want to lock this info inside safety deposit vaults. Or give your family a physical, encrypted storage device, and give the password in your will.
Why is Crypto so Risky?
Crypto is ruthless because transactions can’t be reversed.
This is a necessary evil. Crypto is meant to be the foundational layer of a new, open, borderless, and free financial system. If transactions could be reversed, then nobody could trust it.
However, the fact that transactions can’t be reversed makes it absolutely brutal for beginners, and very appealing for scammers and hackers.
This foundational level isn’t meant to be used by everyone. The foolproof, scam-free user interfaces have yet to be built. To be fair, they’re probably still a decade away.
I’ve been in this space with many friends over the past 10 years. We’re all smart and tech savvy. And yet, every single one of us ended up losing a significant amount of money over the years. Some lost millions. A few lost everything and had to start over from scratch. This is the risk you take when you sign up to these exchanges.
This is the article on safety I wish I had 10 years ago. If you find this useful, please share to your beginner friends in need.✌️
