How to invest in cryptocurrency without being scammed
Every day people get scammed investing in cryptocurrency. Or they may get hacked. In January, the Japanese exchange Coincheck lost $660 million worth of the NEM currency to hackers.
The theft highlights questions about the security practices of virtual currency exchanges.
Other exchanges, such as Bitfinex and Tether, have also been hacked.
Before you open an account, pharmacist and cryptocurrency investor Alex Saunders, who runs crypto education channel Nugget's News on YouTube, recommends downloading the Google Authenticator app on your phone.
"It will generate a unique pin number each time you log into these exchanges, so if you lose your username or password or if you get hacked, your funds are still secure and they can't log in."
It is important to use a reputable exchange and wallet, says cryptocurrency enthusiast Sam Calabrese.
Most crypto exchanges require photo identification such as a driver's licence or passport. He likes services such as Coinbase that often charge higher fees than competitors but offer "a very user-friendly experience". Coinbase claims to have served 10 million customers but it offers just three cryptocurrencies (Bitcoin, Ethereum and Litecoin) and it doesn't allow you to sell currencies, making it more of a storage facility for people who hold onto their currencies rather than trade them.
Saunders also recommends some other exchanges such as CoinSpot, which handles dozens of currencies; CoinJar, which is for Bitcoin only and comes with a swipe card linked back to your account; Bittrex, which only allows you to use Bitcoin and Ethereum to buy other currencies; and ACX.
"Identification is not required to set up wallet software on your computer or phone, which allows you to receive funds," explains Calabrese.
You should store your cryptocurrency in hardware that can't be hacked - for example, a USB stick kept in a safe place, says Saunders.
Calabrese says that for security and peace of mind, his cryptocurrency is stored offline.
"However, the cryptocurrency I trade with are held by a variety of exchanges including Australian-owned BTC Markets."
Data modeller and cryptocurrency investor Kyle Kucharski says he stores his cryptocurrencies in Trezor, which he describes as "a highly encrypted device you plug into a USB port".
He also uses CoinTree for his Australian dollar to Bitcoin purchases, which does require ID.
"When using a trading exchange such as Bittrex, they may place small restrictions on your account until you provide ID but unless dealing with large amounts they do not impede your ability to trade."
Get stories like this in our newsletters.