This is not a comprehensive guide (yet). However, I plan to update it constantly (feel free to reach out with more ways to lose Bitcoin!). Someday, it may include all the different things you can do to lose your corn. Then, all you need to do is avoid all these mistakes! Let’s get started:
Trading
Can mean a few things. Some people feel the urge to sell their Bitcoin after a price pump. They wanna buy back with a lower price and end up with more Bitcoin. The problem is, you sell after a pump and the pump continues, leaving you forever waiting for lower prices that will never come. Or you sell ‘successfully’ but fail to buy back lower because you wanna wait for *even lower* prices and are left holding fiat. Or you can do all this ‘successfully’ one time, two times or even a few times, but then a time will come when you fail spectacularly and this one fail will set you back more than all your previous gains. Also, you record taxable events selling regularly. Also, you are not the only one who wants to have more Bitcoin. Everybody does. You are up against people with more resources than you. 99% of traders are losing Bitcoin. Most likely, you will not be in the 1%. Just don’t trade.
Another form of trading is taking a loan against your Bitcoin holdings and buying more Bitcoin with the loan – this is called a leveraged long position. Some people think they know Bitcoin won’t drop another, for example, 25% (depending on the amount of leverage) from a certain price. They then take this loan and buy more Bitcoin. They then wait for an increase in price and get more of the upside. However, they need to keep paying for the interest on loan until they eventually pay back the loan. And more importantly, *they all will be liquidated* in an event like we just had. An ‘unexpected’ price drop and now your borrowed Bitcoin plus your original Bitcoin will be worth just as much as the loan+interest you need to pay back. You will automatically be liquidated. You will be left holding zero.
Another form of trading is the buying of altcoins. Every day you see some coin getting more gains than Bitcoin. It’s a different coin everytime but nevertheless makes you feel its kinda easy to get some ‘cheap’ alts and wait for the gains to arrive at your coin of choice. But the thing is, you never pick the ‘right’ one. There are literally thousands of shitcoins and the ones that have pumped already are not going to pump again, and you have no idea what’s gonna pump next. Whatever you choose, it will be the wrong one and you will see other alts pump next to you. Also, immediately after you buy an altcoin it will start to bleed and your holdings btc-value will start to drop. You either hang on and wait for the pump (which may never come, or may not be enough to rise you above all the bleeding) or you take the loss and switch to another one. If you are very lucky and get a pump to your altcoin you will need to sell. If you sell too fast and the pump continues you will feel like shit. If you have the top but don’t manage to sell you will also feel like shit and possibly hold for the inevitable bleeding waiting for the top again to finally sell, but it will never come. Also, understand that you are not the genius making money buying hot alts. There are people on the inside of every single altcoin, that have gotten their coins with zero cost (premine beneficiaries). They have 1000x or 100000x the amount you have and at any price they will be on profit. They are the winners, not you. They will dump on you and everybody else. It’s just a matter of time. The HODL meme does not apply to altcoins. They are a hot potato and everybody needs to get rid. Stay away.
Seed phrase / backup
Seed is 12 or 24 words that you write down when setting up (most of the) wallets. If for whatever reason you lose access to this wallet you can use the seed phrase to regain access. Therein also lies the threat – so can anyone else. You type your seed phrase into your computer – a bad idea. You use a printer to print out your seed on paper – a bad idea. You take a photo/screenshot of the words – a bad idea. Someday when you least expect, after one of the aforementioned events your seed phrase will get into someone else’s contiousness and he will use it to empty your wallet. Always use a pen and paper (or a dedicated product) to write down your seed phrase.
But even then, if someone else (a visitor, your sons drunken friend, etc.) finds this paper you’re screwed. If someone throws away this paper (your wife, during moving, during cleaning, etc.) you’re screwed. You need to carefully think where to place it (so nobody but you can find it), and make multiple copies of it (so if one of the copies was accidentally destroyed, you’re not immediately screwed).
If you use Bitcoin core, you won’t have a seed but you will have a backup (copy of your wallet.dat file). Few things to take into account. First, you wanna have your wallet encrypted so that the file on itself is not enough to get access to your Bitcoin, you will also need a strong password (brute force safe). Be sure not to forget this password because that is a sure way to lose your Bitcoin. I recommend you try to regain access a few times as if you needed the backup. This will make the process memorable for you and help you in a time of need. Second thing: Have more backups than one. What if your USB-stick breaks down? What if your apartment burns in a fire? You don’t want to also lose your Bitcoin in such a situation. Have more backups than one and keep them in separate physical locations.
Download wrong software
If you like to use Bitcoin core (like I do) you wanna make sure the files are actually what you think they are and not malware that will steal you Bitcoin. Make sure to verify PGP signatures and SHA hash of the file with the help of this guide:
If you use a hardware wallet, you might get notifications to update your firmware. The thing is, sometimes the notification is fake and a scammer has found out your e-mail and that you have a hardware wallet. You then unsuspiciously download a new ‘firmware’ and the scammer steals your Bitcoin. Try to verify from multiple places that there indeed is a new version for the firmware and be very careful about where you download such a thing.
Be attacked in person
If you tell publicly (Facebook, Twitter, etc.) about your Bitcoin holdings, identity and location, there’s a chance someone will target you, break into your house and force you to drain your wallets. It might be rare, but it has happened. I struggle with this one slightly because what about the public figureheads then? The podcasters, the early Bitcoiners that go by their real name, the Bitcoin evangelists that surely hold significant amounts of Bitcoin. I guess they have taken their chances but for you and me, there is no reason to tell everyone you know and don’t know that you hold a lot of Bitcoin.
Worth mentioning is that certain hardware wallet producers gather and store name, location and Bitcoin amount data from their users. This data has leaked historically so be careful about what services you use requiring you to disclose your holdings / personal info.
Exchange hack
If you don’t take self custody all it means is someone else is trying to figure out the best way to store your Bitcoin. It might be convenient but you have zero control about what is gonna happen. It’s not once or twice an exchange has been hacked and all the user funds have been gone. It doesn’t even need to be a real hack. Maybe the exchange is operating at fractional reserves? There’s not enough Bitcoin for every customer and when you decide to withdraw, you will get an endless list of documents and verifications to send and perform. Then you will land at the end of their withdraw request line and need to wait for months to get anything at all. Maybe the exchange lets you withdraw only a certain amount and you will basically need to keep withdrawing many years to get your bitcoin out. Maybe your government makes a crazy new law and the exchange decides to be loyal to your government instead of you, the customer. With self-custody you have none of these problems, but of course, you yourself have the responsibility to not lose your bitcoin.
Giveaway scams
There used to be a lot of giveaway Twitter scams in the form of comments. A popular account tweets something and in the comments section somebody looking like the original tweeter comments like this: “send 0.1 BTC to this address and I will send you double amount back!”. Then, there will be many comments below praising and giving thanks. It worked, hallelujah and so on. These kinda comments are *always* scams. Nobody will give you their bitcoin. Everyone will want to have your bitcoin. Even, if the giveaway account actually is the president of US. Even then, you’re not gonna get any bitcoin back. All it means is the popular account has been hacked.
Nowadays, these scams are more in the direct messages and less in the comments. If somebody sends you DMs and tells you he can make your bitcoin grow on a trading plan, he is a scammer. Even if he ‘is’ your friend. Many people have been scammed by their so called friends with similar profile and name. In reality, a scammer. Hell, maybe he actually IS your friend but dumb enough to believe such trading strategy and wants to double your bitcoin with his ‘contact’.
Whatever the occasion, and person, nobody is going to give you more bitcoin. Everybody is looking to get your bitcoin. Everyone is a scammer.
To be continued..
-Mr. ERB
Twitter: @RetireEarlyBTC
