Last Updated September 13th 2021
6 Min Read

As is the case with any other investment, Cardano is not free of risk. But the debate on whether Cardano really is a safe investment has gained global attention due to the frequency and scale of attacks launched against other digital currencies.

Cardano’s value and position in the crypto market has increased tremendously in the recent past. Launched in early 2017, the Ethereum killer’s value has increased by more than 10800% to reach $78 Billion, making it the third-largest cryptocurrency. The fete has attracted a lot of investors and traders interested in the ADA token, as evidenced by its daily trading volumes of between $5 and $9 Billion.

In addition to the pouring in of investors and traders, however, Cardano’s has also attracted droves of cybercriminals looking to steal and trick investors and traders out of their ADA holdings. Between 2019 and 2020, for instance, the Crypto Anti-Money Laundering and Crime Report by CipherTrace indicated that more than $1.9Billion worth of digital assets had been lost.

Given Cardano’s growing popularity and ease of access as it is listed with virtually all leading crypto trading platforms, experts believe that a share of this loot was pilfered from ADA investors. This then begs the question; are Cardano investments safe?

We answer this question in detail in this post by telling you of the popular risks and frauds Cardano investors are exposed to and how to avoid them. We also help you differentiate between Cardano security and privacy. First, though, we look at what every Crypto investor needs to know before buying Cardano.

 

What To Consider Before Buying Cardano (ADA)

Before buying Cardano, it is important to know that the choice of your crypto exchange, your Cardano wallet, the staking platform (if you are a long-term HODLer), and your motivation to buy play the biggest role in determining the security of your coins.

In the less than a decade that crypto exchanges have been around, we have seen and heard stories of fake platforms that turned out to be fronts for scammers. You’ve also had stories of exchanges that had been hacked and client funds lost, such as the Japan-based Liquid exchange hack in August this year where more than $90 Million worth of digital assets was stolen.

There have also been even more reports about security loopholes in crypto exchange codes that criminals could capitalize on in stealing client data. It then becomes mandatory that you carefully vet a crypto exchange before registering a trading account with them.  

These ills aren’t unique to crypto exchanges but have spread to Cardano wallets and DeFi staking platforms. You, therefore, have to vet these platforms rigorously before registering with them.

Perhaps more importantly, you need to vet the reason for investing in Cardano. Are you looking to grow wealth, looking at it as a retirement plan, or simply driven by FOMO? Whatever the case, ensure that the motivation, especially FOMO or the bid to grow the investment, doesn’t drive you towards get-rich-quick scams.

What Are The Risks Associated With Cardano (ADA)?

At the moment, the two primary risks affecting Cardano investments are the loss of Investor funds to hackers and other criminals as well as the loss of investment value to down-trending ADA token prices.

The risk of loss of investment to hackers is more leather because such a loss is permanent. Unlike banks and other financial institutions that have insurance in place to reimburse client deposits in case of loss, most exchanges and digital wallets that support Cardano aren’t insured.

There is little, if any, that one can do to get back their ADA tokens. This then makes the need for thorough vetting of Cardano exchange, digital wallets, and Cardano token staking platforms even more necessary.

The risk of loss of funds to down-trending Cardano token prices is more common, but this loss is impermanent. It is more common than hacking because the token prices are constantly changing throughout the day.

It is considered impermanent because if you are patient enough, optics are that the ADA token price will rise again and cover the loss. You only lose the investment from volatile Cardano price action if you decide to sell after the coin’s value drops.

Other types of scams to look out for

In addition to price volatility and hacking, there are numerous other scams that have seen crypto investors lose digital currencies worth millions of dollars in the last few years. Some of the most common include:

Ponzi and pyramid schemes

Ponzi and pyramid schemes are get-rich-quick programs that target investors looking to grow their investments fast. In most instances, the scammers will come up with an investment program or fake DeFi app/protocol that guarantees higher-than-average returns for investors who lock their funds therein for a specified period.

They are often characterized by developers/entrepreneurs of questionable backgrounds and are very vague with how the more than average returns are achieved. In most cases, however, they take down the website or investment platform and run away with investor’s deposits.

Fake DeFi apps

The CipherTrace report indicated that of the $1.9 Billion lost in 2020, more than $129 Million is related to DeFi hacks and scams. This goes to show that hackers now have their guns trained on DeFi, especially the staking platforms. In addition to hackers, cases of rug pull scams, where schemers come up with highly attractive DeFi platforms only to abandon the project and run away with client funds later, have been on the rise.

Check Out: Is Cardano Worth Investing?

How To Keep Your Cardano (ADA) Safe

Despite the many and often costly risks that Cardano investors are exposed to, there are several measures that one can take to protect their ADA investment.

For starters, you can ensure that you vet exchanges, Cardano wallets, DeFi protocols, and other investment programs rigorously before registering with them or trusting them with your ADA tokens. And if you are new to crypto investing or aren’t entirely sure what to look for, only use expert-recommended platforms.

Secondly, avoid getting sucked in to get rich quick schemes that almost always turn out to be scams. To achieve this, start by learning how to spot a get-rich-quick scheme and keep abreast with the crypto industry news to learn of new scams and how to detect/avoid them. You also need to identify your motivation for investing and understand that the wealth generation process can be rather slow.

Cardano Security Vs Privacy

The terms security and privacy have been used interchangeably in crypto discussions about keeping your investments safe, but the two terms couldn’t be more dissimilar.

When discussing Cardano security, we highlight topics that involve protecting the investor’s ADA holding from theft and malicious damage. We outline the different risks that threaten the investor assets and lay out the practical steps that one can take to either eliminate these risks and reduce their impact when they hit.

In Cardano privacy discussions, on the other hand, the topics of responsible handling, access, and use of the investor’s personal information take precedence. Here, we would have outlined the type of personal information that the Cardano blockchain, crypto exchanges, and wallets collect, how they store it, who has access to it, and the measures that have been put in place to prevent unauthorized access to this data.

Don't miss: Is Cardano a Good Buy?

Bottom Line: Is Cardano (ADA) Safe?

Well, Cardano is a relatively safe investment because its price action isn’t as volatile as that of such other cryptocurrencies as Bitcoin. Further, and as CipherTrace reports, incidences of hacking and other malicious threats to cryptocurrencies have been a slow decline, probably because crypto exchanges and wallets have put in place more measures around their platforms and scaled user education on how investors can protect their digital assets.

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