Is Ethereum (ETH) Safe?

Last Updated January 7th 2022

8 Min Read

Well, like all other cryptocurrencies and traditional investments, Ethereum investment is not immune to risks. Crypto analysts and industry observers have, however, noted with a lot of concern that as Ethereum’s popularity and value increased over the years, its appeal to cybercriminals and other investment risks grew in tandem. Now everyone wants to know if Ethereum is a safe investment.

In May 2021, for instance, the Federal Trade Commission reported that crypto-related crimes had increased tenfold in less than 12 months. Unsurprisingly, a significant number of these crimes were directed towards Ethereum investors, ETH-trading platforms, and wallets - a phenomenon that most crypto experts attribute to the coin’s popularity - considering that it is the second-largest and most popular cryptocurrency.

Despite the increase in these crimes and other investment risks, Ethereum’s popularity hasn’t waned. In fact, it remains one of the most overbought cryptocurrencies. Does this, then, imply that investors consider Ethereum a safe investment?

We answer these in our ETH investment guide by looking at what you need to understand before buying ETH, the risks associated with ETH investing, and explain how you can keep your ETH digital assets safe.

What To Consider Before Buying Ethereum (ETH)?

Before buying your first Ethereum ETH token, you need to ask yourself if you can stomach its volatile price action. You also need to consider your choice of a trading platform, as well as the choice of a digital wallet.

First off, understand that Ethereum price is very volatile. It is not uncommon for the coin’s price to increase or shed significant value in a few days. Earlier in the year, for instance, Ethereum lost 60% of its value in about 10 days - between 12th May and 23rd May 2021. And close to five months later, it is yet to fully rebound and get back to this price level. You need to ask yourself if you can stomach such volatile dips to your investment portfolio.

The choice of a trading platform would also play a key role when making the Ethereum investment decision. For starters, you want to avoid exchanges with a bad repute of either poor customer support or a history of security breaches. Where possible, buy your ETH from platforms that have never been hacked and have a proven record of embracing solid security measures aimed at guarding not just their client’s ETH investment but also their private information.

Equally important, you need to consider how you store the private keys for your Ethereum coins. Crypto experts advise that you do not leave your keys in an exchange if you are not an active trader, regardless of the level of security promised by the trading platform. They also suggest that you avoid online, also known as software, digital wallets. For maximum security of your coins, consider investing in a hardware or paper wallet.

Crypto asset investing is highly volatile and unregulated in some EU countries. No consumer protection. Tax on profits may apply.

What Are The Risks Associated With Ethereum (ETH)

Here, risk refers to anything that threatens your Ethereum crypto token holdings. In this section, we look at the two most common risks, which present the gravest danger to your Ethereum assets. These are:

Price volatility

Price volatility is good, but only when it is uptrending and helping grow your investment. It, however, becomes lethal if the trend overturns drastically and prices start moving against your bet rapidly. All the ETH investors who bought the token at its peak of $4800+ on 16th November 2021 are, for example, still counting losses two months down the line. The lethal effects of volatility are even harder on active day traders who trade with leveraged funds.

Hackers

You are said to be hacked when a third party gains unauthorized access to your crypto exchange account or wallet and transfers your ETH tokens to another wallet. Both hacking and price volatility will ensure that you lose the invested capital. But while Ethereum prices will almost always rally after a period of time and cover this loss, there is a slim chance of ever recovering digital assets lost to hackers.

Other Types Of Scams To Look Out For

Pump and dump schemes

Pump and dump occur when an individual or a group of individuals come together to create an artificial price rally by buying a lot of ETH at relatively high prices. This tricks the investor community into thinking that the token prices are rising, which sees them pour into the market to trade the cryptocurrency, further inflating the token prices.

Just as the price peaks, the artificial inflators dump (sell) all the ETH tokens bought earlier at the current high price and exit the market. Since there were no fundamental elements to sustain these high prices, the token’s price speedily corrects and falls back to its original price.

Ponzi and Pyramid schemes

Ponzi and pyramid schemers create an investment website and promise Ethereum traders attractively high returns if they invest and lock up their tokens in these websites/programs for a period of time. But as soon as they hit their target, they pull down the website, cease communication, and vanish with the investor assets.

Forgotten passwords and recovery seeds

You will also lose your Ethereum ETH assets if you forget the password to an exchange account and have nothing to prove ownership of the account. You will also lose your ETH permanently if you forget the password to your digital wallet and lose its recovery seed.

Check out: Should You Buy Ethereum?

How To Keep Your Ethereum (ETH) Safe?

Despite these threats to your Ethereum assets, all is not lost as different Ethereum ecosystem players have come up with multiple ways through which you eliminate or minimize the impact of these risks. Here are a few things you can do to avoid these risks and keep your Ethereum tokens safe:

Get a hardware wallet

If you wish to avoid hackers and maintain the integrity of your Ethereum assets, you will need to first move your purchased ETH off the exchange. Secondly, invest in the ultra-secure hardware wallet that stores your coins offline.

Security measures

Both Ethereum wallets and Ethereum exchanges have embraced multiple security measures around their platforms. These include multi-factor authentication for log-ins and outbound crypto transfers and even integrating multi-signature tools. When interacting with either service, exchange or wallet, learn to take advantage of all these security features as they come in handy in deterring hacks.

Avoid the get-rich-quick schemes

To avoid falling victim to crypto scams and pyramid schemes, learn how to differentiate between legit crypto investment platforms and get rich quick scams. Some obvious ways to smoke scammers out include the fact that they offer hugely attractive returns that are way above market rates, they have shadowy management, and do not provide any details of their investment or how these juicy returns are realized.

Keep passwords and recovery seeds safe and accessible

After securing your exchange account and wallet with unique and strong passwords, learn to keep these passwords, seed phrases, and their backups in a safe and accessible place. The last thing you want is to lose your ETH assets because you forgot the password or misplaced the seed phrase.

Check out: Is It Too Late To Buy Ethereum?

Ethereum (ETH) Security Vs Privacy

The terms security and privacy have been used interchangeably in debates and forums discussing ways to keep your Ethereum safe. But the two are uniquely different and call for different approaches.

An Ethereum security discourse, for instance, is a discussion about the different factors that threaten the safety of your coins, the ways in which ETH coins can be lost, and how to eliminate or minimize these risks. When it comes to Ethereum security, the investors and Ethereum ecosystem players have different roles to play in keeping the coin secure and eliminating the incidence of these risks.

Ethereum privacy topic, on the other hand, touches on the anonymity or lack thereof of the transactions conducted on the Ethereum network. It is a discussion about the nature and extent of information that third parties can get from an ETH transaction. It seeks to understand if parties not privy to an ETH transaction can identify the sender and receiver or the amount of the transaction.

In the case of privacy, InvestDiva Instagram movement founder and “Cryptocurrency Investing for Dummies” author Kiana Danial says that your transactions on the network are private. With access to the right information and tools, one can access the blockchain and gather information from the transaction that they can reverse engineer to trace the identity of the senders and buyers.

The director of data and indexes at CoinDesk Learn, Galen Moore, explains the level of privacy offered to Ethereum network users when he says, “You are really not anonymous (when sending/receiving ETH), more like pseudonymous.”