Well, as is the case with both crypto and conventional investments, your Stellar Lumens will not be immune to risks.
In most cases, it all has to do with untamed price action, but it can stretch to actual loss of the investment to cybercriminals and other unnatural factors. And it is easy to see why Stellar Lumens may be categorised among risky investments.
For instance, seven years after its launch, the coin has amassed an unexpected ROI of exceeding 9,617.85%. It has also been consistently voted as one of the fastest blockchain technologies around and was for a long time ranked among the top 10 largest cryptocurrencies by market cap.
These factors have helped boost the Stellar Lumen token’s appeal to both short-term crypto traders and long-term investors, whose constant market activity pushes the token prices gradually. The relatively high prices have, in turn, attracted the attention of cybercriminals who prey on XLM investors and the larger Stellar Lumens ecosystem.
But what definite risks should Stellar Lumens investors be wary of? How can you keep your Stellar Lumens safe, and what factors should you consider before buying these tokens?
We answer all these below and tell you a Stellar Lumens is a safe investment.
What To Consider Before Buying Stellar Lumens
First things first: the capital you put into Stellar XLM is not safe from price fluctuations.
You need to understand that Stellar Lumens has one of the most volatile price actions. You also need to consider your choice of the crypto trading platform and cryptocurrency wallet. These three play the biggest role in keeping your Stellar Lumens safe.
Stellar (XLM) is a volatile investment. If you're looking for a safe investment with guaranteed returns, then don't invest in XLM. Stellar isn't the only volatile crypto asset, and other smaller coins may be even riskier.
The XLM token’s volatile price action ensures that its value is constantly changing in reaction to the slightest changes in the crypto market. Both the positive and negative news, for instance, about the actual XLM coin, the stellar Network, Bitcoin or the larger crypto industry, will always have the coin’s value in an up-or downtrend at any given time.
You also need to understand that your choice of a crypto trading platform, as well as an exchange, will also play a key role in determining the safety of your crypto assets. The more security measures an exchange or crypto wallet integrates on their platform, the more secure your XLM investment likely is.
What Are The Risks Associated With Stellar Lumens
Every Stellar Lumens XLM investor is exposed to two primary risks, the risk of losing money to volatile prices and that of losing their investment to hackers.
Price volatility has now been largely accepted as part and parcel of any cryptocurrency’s price action, including Stellar Lumens. Here is how it works. Let us assume you have bought XLM coins worth $1,000 today. But in the next few hours, rumours about a possible Bitcoin ban or compromise to the Stellar Network emerge, prompting a sell-off that sees the coin’s value depreciate by 20%. If you decided to sell the investment at that moment, you would have lost $200 with XLM.
Due to their massive popularity and relatively high value, XLM coins have also become a target for hackers. These target individual investor wallets, online vaults by exchanges, and even personal user data held by hardware wallet developers. The difference between losing money invested in XLM coins to hackers and volatility is that price fluctuations can be corrected; hacks are mostly irreversible.
This is to say that XLM token prices are expected to eventually rebound and rise to higher price levels. You, therefore, never really lose money - unless you decide to liquidate the investment after a price dip.
Other Types Of Scams To Look Out For
Lost password and recovery seeds
There have been numerous reported cases of investors losing their crypto investments to lost passwords or recovery seeds for their exchange and wallet accounts. In trying to avoid hackers, most investors have ended up using hard-to-remember passwords and hiding their wallet recovery seeds in inaccessible places. Most of these cases have been tragic as individuals or their dependants ended up losing the investment.
Notable cases of individuals who have lost crypto investments to lost passwords include German programmer who lost 7000+ BTC coins after forgetting the password to the hard drive holding the digital assets. In Canada, Gerald Cotten - the former CEO from Quadriga CX exchange, died without sharing the passwords to the wallets holding more than $200 million of client funds.
The most common form of price manipulation when it comes to crypto investments is the pump and dump schemes. In these cases, an individual or group of individuals pump so much money into XLM by buying large volumes of the tokens at inflated prices. This triggered a fake rally that sees XLM prices rise drastically. The price manipulators will then sell all their holdings at the now high price, exposing traders to huge losses when the token prices start rebalancing.
Loss of demand risk/ fork discontinuation
There is also the risk of loss of demand for a cryptocurrency. There hasn’t been any reported case of a major cryptocurrency like Stellar Lumens falling out of favour with the crypto community and losing all or enough demand to render it valueless. This, however, is not to say that loss of demand or fork discontinuation isn’t a possibility. This explains why crypto experts are always advising you to vet the mission and problem-solving abilities of every cryptocurrency before investing.
Check Out: Is Stellar Lumens (XLM) A Good Buy?
How To Keep Your Stellar Lumens Safe?
There are multiple steps that every investor should take if they intend to keep their Stellar Lumens safe.
For starters, you can protect your XLM investment against possible loss to hackers by using a strong and unique password for your crypto exchanges and wallets. Further, activate all the security measures, especially the multi-factor authentication feature, provided by the exchange and wallet. Importantly, remember to keep a backup for these passwords and recovery seed in a safe and accessible place.
To protect your investment from loss occasioned by normal volatilities or possible pump and dump schemes, avoid selling the purchased coins. Be patient and hold on to them for a few months or years as its overall up-trending price action tell us that XLM will rebound from even any dip and set a new all-time high.
Stellar Lumens Security Vs Privacy
When discussing crypto security and risks to your XLM investments, it is easy to confuse between Stellar security and privacy - though there is a world of difference between the two.
You, however, need to know that when addressing Stellar Lumens security, we are simply referring to how your XLM investments are protected from loss. In this post, for instance, we have looked at who is responsible for the security of the XLM investment (you, wallet, and exchange) and discussed the threats that pose the greatest risk to your XLM investments.
Stellar Lumens privacy topic, on the other hand, would have addressed how Stellar Lumens investor data is handled. Such a post would be addressing such questions as to whether the investor transactions on the XLM network are anonymous? But we already know that, like Ethereum and Bitcoin blockchains, the Stellar network is pseudonymous.
This implies that while the average Joe can’t tell the identity of the sender and receiver or the amounts just by looking at the XLM transactions, your transactions aren’t entirely anonymous. With the right tools, cryptography skills and access to the XLM network, one can easily extract the personal details of the investors and traders.
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Virtual currencies are highly volatile. Your capital is at risk.