Crypto

With crypto, the most basic form of interaction is using a self-custodial blockchain wallet. You don't need to reveal your identity to any government to create a blockchain wallet, nor do you need to reveal your identity to anyone on the blockchain network to conduct basic transactions.

Once you create a blockchain wallet you are the only person responsible for the assets held inside - similar to how you are the only person responsible for your cash.

If you accidentally send your digital assets to the wrong address, it's gone - there's no reimbursement. Similarly, if a thief manipulates you to gain access to your private keys and steal your digital assets then it is unlikely that you will get them back.

Practicing risk management in the world of crypto generally involves protecting access to your self-custodial blockchain wallet, avoiding social manipulation, and being wary of custodial services and entities.

This article was written with the Ethereum blockchain network in mind. While these risk management practices apply generally to all blockchain networks, each blockchain network can have varying architecture, features, and levels of security. These practices will not help protect your assets if they are on an unsafe network.

Self-Custody

For self-custodial blockchain wallets, any action undertaken to protect the digital assets held within can be seen as a form of risk management. This includes diversifying your digital assets across multiple blockchain addresses, getting a hardware wallet, and other such efforts to minimize the risk of losing all of your digital assets in a single incident.

You can find more safe wallet practices here.

Social Manipulation

One of the bigger differences between crypto and cash is the amount of information online. This wealth of information makes it easier for scammers to conduct social manipulation attacks. They can take multiple forms, ranging from personalized phishing emails to twitter or discord hacks.

The primary purpose of these social manipulation attacks is to get you to visit a compromised website and interact with it using your blockchain wallet. Just visiting these websites can't steal your assets, but the websites often use deceptive language or imitate well-known brands to make you believe that they are official. There are normally calls to action, encouraging you to hurry and inducing a fear of missing out (FOMO), telling you to 'claim your prize' or 'mint now.'

All of this is done in an attempt to get you to approve a transaction in your blockchain wallet without paying attention, in the hope that they can drain all of your digital assets before you notice.

Another common form of social manipulation involves price manipulation of NFTs or cryptocurrencies. A good rule of thumb is that if you're feeling a fear of missing out or if you're seeing everybody talking about some new project - it's probably too late to make money on it. Only buy into those projects if you are okay with them losing their value.

Custodial Services

Unlike banks or stock brokers, governments have minimal influence over blockchain networks. It's entirely possible for someone to start a custodial crypto exchange in a different country, take customer deposits, and then flee into anonymity with all of the funds.

To put it another way - if a service is telling you how it will increase your money if you open an account with them and make a deposit, they're probably trying to scam you.