Top 26 Cryptocurrency Risks and Mistakes in 2026

In a Nutshell Myths and common crypto mistakes people still make in 2026. The big myth. “A secure blockchain = secure apps.” The big mistake. Gaps in knowledge, skills, and hands-on experience. Jump straight to the detailed risk breakdown.

The Most Pressing Problems of Using Crypto

Crypto offers freedom, but the risks are constantly shifting. Below, we look at what really hurts in 2026 and how to avoid losing your shirt.

People and organizations lose their crypto for both obvious and sneaky reasons, get sanctions and fines because they don’t know the rules, suffer nervous breakdowns, and even become victims of kidnappings and attacks by armed criminals who understand crypto.

We analyzed 26 cryptocurrency risks from the perspective of user mistakes. We considered perception, behavior, emotions, habits, stereotypes, and other psychological phenomena.

Our work will help you identify your weak spots when dealing with cryptocurrencies. We took a bird’s‑eye view of security problems to improve strategic understanding and figure out how to tackle them at the user level.

Risk Map Risks of direct user errors – mistaken beliefs, inattention, gullibility, and mismanagement of passwords, keys, and wallets. Technological risks – problems of the blockchain itself, CEX, DeFi, NFTs, cross‑chain bridges, oracles, and more. Market and investment risks – volatility, liquidity, stablecoin troubles, impermanent loss, and outright investment scams. Legal and regulatory risks – immature laws, imperfect AML/CFT procedures, tax issues, consumer rights, data protection, and liability of issuers. Other risks – physical security, environmental concerns, and psychological effects.

Causes of Crypto Risks

The causes of modern cryptocurrency risks are diverse. In some cases the user bears more responsibility; in others, the main vulnerability is baked into the technical design or the law.

We shouldn’t downplay the responsibility of corporations, developers, and owners of crypto projects and platforms, nor regulators, governments, and other stakeholders in the crypto industry. All the risks we mention are systemic. They can only be mitigated through the joint efforts of all of these parties.

At the same time, our goal today is to show the complexity, breadth, and depth of cryptocurrency risks from the user’s point of view. That practical angle gets too little attention. That’s why we focus on user mistakes. As the saying goes, God helps those who help themselves.

Blockchain is a rapidly evolving technology. It’s extremely difficult to design and implement perfect, stable processes and programs. The most effective measures are often negative (removing vulnerabilities and outdated mechanisms) rather than positive (just adding “more security”). More attention must be paid to threat modeling and implementing better protection.

Quick Glossary 2FA — Two-factor Authentication. AML/CFT — Anti-Money Laundering / Combating the Financing of Terrorism. CEX — Centralized Exchange (custodial platform). DApp — Decentralized Application. DEX — Decentralized Exchange (usually non-custodial). DeFi — Decentralized Finance. KYC — Know Your Customer. KYT — Know Your Transaction—on-chain address and transaction risk screening. UI — User Interface.

Mistakes as Causes of Cryptocurrency Risks

Crypto traders, investors, economists, buyers and suppliers of goods and services, and ordinary citizens who want to preserve their savings from inflation have all stepped into a new financial world. Each of them is prone to mistakes to one degree or another.

A significant portion of real crypto losses is directly linked to users’ misconceptions, inattention, and negligence. Although we primarily work on reducing corporate IT and blockchain risks, we found that many crypto risks sit at the intersection of user behavior and developers’ laissez‑faire approach.

Cryptocurrencies are not an industry tested by time. The field is complex, poorly regulated, and almost uninsurable, and so there’s a lot of noise. Mistakes and risks will inevitably fall on the heads of early adopters.

User errors arise from lack of knowledge, skills, and experience. To reduce them, we recommend thoroughly studying high‑risk topics, consulting experts and authoritative sources, and being aware of the limits of your competence.

We’ll focus on users’ misconceptions and decisions. We’ll show how their mistakes exacerbate market, technological, and legal risks.

The Main Myth of Blockchain Security

Back in 2008, Bruce Schneier showed that the feeling of security is very different from real security. When using cryptocurrencies, people often confuse their sense of safety with actual protection.

Blockchain technology was originally developed to increase trust and resilience, since transactions are verified by consensus and data are distributed. But blockchain security depends less on algorithms than on correct usage.

Despite these fundamental properties, in practice users often lose funds because of implementation errors, immature protocols, smart contract vulnerabilities, and human factors. Any security system is limited by its weakest link.

The main contradiction of cryptocurrency security lies in the widespread belief that the internal strength of the system (the cryptographic robustness of the blockchain) automatically ensures user safety. The mistaken idea that blockchain guarantees security and anonymity leads to a false sense of protection and encourages wrong decisions. Security is a complex task; ensuring it takes more than just using blockchain.

Groups of Cryptocurrency Risks

To simplify working with cryptocurrency risks, we divided them into the five groups mentioned above in the Risk Map. These could also be combined in a multi‑dimensional matrix of causes and consequences—grouping risks not only by type but also by their causes, effects, and possible countermeasures. We’ll start with direct user errors and continue with technological, market and investment, legal, and other risks.

Risks of Direct User Errors

Incorrect user actions have been and remain among the most critical causes of financial loss. Users harbor misconceptions about the fundamental principles of how blockchains work and the real security of individual applications.

1. The illusion of security in self‑custody and underestimating operational risks

In traditional financial systems, and even on CEXs, security is largely managed by institutions. Users assume their non-custodial wallets and accounts at brokers are as inherently secure as at banks.

One common misconception is the illusion of security in self‑custody—when a person stores their private keys on a hardware or software wallet and believes they fully control their security. They mistakenly think it’s enough to protect the key itself. There’s an illusion that the physical safety of the key is all you need. Operational risks—errors, compromised devices, spyware, loss—go unnoticed.

Don’t overestimate the idea of ​​self-custody’s omnipotence, which is good in itself, but security is a complex matter that needs to be considered with due care.

2. The illusion of 2FA and multi‑signature effectiveness

Users often overestimate 2FA, treating it as a silver bullet. In DeFi, however, 2FA usually plays a much smaller role than on CEX, because access to funds is based on possession of a private key rather than identity verification. 

Similarly, multisig reduces the risk of a single key compromise, but it does not protect you if a sufficient number of signers or devices are compromised or if the user confirms a malicious transaction in a DApp.

Don’t overestimate 2FA and multisig. They are helpful, but not a cure-all.

3. Mistakes in managing passwords and private keys (including seed phrases)

If you don’t have unique, complex passwords for each service, you’re vulnerable. Weak, easily guessable, or reused passwords expose you to hacking. Private keys and their analogs—seed phrases—are critical for accessing and controlling crypto assets. Leaked or vulnerable seed phrases can lead to complete loss of assets.

There are two major threats to seed phrases: leakage and loss. Leakage means the phrase becomes known to outsiders; loss means you can’t recall or recover it yourself. You have to protect against both.

A seed should be stored only on physical media, not electronically, and never on devices connected to the Internet. It’s better to keep multiple paper copies in different safe places. Some people laminate their phrases; others engrave them on stainless, heat‑resistant plates.

4. Use of custodial and software wallets

What if your computer or smartphone is already hacked or infected? It can happen. Using custodial and software wallets (hot wallets) doesn’t guarantee your crypto won’t be stolen. Modern malware can copy files with private keys, intercept passwords and seed phrases, or replace addresses in your clipboard.

So how do you protect yourself from crypto theft? The last and most reliable measure is a hardware wallet. Only its screen shows the correct address and amount. It stores the private key inside a chip that’s nearly impossible to extract data from. But even that isn’t a cure‑all, especially if the device itself is compromised. Although hardware wallets (such as Ledger or Trezor) are among the safest ways to protect crypto assets, they aren’t immune to all risks. The manufacturer could be hacked, backdoors may exist, or compromised firmware could be used. Users also forget to update firmware regularly.

It doesn’t make sense to buy a $100 or $200 hardware wallet to protect assets of comparable value. But if you’re safeguarding several thousand dollars or more, a hardware wallet is a must, like insurance.

Whether you give your personal information to the manufacturer—say, for a recovery service—is a trade‑off between convenience and privacy. It’s your call.

5. Mistakes with addresses, networks, and protocols

Inattention when entering recipient addresses, choosing the wrong blockchain network or transaction protocol can lead to disaster. A single wrong character will send your funds into the void.

Scammers worsen it by using address poisoning. Attackers send victims tiny transactions from an address that looks familiar. The user then copies that address from their history, thinking it’s the previous recipient, and sends money to the thief. Scammers exploit our tendency to trust and reuse addresses from recent history—a “habit attack.”

The only cure is attentiveness, double-checks, and the four‑eyes principle: two people check and execute the transaction. Or, if you’re alone, slow down and focus; haste makes waste.

6. Susceptibility to fraud and social engineering

Users are vulnerable to deception, manipulation, and psychological pressure; this often leads to loss. These attacks are among the most dangerous because they target the human factor, which can’t be patched with code.

Social engineering involves tricking users into giving up their funds or doing other harmful actions. Modern scammers combine in-depth knowledge of psychology with technological tricks.

Phishing is one of the most common kinds of digital attacks and of social engineering in particular. Attackers send phishing e‑mails and SMS, posing as legitimate providers (brokers, exchanges, wallets). They spoof links and domains and create counterfeit sites of popular crypto services. The irony is that they prey on our desire to protect ourselves: the victim receives a fake message from MetaMask or an exchange asking them to “verify” or “update” something for security.

Recently, losses from wallet drainers have grown, especially through fake “Claim/Check/Simulate” pages that hack the user’s address and steal their tokens. Rotten seed phrases and gas honeypots have become more common. A victim sees a plea for help along with someone’s seed phrase for a wallet with assets, but the wallet doesn’t have enough gas to pay fees. In a gas honeypot, the spammer encourages the victim to send a small amount of gas, promising 50% of the assets; the user empties their own wallet.

Malware is downloaded through phishing links, fake apps, or infected websites. It lets attackers control computers, log keystrokes, replace the clipboard, and steal crypto.

Protect yourself from phishing, fake websites, exploits, and other malware with digital hygiene. Check URLs. Don’t click suspicious (i.e., unexpected) links in emails or messages. Install software only from official stores, using links from official project websites. Don’t trust only stores. Regularly update your operating systems, official apps, wallet firmware, and antivirus software. Develop critical thinking. Check and double-check multiple communication channels. Don’t overuse auto-signing.

Investment scams such as Rug Pulls and Pump‑and‑Dump are also abuses of trust, but due to their specificity, they are discussed later.

7. Risks of compromising Web3 infrastructure and supply chains

The problem lies at the intersection of user errors and technological risks.

Many users interact with DeFi and wallets via a web interface. Even if the protocol’s smart contract is secure, an attacker can attack its entry point. DNS spoofing, website compromise, malicious script injection, dependency attacks (npm/packages), malicious browser extensions, or RPC provider compromise can cause a user to sign a transaction with the wrong parameters, issue infinite approvals, or send funds to the attacker’s address. Such incidents are particularly dangerous because they appear normal on the surface, and the user sees a familiar domain/interface.

Do not click on ads or random links to access DApps. Utilize bookmarks and verify domains/certificates. Limit approvals. Grant only what is necessary and regularly revoke old permissions. Utilize transaction simulation and wallet risk warnings (if available). For large amounts, use a separate “clean” browser profile without unnecessary extensions and a separate computer for crypto operations.

Technological Risks

Users have limited influence over the root causes of risks associated with blockchain tools and platforms. However, by understanding them, users can better evaluate projects, switch to safer alternatives, and exit unreliable ventures in time.

We especially highlight smart contract exploits: reentrancy attacks, flash‑loan attacks, oracle manipulation, and bugs in “optional approvals” (often when interacting with NFTs). As smart contract auditors, we see these patterns constantly. These types of attacks have caused the greatest financial damage to the DeFi sector over the past 5 years.

The risks inherent to blockchain tools and platforms are extremely diverse. They’re compounded by infrastructure risks: centralized APIs, outdated nodes, vulnerable wallets, unsynchronized databases, and fragmented network communication.

8. Risks of attacks and failures at the blockchain level

Blockchain‑level disruptions aren’t an abstract threat but a very real risk for end users. Operations freeze, confirmations are delayed, and sometimes transactions are rejected.

Blockchains smaller than Bitcoin are susceptible not only to external attacks but also to internal threats, primarily due to insufficient economic security. The infamous 51% attack—monopolization of the network—is the classic example. As blockchains grow and mature, the probability drops, but it hasn’t gone away.

Other examples include chain forks and disputes. A fork is a network split due to upgrades or conflicts—disagreements about scheduling or fee sizes or refusals of support by mining pools or node administrators. Finally, consensus errors such as failures in BFT (Byzantine Fault Tolerance): complex PoS mechanisms are imperfect. Validators may go offline, be bribed, or coordinate maliciously.

Use large, stable blockchains and monitor their status through official monitoring, developer resources, and blockchain explorers. For diversification, use multi-chain solutions, but proceed with caution, as they have their own risks. Don’t chase high returns on unfamiliar and small blockchains.

9. CEX risks: account hacks, custodial losses, KYC leaks

There’s a paradox of centralization in the blockchain ecosystem. Although decentralization is a key idea of blockchain, many users prefer centralized exchanges (CEXs) because of their convenience and liquidity. Their security vulnerabilities are often exploited in combination with user mistakes. Cyber criminals follow the money: they attack where large sums are stored. CEXs are a prime target for hackers because of the assets they hold. They’re often less regulated than banks, which attracts less ethical operators. All this makes CEXs vulnerable.

Users who use weak passwords, don’t enable 2FA, or fall for phishing directly contribute to the success of these attacks. Thus arises a critical tension: the convenience and liquidity offered by centralized services are tempting, but they dramatically increase risk.

Choose CEXs licensed in your jurisdiction. If in doubt, choose a CEX from the top 3. For example, the world’s second-largest exchange, Bybit. Refrain from using DEX if you don’t understand their risks.

10. DeFi and smart contract risks

Decentralized exchanges (DEXs) are the core of DeFi, even though they can be seen as separate technology. The previous subsection doesn’t mean that DEXs are shielded from the problems. Quite the opposite.

Many DeFi platforms launch without comprehensive security audits and even without basic smart contract audits. Even big projects may neglect auditing or rush a release. DeFi also includes many centralized components. For instance, compromising admin keys that retain control over the protocol can lead to total loss of user funds.

Recent examples include mistakes when using account abstraction (ERC‑4337). Improper setup of guardians and recovery keys leads to unnecessary losses.

Transparency and composability in DeFi are a double‑edged sword. The transparency of transactions is a fundamental characteristic of blockchain; it provides trust but creates privacy risks and opportunities for attacks. Composability—the ability of protocols to interoperate, creating “money Legos”—means that a vulnerability in one protocol can cascade to others. The very design principles that make DeFi powerful also add complex, interlinked risks. Some protocols can become too big to fail, and their failures trigger chain reactions.

Be wary of promises of guaranteed high returns. Avoid using immature or little-known technologies. Conduct thorough due diligence on projects. Choose open-source projects with active community support, a reputable team, and independent audits of smart contracts and infrastructure. Implement specific security measures within projects. Review smart contracts before signing. Avoid giving unlimited approvals. Use services like revoke.cash to revoke permissions. Set slippage limits—the maximum permissible price deviation. Properly configure custodians, custodians, etc.

The legal risks of DEXs are a separate topic; we’ll touch on them later.

11. Risks of non‑fungible tokens (NFTs) and their ecosystems

Let’s touch on NFT security issues and related platforms (marketplaces, smart contracts, etc.). Lack of understanding, copyright violations, and a weak legal framework are just part of the problem.

First, NFTs are subject to general threats such as technical exploits and fraud. On one hand, phishing and fake NFT marketplaces scan your wallets; on the other, there is leakage or theft of private keys and administrative rights of the marketplace.

Second, like any crypto asset, NFTs are vulnerable to market manipulation—for example, selling NFTs with false promises or laundering money through NFT platforms.

Finally, there are specific risks. If an NFT represents a physical asset, its loss or destruction can render the token worthless. If the asset exists only in digital form, authenticity becomes a problem. The legal framework for NFTs is immature, so users bear the heavy burden of conducting thorough legal checks with every purchase.

Learn about and mitigate the general, specific, and legal risks of NFTs. Understand the specifics of NFT ownership.

12. Risks of cross‑chain bridges and oracles

We’ll wrap up the technological section with the security problems of cross‑chain bridges (technologies for transferring assets between blockchains) and oracles (sources of external data for smart contracts). These systems serve as important links.

Protocol teams and developers may misconfigure oracles or choose unreliable data sources. Users, in turn, often choose protocols without understanding oracle-dependence and manipulation risks. Many cross‑chain bridges operate on a “lock‑and‑mint” principle—locking tokens in one network and issuing equivalents in another—which introduces risks. Centralized storage of crypto, keys, and the bridge’s stability turns it into a single point of failure.

Choosing a bridge with little trust minimization (i.e., heavy dependence on centralized parties) and weak cybersecurity raises the risk of loss. The immaturity of bridge technologies makes things worse: ordinary users are essentially early testers of high‑risk fintech.

Understand and manage the specific risks of oracles and bridges. Avoid using immature or unfamiliar technologies.

Market and Investment Risks

Here we’ll focus on risks primarily linked to the financial characteristics of cryptocurrencies and investing in them. Market and investment risks are strongly tied to choosing the wrong crypto project or service provider. At the same time, many risks depend on decisions by other actors—issuers, regulators, and speculators.

13. Volatility issues

Prices of unstable cryptocurrencies (non‑stablecoins), beginning with Bitcoin, swing much more than those of traditional currencies, stocks, or bonds. Sharp rises and falls are the norm. Meme coins show extreme volatility. Because they lack fundamental use cases, their value is driven entirely by crowd sentiment, FOMO, speculation, and manipulation.

Apply the main rule of investing: invest no more than you can afford to lose.

14. Liquidity issues

Less widely used cryptocurrencies carry higher liquidity risks. While traders bear most of these risks, they also matter for investors and users. There are few trading pairs, order books are shallow, and volumes are thin. Any trade moves the price noticeably. Under such conditions, even well‑intentioned large investors who provide liquidity may be misunderstood, provoking panic. Delistings, withdrawal limits, and fragmentation of liquidity between networks and pools add to the difficulties. Other accompanying risks include market manipulation, improper behavior by issuers and exchanges, and lack of regulatory protection.

Check the order book, daily volumes, and the pool’s TVL. Make trial and partial trades. Prefer limit orders. Trade during peak market hours and on platforms with better liquidity. If the asset is niche, hold part of your position in a more liquid pair or stablecoin. Check for sell restrictions, blacklists, and “taxes” in the token code and documentation.

15. Stablecoin problems: de‑pegging, freezes by the issuer, regulatory risk

Stablecoins don’t have as stable an exchange rate or as secure a position in the crypto world as many users assume. Even before 2022, they were seen as a safe harbor. But that harbor has storms.

The idea of algorithmic stablecoins was discredited by the collapse of UST in 2022. Estimates put the damage in the tens of billions of dollars. Trust in algorithmic price‑stability mechanisms evaporated.

Non‑algorithmic stablecoins are essentially private, centralized pseudo‑cryptocurrencies. Their reliability is tied to that of their issuers. If the issuer is unreliable, a stablecoin can depeg or user funds can be frozen.

Monitor the reputation and regulation of stablecoins. Currently, for working capital, use USDT as the most popular stablecoin. For deposits in a bear market, choose a stablecoin permitted in your jurisdiction (for the EU, USDC). For deposits in a bull market, Bitcoin is superior to any stablecoin.

16. Impermanent loss in liquidity pools

DeFi liquidity pools attract users with promises of high annual percentage yields (APY) or token rewards. But high yields always come with high risk. DeFi offers opportunities for passive income by providing liquidity. At the same time, it introduces the complex, non‑obvious phenomenon known as impermanent loss: because of asset volatility, the value of your portfolio in a pool can decrease.

Consider impermanent losses when planning your DeFi investments.

17. Investment scams (Rug Pulls, Pump‑and‑Dump and others)

Unlike the distributed scams and social engineering described above—where criminals deceive users—investment scams are more centralized: groups or individuals run a con. These schemes resemble classic Ponzi schemes. As in traditional pyramid schemes, marketing tricks and inspiring stories are used to maintain the image of a promising project or altruistic mission, accompanied by price spikes.

To make these schemes easier to understand, consider the imitation of a crowdsale. Seven or eight years ago a simple pattern was popular: a site or smart contract claims to raise funds for a project. The site is packed with marketing promises, but little money is collected. The organizers inject a bit of capital to create the appearance of activity.

Fraudulent crowdsales often end with a Rug Pull—pulling the rug out from under investors. The developers close the project, withdraw the funds, and disappear. Rug Pulls can happen without a classical crowdsale: quickly attracting assets through DeFi or NFT projects, promising functionality that will never be implemented.

Pump‑and‑Dump means artificially inflating an asset’s price through coordinated actions, then selling at lightning speed. After the pump comes a crash; ordinary users lose their investments while the scammers pocket the profits.

Common signs of investment fraud are promises of guaranteed high returns with minimal risk, aggressive marketing, and lack of transparent documentation and audits. Investment fraud relies on sophisticated social engineering and financial manipulation that distort the investor’s perception, creating a false sense of security and hope for big profits. An unregulated environment further encourages these schemes by limiting the chance of legal redress. That’s why we’ll consider the legal risks separately.

Perform due diligence on projects. Don’t jump into impulsive investments. Take breaks and research projects for at least 48 hours. Beware of promises of guaranteed high returns and signs of pyramid schemes. Eliminate your psychological vulnerabilities: impatience, greed, fear, etc.

Legal and Regulatory Risks

Because of the novelty, complexity, and rapid growth of the industry, government regulation lags. One of the main problems here is uncertainty: rules often contradict each other or become outdated. AML/CFT methods and tools are imperfect, so even honest users sometimes are suspected and become unwilling victims of harsh measures.

There are also many other legal issues related to regulatory uncertainty, consumer rights, tax accounting, data protection, and corporate liability. This section addresses risks arising from imperfect legal and regulatory requirements and from users’ poor understanding of those requirements.

18. Unfair accusations of illegal transactions

A very topical issue. In our previous article, we wrote that tightening AML/CFT requirements and off‑ramp controls make all crypto circulation heavily monitored. We showed how governments, exchanges, and banks control crypto markets using on‑chain analytics, sanction lists, and KYC. Despite users’ good faith, they can end up on “red lists,” and their accounts, wallets, or exchange operations are blocked.

The main ways to reduce this risk include separating “clean,” “uncertain,” and “dirty” crypto into different wallets, documenting the origin of funds, and limiting interaction with blacklisted addresses.

19. Regulatory uncertainty and ownership rights to crypto assets

Risks related to the absence of clear, uniform legal regulation of cryptocurrencies and blockchain affect everyone—from developers to users. Many areas of the crypto industry, especially DeFi, operate in an almost unregulated environment. That means limited legal protection and unpredictability of regulators’ actions. DeFi projects often face changing laws and norms that can lead to sanctions and shutdowns. The lack of a concept of ownership rights to tokens can create complications in court disputes.

Stay informed about regulatory changes. Stay informed about the legal status of cryptoassets in your jurisdiction. Study not only the theory and laws, but also how they are applied by key players, including specific exchanges, payment systems, neobanks, and traditional banks.

20. Consumer protection

Users, especially in developed countries, are used to a high level of consumer rights protection. As we’ve noted before, that level is not yet achievable in the crypto sphere. Companies and services may trumpet protective promises, but it’s often just marketing.

Adapt your consumer habits to new technological and legal realities.

21. Data privacy issues

Users may not realize the consequences of publishing personal data on public blockchains. Blockchain data are immutable: any information sent to a blockchain stays there forever. After the GDPR came into effect, concepts like the “right to be forgotten” became popular. Users are entitled to have their personal data deleted or altered. On a public blockchain, that’s almost impossible.

Users accustomed to traditional ways of protecting their rights make mistakes and take on extra risk by transferring their expectations into the crypto world. They may inadvertently reveal their identity by disclosing addresses, transactions, comments, and metadata.

To improve privacy while respecting your jurisdiction’s laws and AML considerations, you can cautiously:

• use different IP addresses for different tasks;
• separate transactions and profiles;
• avoid conducting them all from a single KYC‑linked wallet;
• use proxies, VPNs, and private browsers when working with DApps;
• avoid publishing addresses in public sources;
• use privacy‑oriented blockchains (e.g., Monero, Zcash) or second‑layer solutions with enhanced privacy.

22. Taxation risks

Income from crypto operations (mining, trading, staking, selling NFTs, etc.) is subject to taxation. Rules vary across jurisdictions. Failure to pay taxes leads to penalties. Calculating profits is complicated by high price volatility, lack of a single standard for valuing assets, and the complexity of tracking numerous trades and fees. Property or inheritance taxes may also apply to crypto assets. Noncompliance can result in even criminal liability.

If it’s easy, pay your taxes and keep calm. If you’ve been investing your entire life in crypto and your tax situation is complicated, explore options for changing jurisdictions.

23. Responsibility of issuers and operators

People and companies that issue their own tokens or run blockchain platforms bear responsibility for the accuracy of their statements and legal compliance. In many countries, tokens must be registered as financial instruments or comply with securities law. Issuers attract investors through white papers, marketing materials, and public promises. If they ignore the law, they may face sanctions, fines, and lawsuits.

Understand the risks of creating and managing blockchain projects. Hire a lawyer and proactively structure the responsibilities of the developer, owner, issuer, operator, investors, and end users.

Other Risks

Finally, we’ll describe risks that don’t fit neatly into the categories above. Not all of these risks are caused by user actions, but knowing about them helps you navigate.

Physical safety and psychological risks require special attention: the stakes can involve psychological trauma or even life. Unfortunately, the technological ease of taking cryptocurrency compared to cash and its lack of control by governments and banks make physical violence a real problem. We’ll go deeper into these risks to provide a complete picture of modern crypto‑security issues.

24. Physical safety: extortion, “wrench attacks,” KYC leaks

This subcategory covers risks to the health, life, and physical safety of crypto‑asset holders. Not just money but life can be on the line. Hardware wallets or paper copies of seed phrases can be stolen from your home or while traveling. Their owner can be attacked. Phishing attacks evolve: attackers send fake emails posing as hardware wallet manufacturers, offering to update firmware or check the device.

Kidnappings of crypto holders or their family members for ransom are becoming more common. Criminals demand that victims transfer funds to their wallets under threat of violence.

Security through obscurity isn’t considered reliable in classic information security, but when it comes to physical safety, not flaunting your wealth and crypto holdings is one of the best protections.

Store your assets properly. Keep hardware wallets in safes or safety deposit boxes. Split your seed phrase into separate secure locations. Use 2FA without SMS, using authentication apps (Google Authenticator, Twilio Authy), or, even better, hardware tokens.

Strengthen your physical security. Install video surveillance systems, alarms, and safes. Attend anti-theft training. Avoid traveling alone to risky areas. If you are a public figure, hire personal security. Many companies offer physical security services to crypto investors, including threat monitoring.

Monitor for data leaks. Regularly check to make sure your data hasn’t leaked to the Dark Web. Use monitoring services like “Have I Been Pwned.”

Develop a contingency plan. Create a realistic wallet for a duress situation, duplicate wallets with time-locks, or use recovery services to slow down theft and give law enforcement more leverage.

25. Environmental risks

Bitcoin consumes more electricity than some developed Western European countries. That’s because of its Proof‑of‑Work blockchain and fierce competition among miners. High energy consumption fuels public backlash.

Choose PoS or similar blockchains. Alternatively, consider that Bitcoin consumes less than 1% of the world’s electricity.

26. Reputational and psychological risks (FOMO/FUD, stress)

The final risk group in our overview is about reputational harm for organizations or individuals and the psychological impact on investors and users. Reputational risks can arise from association with scams, money laundering, or simply the negative image of crypto in some societies. Companies whose names appear next to exposes lose customers and partners. Psychological risks come from high market volatility and actual or potential financial losses. Stress and FOMO (“fear of missing out”) can lead people to make irrational decisions.

These risks go beyond financial or technical matters. Crypto users’ risk management should include psychological resilience, reputation management, and self‑discipline.

A Comprehensive Approach to Risk Management

Thus, we’ve provided an extensive overview of modern cryptocurrency risks, their causes, and their effects. These risks:

• are multifaceted and interconnected;
• differ significantly from the traditional risks of both financial systems and IT;
• span technical, financial, legal, operational, and psychological aspects.

To solve pressing tactical tasks of reducing personal and corporate crypto risks, we concentrated on user mistakes, misconceptions, and delusions, and on problems of technology, markets, and the legal system. False notions of security, secrets management errors, susceptibility to social engineering, and many other factors make cryptocurrencies extremely vulnerable. It’s important to analyze risks and have multiple strategies to minimize them. 

Blockchain and cryptocurrency risks shift slightly every year. New risks appear, and measures against old ones are implemented. To stay in the safe part of the crypto world, you have to keep up with these changes.

What if a major failure, degradation, or slowdown occurs in the Bitcoin or Ethereum blockchain code? How will a default by a major issuer affect stablecoin liquidity and prices? What if states and banks suddenly and simultaneously increase tax burdens, fees, controls, and sanctions?

Are such disasters possible? We believe that they cannot be ruled out. Please let us know what you think.

If you have other questions, don’t hesitate to reach out to our specialists.