Bitcoin is designed to give you full control over your money, but that freedom comes with responsibility. Unlike with traditional banking, there is no customer support to contact to reverse a transaction, recover a lost password, or refund stolen funds.
It is therefore important to understand the main risks, which can help you stay safe and make sure your bitcoin stays with you.
In this guide, we break down the top risks every bitcoin holder (or HODLer) should be aware of and offer practical steps you can take to protect digital wealth.
Quick Takeaway
● Bitcoin is secure, but individual holders face real-world risks such as scams, hacks, and device compromise.
● Most losses occur due to human error or too much reliance on third parties.
● With the right habits and tools, you can reduce almost every major risk to near zero.
Counterparty Risk
Counterparty risk is the danger of trusting someone else to look after your bitcoin. Many exchanges, custodial wallets, and lending platforms hold your private keys on your behalf.
When you rely on them, you depend on their security, honesty, and stability.
History shows this is a serious risk. Major platforms have gone bankrupt or been hacked, leaving customers locked out of their funds. Even large exchanges with advanced security can fail.
In some cases, withdrawals are frozen because of liquidity issues or a requirement by a regulator. It also often happens that hackers find a way into the platform’s hot wallets, and because customers do not control the private keys, they have no way to reclaim their coins.
Best Practices
● Use self-custody with a hardware wallet instead of long-term exchange storage.
● Only keep on exchanges what you are actively trading.
● Verify withdrawals immediately after buying bitcoin, especially on new platforms.
● Learn how private keys and wallets work before moving large balances.
Physical Security Threats
Bitcoin can attract criminals because it is valuable and its transactions on the blockchain can't be reversed.
One of the most discussed risks is the so-called “5-dollar wrench attack,” where someone uses physical force or intimidation to make you hand over your bitcoin. This can happen when your holdings become publicly known or when security practices at home are weak.
Other physical risks include theft of backup seed phrases not properly stored, break-ins targeting safes, or family members accessing wallets without permission.
Even well-meaning mistakes, such as showing a hardware wallet on social media, can expose you to unwanted attention. That means you need to protect yourself from physical attempts to access your coins.
Best Practices
● Keep a low public profile about your bitcoin holdings.
● Store backups securely in separate locations.
● Consider multisig or geographically distributed storage to eliminate single points of failure.
● Improve home privacy, such as having no visible safes and limiting who knows what you hold.
Social Engineering & Scams
Scams are among the most common ways bitcoin is stolen. This attack happens when criminals exploit your trust and emotion.
One major example is the pig-butchering scam, where a scammer builds a long-term relationship with you before convincing you to invest through a fake platform. These scams can be very sophisticated and often copy legitimate financial platforms.
Other forms of social engineering include impersonation, fake giveaways, phishing websites, and malicious links. These attacks do not require technical skills but rely on manipulating you into revealing sensitive information or sending funds.
Best Practices
● Never trust unsolicited messages or investment offers.
● Verify all links and platforms before entering any information.
● Never share your seed phrase or wallet recovery details with anyone, under any circumstances.
● Build strong personal cybersecurity habits to avoid common traps.
Digital Attacks & Device Compromise
Many attacks target the devices you use to store or access your bitcoin.
SIM swap attacks are a major example, and this is where an attacker convinces your mobile provider to transfer your phone number to their SIM card. This gives them access to SMS-based 2FA codes and your online accounts. Once inside your email or exchange account, they may attempt to withdraw or steal your bitcoin.
Malware is another threat.
Downloading a fake wallet app or using an infected computer can expose your private keys. Attackers also create websites designed to steal seed phrases or intercept wallet interactions. Even browser extensions can be weaponized.
Best Practices
● Use an air-gapped hardware wallet to store keys.
● Avoid SMS-based 2FA and instead use an authenticator app or hardware security key.
● Keep bitcoin activity on a dedicated device with minimal apps installed.
● Never install unknown software or browser extensions on devices used for bitcoin.
Self-Custody Risks
Self-custody gives you full control over your bitcoin, but it also introduces the risk of losing access if you mismanage your wallet or backups.
The seed phrase is the most important piece of information in bitcoin security. If someone gets it, they can take your funds. If you lose it, you cannot recover it.
Common errors include storing the seed phrase on cloud drives, keeping only a single backup, writing it down incorrectly, or failing to plan for inheritance. Hardware wallets can also fail due to physical damage, user error, or outdated firmware.
Best Practices
● Store your seed phrase offline on durable metal backups.
● Never take a photo or store recovery details digitally.
● Keep at least two backups in separate, secure locations.
● Create a simple inheritance plan so your family can access funds if needed.
● Test your recovery process before storing significant balances.
How to Stay a Step Ahead
Bitcoin is safest for people who treat security as an ongoing habit, not a one-time task.
Staying alert, keeping your digital life tidy, and following basic principles can dramatically reduce your risk. Use strong privacy practices, understand how wallets work, and stay aware of common scams.
Most importantly, take full ownership of your security, as nobody can protect your bitcoin better than you can.
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