By: Russ Spencer

As the global embrace of cryptocurrencies accelerates, so too does the sophistication of cyber threats and the consequences of human missteps. According to a report that appeared last week in The Wall Street Journal (WSJ), digital asset holders are increasingly vulnerable to both advanced artificial intelligence-driven scams and avoidable lapses in personal security.

In a sector built on decentralization and self-custody, there is no safety net — and as WSJ repeatedly warns, the price of complacency can be total financial ruin. Here are six of the most critical errors investors make, often with devastating consequences.

1. Using the Wrong Crypto Exchange

The foundation of most cryptocurrency transactions is the exchange — yet not all are created equal. Some platforms that once appeared reputable have collapsed, taking user assets with them.

“There is never necessarily a foolproof plan,” Eric Jardine, cybercrimes research lead at Chainalysis, told the WSJ. Even seemingly reliable platforms can implode unexpectedly, as seen in the case of FTX and other failed exchanges.

To mitigate risk, the WSJ reported that experts like Howard Greenberg, president of the American Blockchain and Cryptocurrency Association, advise using exchanges registered with the New York State Department of Financial Services (NYDFS). NYDFS mandates stringent compliance and cybersecurity standards. “If you pick one that’s approved there, that would be, to me, the closest to a gold standard that’s available,” Greenberg said.

2. Ignoring Storage Risk

Once purchased, digital assets must be stored securely — and how they’re stored can mean the difference between safety and theft. Private keys — long alphanumeric strings — are the only way to access crypto holdings. If stolen or lost, there’s no “forgot password” option.

The Wall Street Journal report emphasized the importance of cold wallets — physical devices not connected to the internet — over online (hot) wallets, which are more vulnerable to hacking.

“Cold storage is strongly preferred for anything other than minimal holdings,” Penn State Dickinson Law professor Tonya Evans told the WSJ. She also advises diversifying wallet types. “Diversification of your technology is also important,” Evans added.

3. Failing to Protect the Seed Phrase

Even the most secure cold wallet can be breached if a user mishandles the seed phrase — the master recovery key for accessing all crypto funds within a wallet.

As the report in the WSJ explained, some investors store this critical phrase on paper, only to lose it or accidentally destroy it. Storing it digitally without encryption is worse, leaving it exposed to hackers.

Greenberg stores his seed phrase in four distinct locations: on paper at home, in a bank safe-deposit box, with a family member, and on an encrypted hardware device. “Your heirs also need to know where it’s stored,” he told the WSJ. A lost seed phrase, after all, is the digital equivalent of burning your own safe full of cash.

4. Giving the Seed Phrase to a Scammer

Even savvy investors can be fooled by phishing attacks, especially when they come disguised as tech support. Some cybercriminals impersonate exchange representatives, asking for a user’s seed phrase to “fix” a nonexistent issue.

“Never, under any circumstances, give out your seed phrase,” warns Steve Larsen, CEO of AET Investment Services, in comments to the WSJ. Even if your hardware wallet is physically secure, handing over your seed phrase is handing over the keys to your digital kingdom.

5. Falling for Familiar Scams

Social engineering — psychological manipulation to gain access to confidential information — remains a prevalent threat. WSJ reports that crypto owners are routinely duped by emails or texts that lure them into clicking malicious links.

These scams often masquerade as legitimate notifications from exchanges or airdrop offers. One investor interviewed by the WSJ lost over $500,000 after unknowingly signing up on a fake Coinbase website with a nearly identical domain name.

Larsen advises: “Crypto exchanges won’t send you emails or texts asking you to take action.” If you receive one, the WSJ recommends deleting it immediately and checking your account directly through a verified website.

6. Mishandling Crypto Transactions

Even experienced users can make irreversible mistakes when transferring digital assets. Professor Evans shared with the WSJ that she once sent tokens from cold storage to an exchange that didn’t support that currency. The result? The assets were locked indefinitely.

Mistakes during peer-to-peer wallet transfers — such as miscopying a wallet address — are also alarmingly common. While QR codes and copy-paste functions reduce the risk of typos, the WSJ underscored that even small errors can lead to permanent loss of funds.

Vigilance Is the Price of Entry

The WSJ report consistently highlighted one major theme: cryptocurrency does not forgive error. With no centralized authority to reverse transactions or reset passwords, investors must shoulder the full burden of their own digital security.

As the tools of fraud grow more advanced — leveraging AI, psychological manipulation, and increasingly realistic fake platforms — it becomes imperative for investors to educate themselves, verify every detail, and adopt robust offline security practices.

There’s no substitute for skepticism, as the report concluded. And in the crypto economy, caution isn’t just wise — it’s essential.