We're gonna be blunt here: you can never be too careful or aware when it comes to your money—and that means any money, cryptocurrency or otherwise. The personal anonymity that digital currency affords its investors can, unfortunately, be used to work against them. If you make a trade with an unscrupulous currency holder, and you send your payment, they may simply not respond. Or, you'll find their account at that exchange has disappeared a day or two later. Unfortunately, the cryptocurrency industry doesn't have anything like the FDIC, which protects your money if it's deposited in a US bank. There also aren't any regulatory agencies overlooking the industry.
As a result, the investors in alternative currencies tend to be self-policing. Theft and illegal practices don't just hurt the individual investor—they hurt the currency itself, and all who invest in it. The negative publicity generated by theft and hacking doesn't help, either. That's why many exchanges have built in some “we've got each other's back” features.
Chief among these are peer rating systems. Look at eBay as an example; when you buy or sell there, both you and the person on the other end of the transaction are encouraged to leave feedback—feedback that everyone who uses the site can see. Several alternative currency exchanges work on the same principle, and over time your feedback and peer ratings are gonna reflect how trustworthy you are as a trader. Ideally, jerks and thieves are weeded out by this process.
Now, it's not 100% foolproof; no security measure ever really is. That's why we recommend vigilance and strong record-keeping. As we mentioned in the previous section, do your research! Study the profiles and trader feedback comments on folks with whom you're considering making trades. Take notes, and keep copies of all correspondence. The majority of your fellow traders are honest people...but that doesn't mean you should leave yourself in a vulnerable position when one of the bad apples comes along.
Next Exchanges Topic: The "All Your Eggs in One Basket" Theory