At a glance...
In short, cryptocurrencies are not a scam. They are virtual currencies that don’t have a physical cash form, but they can be used just as certainly for online transactions. However, just as people can be scammed into making online payments with regular money, people can also be scammed into making online payments with cryptocurrency. Some common scam tactics include promising large financial gains, blackmail, or the use of social media. If you detect a scam, report it.
“Cryptocurrency” is a buzzword that may have left you feeling confused, excited, or hesitant. Some kind of underground network for shady operations? A way to make fortunes overnight? This article will clear your doubts and explain exactly what you need to know before deciding to use or invest in cryptocurrency.
What is Cryptocurrency?
Cryptocurrency is a virtual currency and doesn’t have a physical form. It’s typically developed by a team of coders who want to create a decentralised financial system, free from government intervention. Unlike most purchases using physical money, where a bank helps with processing transactions, cryptocurrency transactions are done without a third party. Instead, algorithms and consensus mechanisms work to help secure the exchanges online. The most popular currencies are Bitcoin and Ether, but there are myriads of others, with new ones popping up all the time.
What is it Used For?
There are a few reasons why people would use cryptocurrency. It could be a way to dodge transaction fees that you might otherwise incur at a regular bank. It could also be a more private payment method that offers greater anonymity. Cryptocurrency can also be a form of investment if its value rises over time.
Where Do You Get them?
As interest in cryptocurrency trading has increased, many online exchange platforms have been created to facilitate buying and selling different currencies. Some popular platforms are Binance,Gemini and Coinbase.
More advanced users might be able to earn cryptocurrency using a process known as “mining”. Because cryptocurrency runs on a decentralised system, miners are essentially volunteers who help to verify crypto transactions and are paid for their work in cryptocurrency tokens. However, mining is a complicated process that requires a large amount of computational power. It also releases new cryptocurrency into circulation.
Where is My Cryptocurrency Stored?
Being a fully digital currency, your cryptocurrency is stored in a digital wallet. This could be online on an exchange platform, or offline on your computer or external hard drive. However, the flip side of not having a bank or other external party secure it for you is that there is always a risk you could lose it irretrievably. If your online exchange platform collapses, you lose the password to your digital wallet or you send cryptocurrency to the wrong recipient, it’s quite likely you’ll never see that money again.
What’s the Difference Between Cryptocurrency and Regular Currency?
First, cryptocurrency is not supported by an institution. This means that if you park cryptocurrency with a company that one day goes bankrupt, the government isn’t obliged to intervene and help you to recover your lost money.
Second, fluctuations in the value of cryptocurrency can be wild. Regular currency values are usually tied to several external reference points because countries value economic stability to function well. Cryptocurrency, on the other hand, is subject to the whims of the market demand and supply, making its ups and downs a lot less predictable.
Paying with Cryptocurrency
So you’ve read the basics and now you want to give cryptocurrency a shot. Before jumping into it, you should know that cryptocurrency payments are not legally protected. Credit and debit card companies usually have a dispute system where you can lodge support requests. If something goes awry, they can help you to track your money and get it back. With cryptocurrency, though, once you make a wrong transaction, you’re on your own; the only way to get your money back is if the recipient returns it to you. It’s so important to do your research about the person you’re transacting with. Knowing details like their reputation or where they’re from could come in handy. Check and confirm everything before you pay in cryptocurrency.
Also, take note that some of your transaction details might be public. Not all cryptocurrencies offer full anonymity – in fact, most don’t. Transactions are typically recorded on a publicly accessible ledger, known as a blockchain. The details that accompany each transaction vary from one currency to another, possibly including the amount and the wallet addresses of the sender and recipient. Depending on the type of transaction, you might also need to provide the seller with other information, like a shipping address, which could be traced back to you.
Avoiding Cryptocurrency Scams
In general, scammers try to fool you into transferring them a large sum of money, whether in regular currency or cryptocurrency. However, the relative uncertainty that surrounds cryptocurrency can make crypto beginners a fine poaching ground for scammers. Here are some common scam strategies that may help you to identify potential scammers in future.
Promising Business/Investment Opportunities
- Offering the chance to earn large amounts of money within a short period.
- Multi-level marketing schemes where scammers tell you to pay in cryptocurrency for authorisation to recruit others into a programme. For every person you recruit, you’ll be rewarded in cryptocurrency. The more you pay, the more you’ll supposedly earn…but you never earn more than what you paid.
- Unsolicited offers to help manage your investments and grow your cryptocurrency. After you’ve transferred your cryptocurrency to the scammer, withdrawal from the “investment account” they’ve opened is locked by a fee barrier.
- Unsolicited job offers to help recruit cryptocurrency investors or mine cryptocurrency.
- Fake jobs on job portals that promise employment but eventually steal your money or personal details.
Look out for some common tropes in the following examples to help you instantly identify suspicious claims:
- Guaranteeing profits
- Guaranteeing large pay-outs and returns on your investments
- Promising free money
- Making claims without providing sufficient details (aka “trust me bro”)
Do. Your. Research. Make sure you fully understand how the investment works and where your money will be going. Look up the name of the company and the cryptocurrency they’re requesting. Add keywords like “scam” or “review” into your search to see what others have been saying about them.
Scams can come in the form of emails claiming to have information that could embarrass or discredit you, such as photos, videos, or other personal details. The scammer might threaten to release that information publicly and demand that you pay them in cryptocurrency (or any other currency, for that matter). This is blackmail and extortion. Don’t fall for it. Instead, report it to the police immediately.
Social Media Scams
Many scammers have recently turned to social media. You might receive messages on social media asking you to send cryptocurrency – these are scams. The message may even seem to have come from a friend, but the account could be a lookalike of your friend’s account, or your friend’s account may actually have been hacked. Contact your friend using another platform to ask about the message and whether they’re aware of being impersonated or hacked. Social media platforms will also have options for blocking and reporting scammers, so use them and spread the word to any mutual friends to do the same.