What is a Bitcoin Scam?
Cryptocurrencies — aka cryptocurrencies — are online currencies. Cryptocurrencies exist on computer servers across the globe. When a user connects to a wallet (an online account that holds and manages cryptocurrencies), they get a wallet address. This address is associated with the user’s currency account and can be used to send and receive the cryptocurrency. Users deposit money into a wallet and it becomes an account on the blockchain, the public ledger of all Bitcoin transactions and ownership.
Users also receive cryptocurrencies automatically when they make payments to other wallets in their community. Bitcoin and many other cryptocurrencies are secured through a secret cryptographic algorithm.
The Warning Signs of a Bitcoin Scam
Scam sellers claim to give buyers the ability to receive payments as they pass through multiple third parties (such as Western Union) using the power of Bitcoin and blockchain. They tell you they’ve managed to save up a significant amount of cryptocurrency and will convert your money into more. However, after you’ve agreed to the terms of the transaction, there are many ways the seller may try to run away with your money.
The first giveaway is that the seller provides little or no evidence that their company and cryptocurrency work. They also fail to provide basic information such as the account holder’s name and physical address, so verifying their identity is impossible. The company also tries to portray their efforts as positive, when in reality they’re stealing your money.
How to Avoid a Bitcoin Scam
“At the moment, the most direct way to tell whether a company is legitimate is to get background information,” Peter Van Valkenburgh, director of research at Coin Center, tells Entrepreneur. “But this requires a good amount of detective work and digging. A company like Vaultoro, for example, provides lots of background information about itself and its team. It tells users that its main priority is to take care of their identity, and it encourages users to report suspicious activity to them.”
Vaultoro’s website also provides a full explanation of the company, including its team’s background and educational history.
What Kind of Bitcoin Scams Are There?
As more people come into the crypto scene, scammers have learned to leverage these opportunities to scam victims. Here are some of the scams out there:
Coloured Coins: Cryptocurrency related to Bitcoin is available for sale on many websites, often as part of the licensing process of this coin. Companies will offer to create a coloured coin that offers the exact same attributes as their own currency, but with a higher market cap and greater distribution. However, the coin you receive will only work for the purposes of scamming you.
Cryptocurrency related to Bitcoin is available for sale on many websites, often as part of the licensing process of this coin.
Investing in the stock market isn’t for everyone, but investing in digital cryptocurrencies might not seem as risky as it sounds. Just remember to do your due diligence, be aware of frauds and scams, and remember to never lose your money.