The broker Nick Bauer from The Investment Center says you may defend yourself against Bitcoin fraud by learning about cryptocurrencies, getting educated on the most frequent types of fraud, and rigorously following specific measures to avoid becoming an “easy mark.” Many of the same fundamental concepts that protect you against any type of fraud also protect you against Bitcoin fraud.
Paper, coin, and digital versions of standard currencies such as the US dollar and the Euro exist. A central bank, such as the Federal Reserve Bank of the United States, guarantees its value. Since the end of the gold standard in 1971, the US dollar has been backed entirely by the US government’s confidence. With new cryptocurrencies like Bitcoin, this is not the case.
How Bitcoin Works:
Bitcoin, which was first used in 2009, is based on cryptographic transactions that are confirmed by a network and stored in a publicly accessible ledger known as a blockchain. Its source code has been made available as open-source software to the general public. As of 2017, 3 to 6 million individuals were utilizing cryptocurrencies in some form, with Bitcoin accounting for more than half of all transactions.
Allegations of regular fraud, theft, and price fluctuation have tarnished Bitcoin’s image. A large number of economists advise against using it because it is especially vulnerable to speculative bubbles and pyramid scams.
Bitcoin Transactions’ Inherent Vulnerabilities:
The following is a brief list of the risks associated with utilizing Bitcoin rather than government-backed currency:
- Payments made using Bitcoin cannot be reversed automatically. There is no way to get your money back once you’ve invested it without the vendor’s assistance or the filing of a lawsuit.
- Bitcoin exchange systems that are computerized may and are frequently hacked. Because of this, several of these platforms have gone bankrupt, and many Bitcoin users have lost a lot of money.
- Individual Bitcoin transactions are rife with fraud and theft. Someone posing as a Bitcoin trader is a common type of scam in which you are enticed to give money to him for an “investment” that you will never see again.
- Bitcoin is not protected by the Federal Deposit Insurance Corporation or other institutional safeguards that protect the US currency. The scenario is reminiscent of the US dollar’s inadequate safeguards in the run-up to the Great Depression.
- Bitcoin’s value fluctuates wildly, making investments very speculative. The whole bitcoin industry has been compared to an online casino by some.
Bitcoin Fraud in Its Most Common Forms
The magnitude of Bitcoin fraud is nearly unfathomable. Cybercriminals scammed cryptocurrency users and exchanges for at least $4.26 billion in 2019. (Not limited to Bitcoin). For example, in July 2019, the Japanese Bitcoin exchange BITPoint lost $4.26 million. Individuals face a similar, if not greater, hazard.
Only human creativity limits the number of different forms of Bitcoin fraud. The following are a few of the most common:
- Blackmail: A con artist pretends to have harmful information about you (an affair, corporate wrongdoing, etc.) and wants payment in Bitcoin as “hush money.” Threats, pressure, and different types of intimidation are likely. If you pay, the criminal will very certainly raise the amount until you run out of money. The FBI, local police, and the Federal Trade Commission should all be contacted.
- Pyramid “chain letter” schemes: In this fraud, you are promised the chance to make a lot of money by investing in the scheme and purchasing the right to recruit other people into the chain using Bitcoin, allowing you to gain even more money from the money other individuals invest. In essence, this is an unlawful pyramid scam. The pyramid ultimately falls, leaving the wealthy at the top and the rest of the population bankrupt.
- Scammy “investment opportunities”: The possibilities for this sort of con are limitless. The promise is one red flag – no honest business will guarantee that you will make money.
- Malware and viruses: It’s not difficult to use Bitcoin as bait to infect your computer and other devices with malware and viruses. Be wary of offers of quick access to Bitcoin resources that need you to click a link, especially on social media. Malware can offer criminals access to your current Bitcoin accounts as well as sensitive information about you (passwords, etc.).
- “Bit-phishing”: Online thieves may impersonate a well-known firm and then exploit the reputation of that company to persuade you to give them access to your Bitcoin keys. They now have access to your Bitcoin wallet. A $27 million “typosquatting” fraud based in the United Kingdom and the Netherlands featured a bogus website that was used to obtain access to Bitcoin wallets.