A cryptocurrency scam is a website that offers you cryptocurrency in exchange for your fiat currency. There are many such websites, but this blog is about the best of them. It explains how to spot a scam, and why it’s worth it to ignore the advice at other blogs about avoiding scams.
The first thing to notice is that most cryptocurrency scams are just what they sound like: a website offering to give you digital coins in exchange for real cash. That’s a pretty straightforward fraud, and once you’ve spotted one, you can spot them all. If a website offers you more than just virtual currency, it’s probably not a scam.
The most common way to get scammed is to pay money for some service or product, and then never receive the promised goods or services. The site isn’t really giving you anything; what it’s offering is fake money.
If that sounds like something you might want to do, here are the 3 red flags that indicate the site is probably a scam:
1. They claim to have access to unique information about an exciting new investment opportunity.
2. They provide little or no information about what they’re actually doing with your money.
3. You don’t already have their choice of investments on your doorstep.*
In the cryptocurrency world, as in any new area of activity, there will be people who want to take advantage of you. It’s a crowded field out there.
You can also look at whether the site is registered in an obvious gaming jurisdiction; or whether the site makes it clear that it has been hacked or otherwise compromised; or whether there are signs that maybe they don’t have lots of money to burn on developing this thing and they’re keeping it simple so they can keep up with their users.
Cryptocurrencies are a relatively new financial instrument. Cryptocurrency scams are an ancient con game. But because many of these scams work on the most basic and compelling human urge- to make money- they seem new and exciting. They are not new or exciting; they are old and boring.
In the ancient version of this scam, marks would get a message from a foreigner who had apparently found a great treasure, but he wanted to split it with them. That was riskier than selling fake gold, so it was important to have good credentials for the mark. The mark would have to go to some place such as Malta or Switzerland, where he could meet both the foreigner and someone else who would vouch for him as having good credentials.
If he could find a way to do that without spending any money, that was really good. If on the other hand he did spend money, it was just more opportunity for con men to take his money.
I have decided to write this post because the market is filled with scams and most people don’t know how to spot them.
Cryptocurrencies are not a scam, but there are definitely scams. To protect yourself from the scams, you have to know how to spot them.
The first step is learning the lingo. The main thing to remember is that what makes a cryptocurrency a currency is not the blockchain. What makes a currency a currency is people accepting it as money. A cryptocurrency must be able to survive in the real world where all sorts of forces conspire to destroy it:
Some readers will want to skip this section and go straight to the next one-the technical explanations of why Bitcoin is safe and Ethereum isn’t. I recommend reading this section first, because it gives you a clearer understanding of why cryptocurrencies fail. The technical explanations are more important for prospective investors than for anyone else. So if you don’t understand these reasons, don’t invest.
The first step in investing is to know what you are investing in. A cryptocurrency is a digital currency, with no physical manifestation and no central bank behind it. There are numerous cryptocurrencies, but Bitcoin (BTC) is the most popular. Like any investment, the appeal of a cryptocurrency comes from its potential for profit. If the price goes up, your investment will increase in value. But the price can go down as well.
So how do you know whether a cryptocurrency is worth buying? There’s no one-size-fits-all answer. I’ve had people tell me that “Bitcoin maximalists” are crazy for not wanting to hold anything else besides BTC; I’ve had people tell me that Bitcoin maximalists are crazy for not holding a basket of multiple currencies; I’ve had people tell me that Bitcoin maximalists are crazy for not holding a portfolio of multiple cryptocurrencies; and so on.
I feel like this blog should be rather consistent on this point: The best way to invest in cryptocurrencies is to treat them like any other investment, and then figure out which ones you think will have highest long term growth potential and lowest risk of loss.
Cryptocurrencies are a new kind of asset. They are software, but not in the sense that a computer program is software. Cryptocurrencies encode information about transactions and ownership in a form that can be transmitted over the Internet, like computer programs, but they are not computer programs.
Cryptocurrencies are not tangible objects. One of them, bitcoin, has an ISO 4217 currency code: XBT. But if you point a scanner at it, the image won’t turn into digits and cents; it will just stare back at you with a blank look.
Cryptocurrencies exist only as numbers in a digital wallet on your computer or in the cloud. You can transfer them from one place to another by transferring the number between devices.
Yet compared with other digital assets — such as stocks and bonds — cryptocurrencies have some unique characteristics. For example:
The supply of cryptocurrencies is fixed by design. If more people wanted to buy them today than there were available, more would have to be created tomorrow to meet demand; that’s how cryptocurrencies work. They cannot be created out of nothing by printing money or changing rules: that’s how fiat currencies work; what they do instead is create interest by paying you for holding them — interest on interest on interest.