Learn the Basics.
No one likes a scam but do we blame Bitcoin itself. We’ll explain why Bitcoin is far from it.
In this section, you will learn why Bitcoin isn’t a scam, but more importantly how to protect yourself from them in the future.
Bitcoin itself isn’t a scam, no more than the financial instrument of a dollar bill.
There are however many shady individuals/companies advertising scams/programs with ways to make you unreasonable gains. These scams are likely financial pyramids/matrices. Utilizing such schemes can be very risky and the potential for financial loss is extremely high.
Bitcoin itself has nothing in common with such schemes, nor does it promise superior returns.
Bitcoin is merely a digital medium of exchange.
Remember, the responsibility of owning and taking possession of Bitcoins is solely yours and important. However, not all governments/organizations fully support Bitcoin, and this may pose certain risk for individuals.
Like other currencies, it is worth something, because people are willing to exchange it for goods and services. The exchange rate is however constantly fluctuating, although less over time in comparison to the past years.
Bitcoin is still vulnerable to wider institutional manipulation. Security incidents, such as exchange hacks, rug pulls and collapsing stable coins, can cause serious problems panic in an unregulated industry.
Anyone who invests in Bitcoin, should understand the risk he/she takes, and consider Bitcoin with a higher level of risk. At this time, Bitcoin is still unpredictable however will stabilize over time as it becomes more widely recognized and accepted. Always remember any investments including Bitcoin must be exercised with a clear risk management plan.
It’s called digital currency or internet money, yes, but Bitcoin is no more virtual than your credit cards and the online banking networks used every day. Bitcoins can be used to pay for goods and services online and/or physical stores just like any other form of money.
Bitcoins, however, can in fact be exchanged in physical form such as a paper wallet but paying with a mobile phone usually remains more convenient. Bitcoin units as balances on the blockchain are immutable. In other words, Bitcoin users have exclusive control over their funds and cannot simply vanish because they are virtual.
Now on the market, are several cryptocurrency-focused debit cards which allow you to spend your bitcoins directly from your wallet powered by an online exchange.
Bitcoin is a growing space of innovation and there are new business opportunities arising because of it. Despite its growth, there’s no guarantee Bitcoin will continue to grow or dominate as the preferred digital currency or largest cryptocurrency by market cap.
The growth of Bitcoin depends on global adoption, investments, time, resources, and wider innovations by developers to succeed; a wide range of factors to consider.
There are, however, various ways to make money with Bitcoin such as mining, speculation or running a new business, all posing their own individual risks. These methods are all competitive with no guarantees of profit. Proper evaluation of the costs and the risks involved in any project should be highly considered.
A Ponzi scheme is a fraudulent investment operation that pays returns to its investors from their own money, or the money paid by subsequent investors, instead of from profit earned by the individuals running the business. Ponzi schemes are designed to collapse at the expense of the last investors when there are not enough new participants. Most often, in Ponzi schemes, founders/individuals persuade investors of the possibilities of becoming rich.
Bitcoin doesn’t give such guarantees. There is no central authority or governing body over Bitcoin which would directly benefit from your onboarding or continued use. This would go against Bitcoin’s decentralized incentive mechanisms set in place.
Bitcoin is free software (open-sourced project) with no central authority. Therefore, no one can make fraudulent representations about investment returns. Like other major currencies such as gold, United States dollar, euro, yen, etc. there is no guaranteed purchasing power, and the exchange rate floats freely. This leads to volatility where owners of bitcoins can unpredictably make or lose money.
However, beyond speculation, Bitcoin is an incredible payment system itself (as originally designed), with useful and competitive attributes that are being used and explored by thousands of users and businesses globally every day.
Bitcoin is designed to allow its users to send and receive payments with an acceptable level of privacy as well as any other form of money. However, Bitcoin is not anonymous and cannot offer the same level of privacy as cash. The use of Bitcoin leaves extensive public records. Various mechanisms exist to protect users’ privacy, and more are in continued development. However, there is still work to be done before these features are used correctly by most Bitcoin users.
Some concerns have been arisen where private transactions could be used for illegal purposes with Bitcoin. However, it is worth noting that Bitcoin will undoubtedly be subjected to similar regulations that are already in place inside existing financial systems. Bitcoin cannot be more anonymous than cash and it is not likely to prevent criminal investigations from being conducted.
Additionally, Bitcoin is also designed to prevent a large range of financial crimes.
To this day, Bitcoin has yet to be made illegal by legislation in most recognized leading jurisdictions. However, some jurisdictions (such as Argentina and Russia) severely restrict or ban foreign currencies. Other jurisdictions (such as Thailand) may limit the licensing of certain entities such as Bitcoin exchanges. And China has since taken a strong stance against Bitcoin Mining.
Some countries are now in fact looking to adopt Bitcoin as legal tender. El Salvador was the first to adopt Bitcoin as legal tender for an entire country in June of 2021.
Financial regulators are taking steps to provide individuals and businesses with rules on how to integrate this new technology with the formal, regulated financial system. For example, the Financial Crimes Enforcement Network (FinCEN), a bureau in the United States Treasury Department, issued non-binding guidance on how it characterizes certain activities involving virtual currencies. Whether the SEC (Securities and Exchange Commission) or CFTC (Commodity Futures Trading Commission) takes controls of regulating cryptocurrencies, the global economy currently awaits further legislation to pass and the potential approval of EFTs (exchange-traded funds).
If Bitcoin is money, and money has always been used both for legal and illegal purposes. Cash, credit cards and current banking systems widely surpass Bitcoin in terms of their use to finance crimes. Bitcoin can bring significant innovation in payment systems and the benefits of such innovation are often considered to be far beyond their potential drawbacks.
Bitcoin is designed to be a huge step forward in making money more secure and act as a significant protection against many forms of financial crimes.
For many reasons, but not limited to:
Some concerns have been raised that Bitcoin could be more attractive to criminals because it can be used to make private and irreversible payments. However, these features already exist with cash and wire transfers, which are more widely used and well-established.
The use of Bitcoin will undoubtedly be subjected to similar regulations that are already in place inside existing financial systems, and Bitcoin is not likely to prevent criminal investigations from being conducted.
In general, it is common for important/technological breakthroughs to be perceived as controversial before their benefits are well-understood. The Internet itself or use of debit cards through ecommerce are good examples of the past among many others to illustrate this.
To this date the Bitcoin protocol itself has not suffered a critical hacking event since it went live in 2009. It is important to remember, such hacking events in the news were due to lack security measures imposed by the businesses controlling the wallets/funds.
The Bitcoin protocol itself cannot be modified without the cooperation of nearly all its users, who choose what software/network they use. Attempting to assign special rights to a local authority in the rules of the global Bitcoin network is not a practical possibility.
However, a wealthy individual/organization could choose to invest in mining hardware to control more than half of the computing power of the network, enabling them to block or reverse recent transactions. Known as a 51% attack, there is no guarantee they could retain such power since this requires an investment as much as or greater than all the other miners in the world simultaneously combined and executed.
There are also concerns quantum computing may break Bicton’s encryption. For reasons more technical, let’s just say this isn’t a concern of the near future and an upgrade to the Bitcoin network can happen if agreed upon.
Although outright banning Bitcoin has proven to be difficult. It is however possible to regulate the use of Bitcoin in a similar way to any other instrument.
Just like the dollar, Bitcoin can be used for a wide variety of purposes, limited by jurisdictional laws.
In this regard, Bitcoin is no different than any other tool or resource and can be subjected to different regulations in each country. Bitcoin use could also be made difficult by restrictive regulations and tax liabilities, in which case it is hard to determine what percentage of users will keep using the technology.
A government that chooses to ban Bitcoin would prevent domestic businesses and markets from developing, shifting innovation to other countries (i.e., China’s ban on mining, forcing businesses to establish elsewhere). The continued challenge for regulators is developing efficient solutions while not impairing the growth of new emerging markets, businesses, and innovations.
Bitcoin may be an unregulated asset, but that doesn’t put you off the hook entirely.
Bitcoin is not a fiat currency with legal tender status, but often tax liability accrues regardless of the medium used.
There are a wide variety of legislations in many different jurisdictions proposing and/or collecting taxes from its citizens/incorporated businesses. Such events may cause income, sales, payroll, capital gains, or some other form of tax liability to arise from the use/sell of Bitcoin.
Remember to keep meticulous records of your bitcoin transactions is key for when tax season comes around. Unfortunately, since owning digital currency isn’t as straightforward as owning stocks, an institution/exchange may not issue tax documents for currencies held/traded through their platform/wallet.
Always seek a professionally licensed tax advisor or accountant.
Through any opportunity, where money is involved, more than likely there will be a scam associated with it. In the early days, Bitcoin was revered as only used by criminals. As more individuals are becoming educated and the adoption of Bitcoin grows, we are learning the opposite.
In the event you were scammed, it is more than likely you were subjected to a particular individual’s/company’s malicious incentives. Scam can be executed in several ways.
The 4 most common types of scams are:
Targeted and unsolicited communications, usually by way of email or SMS messages.
Tips to Avoid:
Scams which lure in new investors with the promise of unusually high returns.
Tips to Avoid:
Malwares are like computer virus programs designed to steal your private keys, effectively stealing your bitcoins.
Tips to Avoid:
You can learn a lot about a person by what they publicly share. Scammers learn and share information about you in the attempt to access your accounts without your permission using your information. Commonly collected by guessing your passwords, or obtaining your information through common data breaches, an ongoing problem.
Tips to Avoid:
