cryptocurrency scams

How to Avoid Getting Scammed With Cryptocurrencies

The rise of cryptocurrencies has been fascinating to watch, but there are a number of common scams associated with with this form of digital currency.

Cryptocurrencies are incredibly exciting and it can be a roller coaster to watch your investment grow and shrink. However, unlike traditional currencies and stocks, cryptocurrency is unregulated. While there are many legitimate companies out there, there are nearly 1,000 dead cryptocurrencies whose coins have no value or were nothing more than scams or Ponzi schemes to begin with.

In Japan, for example, eight men were arrested who collected more than $68 million in cryptocurrency from around 6,000 people as part of a pyramid scheme.

If you are getting started in the world of cryptocurrency investment and trading, here are some areas where you should conduct due diligence before moving forward:

Initial Coin Offerings (ICOs)

ICOs, like IPOs, offer an opportunity to get in at the ground level. The Securities and Exchanges Committee (SEC) has issued a warning against them, stating: “They also bring increased risk of fraud and manipulation because the markets for these assets are less regulated than traditional capital markets.”

In the United States, many ICOs qualify as securities, and must be registered with the SEC. This agency actively investigates companies promoting digital assets and cryptocurrency ICOs that have not registered and are not eligible for an exception. Registration ensures that securities make financial disclosures to investors. It also works to prohibit deceit, misrepresentation, and fraud in the sale and exchange of securities. Information from registered companies is publicly available online to promote truth in securities.

Other countries have taken an even harsher approach against ICOs. For example, South Korea and China have banned ICO fundraising altogether due to the risks involved. Unlike more traditional IPO and stocks, which give investors equity in a company, ICOs give investors tokens that increase in value as more people invest in the company.

Governments are right to be worried – one study suggests that 80% of 2017 ICOs were scams, receiving $1.34 billion in funding. The good news is that, despite the large number of ICO scams out there, they received only 11% of funding given that year. This means that the majority of projects were legitimate, which is good news for the future of this industry.

One way to vet an ICO is to look at the supporting documents and examine the company, as you would for any IPO or similar investment. In addition to researching the company, make sure you look at its whitepaper. Ask yourself, does the whitepaper make sense, or is it full of jargon? Does it sound like it is written by someone who understands the company, or by a freelancer who recycles the same generic blockchain explanation from a dozen other papers?

Moreover, when you ask questions to the company, do they provide real answers that you can understand, or is every answer a regurgitation of empty buzzwords? Play devil’s advocate and question the feasibility of the project. Transparent companies with a legitimate ICO will demonstrate their faith in their companies.

Cryptocurrency Offers

One of the defining features of a cryptocurrency is the potential for anonymity. Is anyone on the internet really who they say they are?

Most people are able to recognize scams in spam email – what are the odds that a Nigerian prince is actually reaching out to you for assistance with his financial issues? However, people sometimes lose their common sense when it comes to new technology that they may not quite understand. In London, for example, nine people invested a combined £150,000 from cold-callers purporting to sell non-existent cryptocurrency over the phone. Do not let this be you!

There is real danger in investing without knowing to whom you are giving money. Do not let the promise of instant riches sway your better judgment. As the SEC warns:

“If an investment sounds too good to be true, be cautious.”

As with any other type of potential investment, if a promoter guarantees returns, if an opportunity sounds too good to be true, or if you are pressured to act quickly, please exercise extreme caution and be aware of the risk that your investment may be lost.”

When you go to the company’s website, does it feel like a real company website, or is the same person doing all the work? Are all the photos of the company stock photos, or is there a real office with real people, not just models? Again, use your judgment. Do not be afraid to turn down an offer if it does not feel right.

Cryptocurrency Exchanges

Finally, you should be cautious about the exchange you use to buy cryptocurrency. Even if you do all your due diligence on a cryptocurrency and feel confident in purchasing the tokens, you should turn an inquiring eye on the exchange you want to use as well.

Exchanges are where cryptocurrencies are traded. They make good money on transaction fees from these trades and are not regulated or secured.

One infamous example is Mt. Gox, one of the original bitcoin exchanges that hosted 70% of all transactions. In 2014, the exchange was hacked and 850,000 bitcoins were lost or had been stolen, valued at $473 million at the time.

Due to the potential for hacks on less-than-secure exchanges, many experts recommend storing your own cryptocurrency in your own wallet, not on the exchange. 

When choosing a cryptocurrency exchange, your due diligence should include the history of the exchange, the number of transactions that occur on the exchange, what kind of security systems are in place to prevent hacks, and how it is insured.

Final Thoughts

You may have noticed a common theme running through this post – the importance of treating cryptocurrency investments and transactions the same way you would treat any other business or financial transaction. At the end of the day, investing in cryptocurrencies can yield great rewards. However, the new technology should not make you forget the common sense you would utilize in any other situation.

This article does not provide legal advice. If you seek an Internet lawyer who understands your business and technology, contact the Internet lawyers at Revision Legal today at 855-4-REVISION.

Bitcoin 101

One of the most exciting internet trends in the past few years has been the rise and decline of bitcoin. Although the currency has been around for a decade, in December 2017 it reached its record high of nearly $20,000 per coin. While the coin’s value has dropped considerably in 2018 – it is currently less than $4,000 per coin – it is likely that we will be hearing more about the currency in 2019 and beyond.

Here is what you should know about bitcoin right now.

What is Bitcoin?

As much as bitcoin has been in the news, it can be a difficult concept to wrap your head around.

Bitcoin is a cryptocurrency, meaning that it can be used to buy products and services. Many businesses, including Revision Legal, have been accepting bitcoin payments for a number of years. Like paper currency, it has value because the people who use it believe it has value and pay money for it, or accept it in exchange for goods or services.

Bitcoin is unregulated by design; there are no government currency controls. Instead, all transactions are publicly stored in a ledger called “blockchain,” which is stored on a peer-to-peer network. All transactions are open and public, but users’ identities are anonymous.

Data miners track and encrypt bitcoin transactions, and save this data in the blockchain, in a similar manner as a family keeps track of expenses in a checkbook. The blockchain records every bitcoin transaction between any two parties in a public record, stored on every data mining system. This makes many people say that the blockchain is indisputable, and argue that bitcoin has a technologically secure system.

New bitcoins are created through data mining. In a nutshell, data miners use software that generates code and verifies bitcoin transactions in the blockchain ledger. In exchange, data miners are eligible to receive bitcoin as payment for their work.

Bitcoins are traded on public or private exchanges. In order to access your coins, you need to store unique private keys – passwords – in a wallet.

How can I Get Rich With Bitcoin?

There are two ways that people can make money off of bitcoin and other cryptocurrencies – data mining and investing in the currency.

Data miners can invest in either hardware systems or in cloud services. If you decide to invest in a hardware system, it will need to be more powerful than typical home or business systems. Basic set-ups begin at $500, but can easily cost thousands of dollars. Many miners today choose to join mining pools, which pool their computing power in order to increase their chances of earning bitcoin, and then split the profits.

While data mining was incredibly profitable years ago, it is becoming less so today due to competition. Data mining also requires a great deal of energy, which also can be a significant investment.

On the other hand, investors buy and trade bitcoin as if it is a stock rather than cash. Some may actively invest in the currency, while others may accept it in lieu of payment for services rendered. For example, in January 2018, rapper 50 cent announced that he had accepted 700 bitcoin for a 2014 album and forgotten about it for several years. He then discovered the account, which was worth $7.8 million.

Anyone who wants to invest in bitcoin can do so. You can buy and sell bitcoin on any of dozens of exchanges. When investing in bitcoin, you should remember:

  • Not every bank allows cryptocurrency purchases, so check with yours to make sure it does before trying to make a purchase.
  • Store your pass keys in a secure wallet. This is the only way you will be able to access your investment. While many exchanges offer wallet services, some experts recommend keeping your passcodes in your personal wallet for maximum security, even going as far as to print your keys, to avoid the possibility of being hacked.

There are also several business opportunities that run parallel to bitcoin, blockchain, and cryptocurrency. For example, IBM has created its own open source blockchain technology called Hyperledger. It is designed to increase data security and streamline transactions. This technology is adaptable to a variety of industries ranging from finance to healthcare, travel, and entertainment.

App developers can create secure wallet storage solutions or a payment platform that makes it easier to use cryptocurrency to purchase goods or services. Data security experts will be needed to monitor and neutralize threats to companies partaking in cryptocurrency transactions.

As the interest in bitcoin grows, there may be more demand from people who want a piece of the action. Bitcoin ATMs and vending machines, which connect to exchanges and allow investors to purchase bitcoin with cash, are popping up around the world. They offer opportunities for developers, designers, and marketers to create, distribute, and maintain these boxes across the country and around the world.

Criticisms of Bitcoin

Although bitcoin is widely praised in the technology community and gaining support in financial districts, there are many concerns about it.

One criticism is that bitcoin is a bubble waiting to burst. As more and more people jump on board, prices increase. However, there is concern that there is only so much growth possible. People may be making money now due to the increased interest and growth in cryptocurrencies, but at some point, further growth may be impossible.

Another concern is that there is nothing backing bitcoin. Even though the US Dollar has not been redeemable by gold or silver in decades, Federal Reserve banks hold collateral equal to the currency in circulation and the Fed stabilizes the market for dollars to avoid extreme fluctuation in value. On the other hand, bitcoin acts more like a stock than currency. It has no intrinsic value and the market can change drastically in a matter of hours.

Additionally, there are many aspects of cryptocurrencies, including the complicated technology and anonymous nature that make it easy for scammers to take advantage of buyers – a topic we will explore in the future.

This article does not provide legal advice. If you seek an Internet lawyer who understands your business and technology, contact the Internet lawyers at Revision Legal today at 855-473-8474.

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