You are aware of the gains that cryptocurrencies achieved in the last decade. But little do you know about cryptocurrencies. You can be assured to know that you are not the only one who feels confused about this emerging new financial instrument.
So before you get to invest in cryptocurrency, you should be aware of how it is different from cash or any other mode of payment. It is also crucial to identify and support the common cryptocurrencies scams that can lead to compromised accounts.
This article tries to highlight some of these aspects and a lot more.
Knowing About the Cryptocurrency
What Is It?
A digital currency that only exists in the electronic medium is what cryptocurrency is in simple terms. You will not find any physical bills or coins. Unless you choose to encash your cryptocurrency for a particular physical token, you will not see it in any form of cash. The exchanges happen online with the help of a mobile device or a computer with no financial institution as an intermediary. Some of the popular cryptocurrencies are Bitcoin and Ether.
How to Get It and Use It?
The purchase of cryptocurrencies can happen online through any exchange platform. Mining is also a popular process through which some people acquire cryptocurrencies. It involves a complex mechanism with advanced computer equipment and complicated puzzles.
Cryptocurrencies are popular as a mode of payment as you can use them to avoid bank charges, have quick transactions, or ensure anonymity. Some people store it as an investment tool in the hope of value appreciation. For example, Bitcoin showcased a growth of 8000% historically.
How to Store It?
Digital wallets help store cryptocurrencies, generally online or on an external hard drive or computer. The inherent risk of storage is what led to a low subscription of cryptocurrencies in its early days. For example, you can be unable to recover your funds or not be able to seek help from anyone in case of:
- Your choice of online seems that from going out of business
- You send the cryptocurrency to the wrong receiver
- You lose the password or the digital keys to your digital wallet
- Your digital wallet gets compromised or stolen
Since the transfer of the cryptocurrencies happens directly from the payee’s account to the beneficiary without the involvement of an intermediary bank, you can find no one to help with the issues if you encounter any.
How Is It Different From Dollar?
There are very crucial points of differentiation that you can find between your traditional currency and cryptocurrency, which can include:
- Absence of regulatory oversight – Unlike your bank account, cryptocurrency accounts do not have government backing. Therefore, you do not get any insurance from the government like you do when you deposit your dollars into the bank account. Chances are you will not get your money back, and the government does not have any obligations to step-in in the event of a third-party cryptocurrency storage company going out of business or getting hacked.
- Fluctuating values – The value of any cryptocurrency changes rapidly, unlike the dollar. Such a change can depend on a variety of factors that are primarily affected by demand and supply. The value of $ 500 investment can become millions of dollars tomorrow or can be zero. Thus, there is no guarantee of a cryptocurrency holding its value or going up once it touches lower values.
Paying With a Cryptocurrency
The payments using cryptocurrencies are different from the traditional means.
- Lacks legal protection – if something goes wrong with your debit card or credit card payment, there is legal protection provided with it. You will typically not find any grievance redressal process in a cryptocurrency similar to your credit card company.
- Non-reversal payments – Unless the receiver sends back the money, you are less likely to get back your money once you pay with a cryptocurrency.
- Transaction information can be public – although cryptocurrencies state to be anonymous, some information gets stored in the blockchain.
Avoiding Cryptocurrency Frauds
Past experiences showcase that scammers innovate new ways to con money from the investors using cryptocurrency. Although there are many obvious signs that the scams often reflect, one tends to miss them. You can identify a scammer if they ask you to pay via a gift card or cryptocurrency.
Some of the common scams that you can watch out for are Bitcoin mining scams, High-Interest Return Scams, Bitcoin wallet scams, Pump and Dump scams, Pyramid Schemes, ICO Scams/Exit Scams, Cryptocurrency Exchange Scams, etc.
It is worth mentioning that earlier, the recovery of money from such scams was not possible. But with the advent of services like crypto broker chargebacks, it has become possible for the victims to get back their money.
Therefore as you can see, it is crucial to protect yourself from scams and frauds and be knowledgeable about the same. However, it is vital to note that hope is not lost, as certain entities are helping the victims nowadays.