As October is Cybersecurity Awareness Month, this week’s article delves into the complicated world of cryptocurrency. With the buzz of Bitcoin in the news, the common question is “Should you or shouldn’t you buy the latest new cryptocurrency or token?”
Before you make any investment decisions, it is critical to understand some of the concepts underlying this emerging world of virtual currencies.
Cryptocurrency, at its core, is digital money; a digital representation of a stored value secured through cryptography. That means that there is no physical coin or bill; you can’t pick it up or hold it in your hand because it is all online. It sounds simple, but as its name alludes, it’s a little more complicated.
Part of the confusion around cryptocurrency is that it feels a lot like how we use money in the age of credit cards and direct deposits. You want to balance your checkbook, pay a bill, or shop on Amazon; you can do this online. Digital money, right? However, in this scenario, we interact with financial institutions that handle the actual money exchange. It looks more like this: you want to pay a bill, you tell your bank to send money to another bank and then that bank confirms it with the other party, then both banks make a record for the government. All that happens behind the scenes.
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With cryptocurrency, the exchange is direct from one party to another with a record of that transaction in a ledger of sorts called a blockchain. This blockchain is the security — aka cryptography — that gives cryptocurrency its name and ensures that the deal took place. Important to note, because of this, cryptocurrency is not regulated or insured by any government or bank.
In an emerging sector like crypto, it is not unusual to see both legitimate start-ups and not-so-legitimate players emerge. While Bitcoin is the first and most recognizable cryptocurrency, there are more than 1,600 others in existence that are all backed by different investor groups.
To launch a new cryptocurrency, it goes through a funding period called an Initial Coin Offering or ICO. There have been thousands of ICOs in the past year alone. While many are legitimate, there are even more that have no real strategy behind them and many more that are frauds to separate investors from their cash.
Now that you know the basics, sometimes a succinct warning is better than a long explanation. Reuters reports that in 2018, losses from cryptocurrency-related crimes amounted to $1.7 billion, a rise of 400% over 2017.
If you are thinking about investing in the stock of companies that tout the potential of high returns associated with cryptocurrency, use caution. Do your research and only invest money you can afford to lose.
If you are contemplating a crypto-related stock investment, here are six tips to help you steer clear of scams:
- Do not say “yes” to cryptocurrency stock purchases from an aggressive cold caller, even if the claims sound plausible, particularly if the recommended stocks are very low-priced.
- Be suspicious of anyone who makes guarantees that an investment will perform a certain way or makes pushy sales pitches that encourage you to “act now.”
- Use FINRA BrokerCheck to check the registration status of, and for additional information about, the people and firms who tout these opportunities.
- Check the SEC’s EDGAR database to find out whether a company files with the SEC. If so, read the reports and verify any information you have heard about the company.
- Be wary of stocks with huge spikes in price; this could signal potential manipulation or fraud.
Know where the stock trades, and pay attention to any cautions associated with the stock. To learn more about investment scams, check out the resources and articles on FINRA.org.
BBB is here to help you, so if you have any questions or information about scams you have seen, please let us know, and we’d be happy to help! For more information on businesses or to report scams and complaints, you can reach our main office at 208-342-4649.