Investing in Bitcoin (and other types of cryptocurrency) has definite pros and cons. Are you a newcomer to Bitcoin and digital currency in general? Here are some things to keep in mind when exploring your options for Bitcoin mining, spending, and investing.
Being digital, there are claims that Bitcoins can’t be counterfeited like paper money. That would seem to be a definite check in the “pro” column, but remember that while cryptocurrency may have some advantages in this department over physical currency, there are plenty of scammers out there operating everything from botnet spam email scams to bogus websites designed to look like legitimate operations–this “con” requires Bitcoin users to be more vigilant about the sites they visit and the offers they respond to.
What are the most common cryptocurrency scams? Like so many other issues related to scams, fraud, hacking, and identity theft, many are updated versions of old tricks and cons. Do you know what they are?
Common Cryptocurrency Scams: The Impostor
Basically, impostor websites are created to trick you into thinking you are dealing with an organization just as well-established as Bitcoin, or one that is a rising star in the industry. Impostor websites may just be a front to harvest your private information to sell down the line on the dark web, or they may try to mimic real, established cryptocurrency players to fool the unsuspecting into thinking they are dealing with a company they know or have heard of.
Ledger, a cryptocurrency provider specializing in hardware wallets, has been hacked. The company reports a data breach occurring between June and July 2020 after being altered to a vulnerability. The company was apparently hacked using an API key and the breach included marketing databases containing the email addresses of those targeted for promotional emails.
How many email addresses? Sources report approximately one million. To add insult to injury, a small group of that number also had full names, postal addresses, and phone numbers leaked to hackers.
What often happens to this data is that it is sold, the contact information is often used by hackers to initiate scams or identity theft schemes, and it’s also used to harvest passwords and passphrases from unsuspecting victims.
Where can you spend your cryptocurrency? Investing and earning a profit in crypto is one thing but once you have reached a goal or two, where can you actually spend your hard-earned digital currency?
One real issue is that Bitcoin, Ethereum, and others are not technically viewed under the law as currency. So the rules of how to “spend” them will vary depending on the platform, the rules of the seller, etc.
Where To Spend Cryptocurrency, or How To Spend?
Where is an issue, to be sure…but HOW to spend your Bitcoin can also be a question you’ll need answering. For example, there are debit cards you can tie your cryptocurrency to that allow you to spend anywhere that type of debit card is accepted. Crypto accounts may require you to use a mobile wallet, or you may have to use some type of pre-paid card to pay for some goods or services with your digital currency.
What is the relationship between cryptocurrencies like Bitcoin and the IRS? I remember starting out as a freelance writer and not understanding how certain tax requirements applied to me–I missed out on thousands of dollars in business-related tax write-offs because I was ignorant of the rules.
The same kinds of problems are possible with cryptocurrency–if you don’t know how the IRS classifies assets like Bitcoin, Ethereum, or others, you could wind up with a tax liability or a set of assumptions about your investment that aren’t in line with reality. It’s best to know the rules before you need them.
What should you know about Bitcoin and the IRS? What follows is NOT to be construed as tax advice–this is information I have learned through my own personal research and I am passing along what I have found works for me personally–your mileage may vary.