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.
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.
Is cryptocurrency an investment? Some think that is a dumb question, but there is a big difference between a traditional type of investment and a different type of investing known as speculation. What you don’t know can definitely hurt you in both worlds–do you know the difference?
I have a family member who was badly burned by a lack of understanding about the rules of investing. This person lost roughly $20 thousand because they did not fully comprehend the rules of online trading, especially where investment behavior that looks like day trading is concerned.
A year or two after this incident, I got interested in investing myself–the same kind of investing my family member was involved in. I purchased six different books trying to learn about the ins and outs of online trading–especially day trading and related issues. But I could not find any rules that addressed the issues that led to my family member’s financial loss.