Bitcoin, Ethereum, Dogecoin: What to know before investing in crypto
From Dogecoin to Bitcoin to Coinbase, cryptocurrency is the hottest trend in investing right now. Here’s what you need to know before buying in.
In the past month alone, the Vermont Department of Financial Regulation received consumer complaints related to cryptocurrency scams that total over $1 million in losses.
As of Aug. 24, one Bitcoin was valued at $48,607, up from $34,252 a month earlier.
Many of these scams, the department states, are coming as the number of cryptocurrency transactions in Vermont has “skyrocketed” over 400% percent, from 44,290 transactions in 2019 to 224,283 transactions in 2020.
“Innovations in financial services can bring important benefits to consumers, but Vermonters should approach these products with caution, particularly when considering substantial investments,” said Michael Pieciak, commissioner of the Department of Financial Regulations, in a news release on Monday.
“Cryptocurrencies are volatile and carry unusual risks because they exist largely outside the safeguards of the traditional financial system. Like any other volatile investment, avoid putting in money you cannot afford to lose.”
What is cryptocurrency?
Cryptocurrency is a form of payment that can be exchanged online for goods and services. Many companies have issued their own currencies, often called tokens, and these can be traded specifically for the good or service that the company provides. You’ll need to exchange real currency for the cryptocurrency to access the good or service.
Cryptocurrencies work using blockchain, a decentralized technology spread across many computers that manages and records transactions. Part of the appeal of this technology is its security.
How to stay safe while investing in cryptocurrency?
In an alert to Vermont investors, the department provided tips for those seeking to invest in the popular digital currencies:
- Understand the risks of cryptocurrency investing, including its extreme volatility and risk of loss, and avoid investing money you cannot afford to lose.
- Learn about the uptick in cryptocurrency-related fraud and scams so you can spot and avoid these schemes.;
- Avoid unlicensed cryptocurrency exchanges (find out if an exchange is licensed in Vermont).
- Avoid unregistered cryptocurrency securities and cryptocurrency-related investments (find out if an investment is properly being offered).
Among the most commonly-cited scams related to cryptocurrency include:
- Cryptocurrency payments: “If someone asks to be paid in cryptocurrency or offers a discount or reward for using cryptocurrency, consumers should be on high alert,” according to the department.
- “Spoofing”: Look out for fake emails, texts, or websites pretending to be trusted companies. “These messages may try to trick you into downloading malicious software or viruses, entering your username or password into a fake website, or initiating a cryptocurrency transfer to a scammer pretending to be a trusted business.”
- Phishing Emails: Investors should watch out for scams that involve a person “purportedly sending you their digital wallet backup file and private key and asking you to send their bitcoin to another wallet address.” These wallet files, the department states, can contain a program that can steal your cryptocurrency once you’ve opened it.
Vermonters who believe they may have been scammed during a cryptocurrency transaction, or who would like to make a complaint, can contact the Department of Financial Regulations online via their website at dfr.vermont.gov or by calling 833-DFR-HOTLINE.
Contact Ethan Bakuli at (802) 556-1804 or email@example.com. Follow him on Twitter @BakuliEthan.