What is cryptocurrency and is it safe?
You’ve probably heard about cryptocurrency in the headlines, but what is it? Online payments using cryptocurrency are growing, thanks to brands such as PayPal®.
Before you consider cryptocurrency, it’s important to know what sets it apart from cash and other payment methods, how it works, and how secure it is.
What is cryptocurrency?
According to the Federal Trade Commission, cryptocurrency is an electronic or digital currency that is only purchased through your phone, computer, or a cryptocurrency ATM. You can even earn cryptocurrency through a process called mining that uses advanced equipment to solve math puzzles. Some familiar brands include Bitcoin®. It is used to make quick payments or as investments to see if the value goes up.
You store cryptocurrency in a digital wallet online, on your computer, or an external hard drive. The digital wallet has a specific wallet address comprised of numbers and letters. If something were to happen to your wallet or digital funds such as losing your password, no one can help you recover the money.
How it is different than U.S. currency?
Since cryptocurrency is only online, there are two differences that sets it apart from traditional currency.
- The government doesn’t back it. Cryptocurrency is not insured like U.S. funds deposited into an FDIC-insured bank account. If something happens to your digital funds, the government can’t step in and get your money back.
- The values constantly change. The value can change rapidly and be significant depending on factors such as supply and demand. It tends to be more volatile than traditional investments such as stocks and bonds. For instance, it could be worth thousands of dollars one day and the next only hundreds.
Is cryptocurrency safe?
Cryptocurrency uses blockchain technology to record the transactions into “blocks” with time stamps. This complex encryption process results in a digital ledger of transactions that is difficult to hack. Transactions also require a two-factor authentication process. You may have a username and password and then enter an authentication code sent via text or email. But even with the securities in place, that doesn’t mean it’s un-hackable.
Because of the risks such as volatile exchange rates, potential high fees on exchange platforms, and fraud risk, cryptocurrency may be secure but doesn’t make it safe.
Cryptocurrency fraud and scams
With cryptocurrency crime on the rise, make sure to watch out for scams including:
- Fake websites
- Virtual Ponzi schemes
- “Celebrity” endorsements
- Romance scams
- Investment scams
- Blackmail scams
Scammers can pose as virtual currency traders or set up fake exchanges to lure people into giving them money. They can use fraudulent sales pitches for cryptocurrency individual retirement accounts or even hack into digital wallets to steal money.
Make sure to report fraud [link: https://reportfraud.ftc.gov/#/] or other suspicious activity involving cryptocurrency to the:
- Federal Trade Commission
- Commodity Futures Trading Commission
- S. Securities and Exchange Commission
- Internet Crime Complaint Center
- Cryptocurrency exchange company you used to send the money
The information in this article was obtained from various sources not associated with Adirondack Bank. While we believe it to be reliable and accurate, we do not warrant the accuracy or reliability of the information. Adirondack Bank is not responsible for, and does not endorse or approve, either implicitly or explicitly, the information provided or the content of any third-party sites that might be hyperlinked from this page. The information is not intended to replace manuals, instructions or information provided by a manufacturer or the advice of a qualified professional, or to affect coverage under any applicable insurance policy. These suggestions are not a complete list of every loss control measure. Adirondack Bank makes no guarantees of results from use of this information.
Sources: https://time.com/nextadvisor/investing/cryptocurrency/what-is-cryptocurrency/#:~:text=Cryptocurrencies%20are%20wholly%20digital%2C%20so,sell%20through%20an%20online%20exchange; https://www.kaspersky.com/resource-center/definitions/what-is-cryptocurrency; https://consumer.ftc.gov/articles/what-know-about-cryptocurrency-and-scams
