Cryptocurrency has experienced an explosive growth in popularity in recent years and digital coins have captured the minds of investors in many countries around the world. Such popularity raises concerns among governments of different countries, since no one can control transactions with cryptocurrencies yet. However, despite the active spread of digital coins around the world, there are still many people who do not believe in virtual money, and they believe that cryptocurrency is just another scam or a financial pyramid.
How Cryptocurrency Works
To understand the question of whether cryptocurrency is a common scam, it is necessary to understand the principles of operation of digital coins. The basis of all virtual money is blockchain, and this is a relatively new technology that provides for the decentralization of all operations. That is, information about completed transactions, transfers and other information about operations with cryptocurrencies is stored on all computers connected to a specific network (for example, Bitcoin ). This data is contained in special blocks combined into one chain, which is automatically changed on all computers after any transaction with cryptocurrency.
Thanks to these features of the blockchain, digital money is not subordinate to anyone, and the emission of cryptocurrencies occurs after the computers of network participants open a new block, for which they receive a reward in the form of cryptocurrency. This feature makes it possible to exclude banks and other financial institutions from the chain of transactions, or, more precisely, influence from the state, and therefore not a single bank or government agency is able to “freeze” funds in a cryptocurrency wallet . In addition, due to this, transfer fees are minimized, since third parties (the same banks) do not take part in transactions.
Blockchain technology is also notable for the fact that it ensures almost complete anonymity of users, thanks to which network participants can create an unlimited number of wallets without linking them to any information. For example, if the user did not provide any information about himself when creating a cryptocurrency wallet, then no one will be able to find out who owns this or that account without the desire of its owner.
Another way blockchain technology works is that it creates a transparent ecosystem. Each user connected to the network has access to all information about transactions performed during the entire period of the system’s existence. For example, participants can find out from which and to which wallet money was transferred, while the blockchain does not allow changes to be made to the block chain without the consent of participants. This feature leads to the fact that users cannot return money sent or cancel an already completed transaction.
If we talk about the issue of cryptocurrencies (mining new coins), this happens thanks to the actions of network participants, and a new coin appears after the computers of connected users solve a complex mathematical problem. Thus, anyone with sufficient capacity can mine cryptocurrencies.
Advantages and disadvantages of cryptocurrencies
The undeniable advantages of using cryptocurrencies include the following:
- Lack of external control. Transactions with cryptocurrencies are carried out without the direct participation of third parties or organizations, and only network users and traders influence the rate of cryptocurrencies .
- Anonymity. In this case, it should be noted that some cryptocurrencies do not completely hide information about users.
- Security. Thanks to the peculiarities of the blockchain, it is possible to hack the network and gain access to wallets provided that one person (or company) owns at least 51% of the network, which is physically impossible. Also, cryptocurrency cannot be counterfeited.
- High volatility. This characteristic refers to both advantages and disadvantages. Due to high volatility, traders can quickly make large sums on cryptocurrencies, but they can also quickly lose everything.
- A large number of specialized exchanges. Cryptocurrency exchanges provide an opportunity for everyone to start making money trading cryptocurrencies.
Despite the above, cryptocurrencies are not without a number of disadvantages:
- There is a possibility of wallets and crypto exchanges being hacked.
- The lack of centralized control, which in certain cases can lead to chaos and provokes the activity of fraudsters and other representatives of the criminal world.
- Unclear status of cryptocurrencies. In some countries, transactions with digital coins are prohibited.
- Inability to cancel transactions. After sending money by mistake, the user cannot return the funds.
Popular myths about cryptocurrency
Such a rapid growth in the popularity of cryptocurrencies could not but lead to the emergence of myths and misconceptions about digital coins.
Myth 1. Cryptocurrencies are a financial pyramid
This myth is supported by two facts:
- Firstly, you can make quick money on cryptocurrency, just like on a financial pyramid.
- Secondly, there are many services on the network that offer a much larger amount for a small amount of digital coins.
In part, it was the latest platforms that created the myth that cryptocurrency is a financial pyramid. These structures work as follows: clients bring a certain amount of money to the company, after which after some time they receive an amount exceeding the initial investment. Profits from investments are almost always made from the money that new clients bring in, and eventually there comes a point when people stop coming and the financial pyramid closes, taking all the remaining funds for itself. Also, pyramids can be closed simply at the request of its creator, if he considers it necessary.
The cryptocurrency itself works on completely different principles, radically different from pyramids. As already noted, receiving cryptocurrency occurs only after performing certain actions: opening a new block (mining) or exchanging fiat (real) money on specialized platforms.
Myth 2. Cryptocurrency was created for the criminal world
Many criminal organizations use the anonymity of blockchain technology to launder money, but it is worth noting that even before the advent of cryptocurrencies, there were many safer ways to do this. And it is worth noting that, if desired, law enforcement agencies can still find almost any attacker who accepts payment using cryptocurrencies, which has happened more than once. In addition, cryptocurrencies today are used in various areas of life, which are far from illegal.
Digital coins can also be legally traded on specialized exchanges, and some companies accept payment in cryptocurrency for goods and services.
Myth 3. Cryptocurrencies are a “bubble”
Traders apply the concept of a “soap bubble” to assets whose price growth is not supported by anything. For example, an issuing company claims a sharp increase in earnings that actually did not occur, causing its stock price to temporarily rise, reaching high prices. But it is worth noting that these securities are almost always secured in the form of property, money and other assets of the company, while the value of cryptocurrencies is largely determined only by the trust of network participants.
Myth 4. Cryptocurrency has no backing
This myth is largely true, but real money has not had any security since 1971. Essentially, the value of cryptocurrencies and fiat is determined by people’s trust, that is, on this basis, digital coins are no different from real money.
Is cryptocurrency a scam?
The fact that cryptocurrency is not a scam is confirmed by four important facts.
First of all, getting a new coin requires fairly powerful computers and high energy costs, while scammers primarily try to minimize costs and make a profit as quickly as possible.
The second important thing is that almost everyone talks about cryptocurrencies. The Japanese government has allowed the circulation of Bitcoin in the country, and in many countries today processes have been launched to create a legislative framework for cryptocurrencies. Some countries, including Russia and China, have started to think about the issue of creating their own digital coin, which means that world society, including governments, have begun to recognize not only the existence of cryptocurrencies, but also that it opens up new prospects for the development of financial sectors.
The third circumstance is that many traders were able to earn a fortune from trading cryptocurrencies and their stories are known to the general public and have been repeatedly confirmed by facts. Naturally, there are negative reviews about cryptocurrency trading on the Internet, but similar messages are left for financial exchanges, and if you compare the number of negative and positive reviews about cryptocurrency trading, there will be many times more positive ones.
And the last important circumstance is that cryptocurrencies have begun to be used to pay for real goods and services in some countries, but gradually such payment methods will spread throughout the world.
When not to invest in cryptocurrency
Such a sharp increase in the popularity of cryptocurrency could not help but attract the attention of scammers who came up with several popular schemes to deceive users.
Fake sites
There are often reports online from users who said that one of the popular platforms took away all the money invested, but such cases only arise when people go to fake sites.
Fraudsters use the following scheme: they take the address of a popular cryptocurrency resource and change only one letter in its name or rearrange them. The appearance of the fake site ultimately does not differ from the original one, which is why users do not always notice that they are visiting the wrong site.
Therefore, when working with cryptocurrencies, it is recommended to check the correct spelling of the resource name in the address bar of the browser every time.
Standard deception schemes
Fraudsters also take advantage of the fact that transactions with cryptocurrencies cannot be changed. Therefore, they find gullible users by offering them to purchase goods for digital coins, but as soon as they receive money from customers, they do not supply any products in return, and in such cases the funds cannot be returned.
There are also so-called scam resources online. These sites contain positive reviews from supposedly real customers, which should increase user confidence. Such sites offer investments with a return of 400% and other attractive conditions. You can avoid “meeting” with such scammers only by studying reviews about these sites on third-party resources.
Financial pyramids with cryptocurrencies
Financial pyramids were mentioned earlier. It should be noted here that in relation to cryptocurrencies, this deception scheme works according to a standard scenario, where the author of the financial pyramid offers a large increase in the initial investment over a short period of time.
The authors of such financial pyramids offer “clients” to provide a small amount of cryptocurrency for temporary storage or to purchase cloud mining power. Moreover, the first users who invested in such a resource actually receive income, but after some time the site closes and the money of the “clients” disappears.
Phishing links
In this case, we are also talking about fake sites, but users do not go to them directly, but through the provided link. After a person fills out the password and login fields, this data immediately goes to the scammers, who thereby gain access to cryptocurrency wallets or exchanges (depending on which site was faked).
Malicious mobile applications and browser plugins
Despite the fact that Google and Apple monitor the appearance of malware on Google Play and the AppStore, respectively, from time to time these sites host applications that steal users’ personal data.
Fraudsters do the same with browser plugins. In particular, the BitcoinWisdom Ads Remover application automatically sent users’ crypto coins to the attacker’s wallet.
In this case, fraud can only be avoided by thoroughly checking each application. It is also not recommended to store information about crypto wallets and passwords from exchanges on your computer.
Important rules to follow when working with cryptocurrency
Trading cryptocurrency, like other financial assets, is influenced by many factors, so when starting to trade digital coins you need to constantly remember the following:
- The cryptocurrency market is very volatile. The rate of one coin can either quickly rise or fall rapidly, and this sometimes happens over the course of several days or weeks.
- There are major players in the cryptocurrency market who, through their actions, can dramatically change the exchange rate of coins.
- Political decisions have a direct impact on cryptocurrency rates. For example, the introduction of a ban on the use of digital coins by the United States could lead to a rapid drop in the exchange rate.
- Trading cryptocurrencies is always accompanied by high risks.
- You can make money on cryptocurrency only if you conduct a comprehensive analysis of crypto coins , which includes an assessment of the prospects of the coin and many other factors.
In a certain sense, cryptocurrency trading looks more complicated than trading classic financial assets such as stocks and bonds.
Does cryptocurrency have a future?
It has been said many times that the history of cryptocurrency has come to an end. Financial market experts have repeatedly predicted the imminent collapse of cryptocurrencies, but despite these statements, cryptocurrency continues to develop, and its popularity remains at a fairly high level.
In this regard, questions increasingly began to arise about whether the global financial market needs digital coins, how to integrate them into the current environment, and whether it is worth officially allowing the use of virtual money as a means of payment.
Currently, the development of cryptocurrency has stalled somewhere in the middle. One part of the experts is confident that the future lies with this asset and blockchain technology, while the other still insists on the imminent collapse of digital coins. Some analysts predict the widespread introduction of blockchain technology into everyday life, but there are also opponents of this solution.
In reality, cryptocurrency and blockchain continue to develop and soon we can expect the emergence of new popular cryptocurrencies and the disappearance of old ones. It is also possible that Bitcoin and, possibly, Ethereum will become a measure of financial means along with the US dollar. A number of experts have no doubt that cryptocurrencies will become supranational money, since this will facilitate many operations that the governments of various countries will not be able to influence. This assumption is supported by the gradual and large-scale digitalization of various spheres of human life, and taking into account the fact that cryptocurrency was initially only a digital asset, it may well become one of the means of payment and settlement. There are several states in the world whose leadership believes that cryptocurrencies are the future, but Ecuador and Bolivia have banned any transactions with these assets. Russia does not yet have a legislative framework that regulates transactions with cryptocurrencies, but the situation may change in the near future.
Like any other new financial asset, cryptocurrency must go through several stages of development. In particular, it has yet to win the trust of the broad masses of the population by changing the critical mood in society, but judging by the current trend, when even the leaders of countries are thinking about legalizing transactions with digital coins, we can confidently say that cryptocurrencies are the future. At the same time, you need to understand that blockchain technology is still far from perfect and it also needs to go through several stages of development so that it can firmly enter everyday life. Therefore, before the mass use of cryptocurrencies begins, more than a dozen years will pass and a huge number of tests and innovations will be carried out.
Should you use cryptocurrency exchanges?
Today, binary options and Forex market brokers deal with cryptocurrencies, but special attention should be paid to cryptocurrency exchanges. Such companies have managed to gain trust among traders thanks to many years of successful work, but there are also scammers among cryptocurrency exchanges. As in previous cases, before entrusting your money to a company, you should check reviews about it on third-party resources.
How to find a reliable cryptocurrency exchange?
To choose a reliable cryptocurrency exchange, you must:
- Study information about the exchange on third-party resources, including work experience and plans for the future.
- Check reviews of the cryptocurrency exchange.
- Carry out several operations on a demo account (if provided). This tool allows you to gain first skills in trading cryptocurrencies in real conditions, without risking your own money. Also, using a demo account, you can get acquainted with the interface of the terminal through which trading is carried out.
- Find out what bonuses the exchange offers. This parameter also allows you to assess the reliability of the company, since dishonest companies often offer large bonuses and gifts, which is always suspicious.
- Start cooperation with the exchange by investing a minimum capital. This will help you understand how reliable the company is and check the speed of withdrawal of earnings from your account.
This approach will help you avoid meeting with scammers and choose the optimal exchange.
conclusions
The cryptocurrency market is one of the fastest growing today. There is high volatility on it, which allows you to both earn large sums of money and lose your entire deposit in a short period of time, so in order to receive a stable income on cryptocurrency, you need to understand the principles of operation of this instrument, track all the factors affecting the rate and learn to make the right decisions .
See also:
Litecoin what is it? Bitcoin's little brother or a failed experiment?
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