Cryptocurrency, a form of digital currency, is the new way to invest money, but before you use or invest in cryptocurrency, you should know what makes it different from cash and other payment methods.
It's also important to know how to spot a cryptocurrency scam or detect cryptocurrency accounts that may be compromised.
Digital currency is the overall term for all non-physical, electronic monies, including cryptocurrency and virtual currency. It is money that is mainly managed, stored, or exchanged on the internet.
While you cannot touch digital currency physically, you can actually use the "money" to pay for services, buy goods and carry out transactions. Digital currency typically does not need intermediaries, such as banks, to execute transactions. Transfers between users require only the use of an email address and digital wallets.
This makes it easy for one person to transfer money to another, with the transactions often reflecting within minutes. Basically, digital currencies are real money that are intangible, but still very usable.
Virtual currency is a subset of digital currencies, often restricted to certain platforms and communities online. These are often created by individuals or entities with platforms where it can be traded and accepted. So, unlike digital currencies that are universally accepted, these are only accepted in individual online communities.
So, while virtual currencies are digital (intangible), not all digital currencies are virtual. An example of virtual currency is the rewards you get from playing certain video games. While you can actually acquire billions in value, that "money" is only good for buying and selling within the gaming community.
It's NOT a legal tender in the outside world. So, outside of that platform, it's essentially useless. These are never issued by traditional financial institutions as they have no need for it. This also means zero regulation.
Cryptocurrency is a type of currency that generally only exists electronically. There is no physical coin or bill unless you use a service that allows you to cash in cryptocurrency for a physical token. You usually exchange cryptocurrency with someone online, with your phone or computer, without using an intermediary like a bank.
Bitcoin is a well-known cryptocurrency, but there are many different cryptocurrency brands. Anyone can create a cryptocurrency and currently, there are about 2000 cryptocurrencies, many of which are scams. This makes it difficult to identify the best and most promising tokens from the legit ones. Cryptos are known for their anonymity, trustlessness, lack of transparency, and zero reliance on third parties and privacy -although some aren't as private as others. Central banks and other governmental authorities do not insure or control cryptocurrencies.
Cryptocurrency is stored in a digital wallet on your electronic device, and can be used for quick payments, to avoid transaction fees that regular banks charge, or because it offers some form of anonymity. Others invest in cryptocurrencies as they would other assets, but it can be risky and requires research to fully understand.
Do your homework - you should know what you are getting into. As with any investment, you should thoroughly research digital currency before investing your hard-earned money.
Cryptocurrency has gotten lots of attention as a new way to invest, but keep in mind, scammers are taking advantage of people's understanding (or not) of crypto investments and how they work. As the popularity - and price - of cryptocurrency continues to rise, so do the online scams associated with those digital currencies. When there are large amounts of money to be made or lost, that is when scammers come in.
Cryptocurrency investment scams can happen in many ways, but they're all full of fake promises and false guarantees. Scammers might post investment sites that look real, but you'll find you can't withdraw the money you've "invested." Others pretend to be celebrities doing giveaways with claims of multiplying any cryptocurrency you send. Scammers also use online dating sites to sweet-talk people into bogus crypto investments in the name of love.
Research before you invest. Search online using the company name as well as the cryptocurrency name, add "review," "scam," or "complaint" to your search.
Never wire or provide any credit card or bank account information until you check out the investment first.
Be wary of crypto investment pitches on social media platforms or from cold callers.
Do not trust offers of investment tips or secrets in online messages boards. The sites linked to them can be bogus websites pushing what appears to be chances to invest.
Watch for heavy sales pitches to "invest now". Pump and dump schemes make an investment look like its value is rising and then crashes after you invest.
Be careful when you see a celebrity endorsement. Scammers will use popular names and faces for curb appeal.
Don't trust people who say they know a better way.
the FTC at ReportFraud.ftc.gov
Federal and state regulators are actively working to combat cryptocurrency-related fraud and to develop legislative or rule changes that will establish regulatory frameworks. Investors should be aware that cryptocurrencies trade without the investor protections that regulation provides.
Investors should also check with the Michigan Department of Licensing and Regulatory Affairs - Bureau of Corporations, Securities & Commercial Licensing for information about investments involving virtual currency. Additional information regarding virtual currency is available at the Michigan Department of Financial Services webpage.
To report a scam, file a consumer complaint or get additional information, contact the Michigan Department of Attorney General:
Consumer Protection Team
P.O. Box 30213
Lansing, MI 48909
Toll free: 877-765-8388
Online complaint form