Bitcoin: The traps to avoid
Monday 19 May 2014
Bitcoin's benefits are well documented and with more businesses and websites turning to it as a payment method, the ecosystem is growing. However, as with anything digital, handled over the internet, unfortuantely bitcoin also has its vulnerabilities and those looking to make a quick satoshi out of other people's lack of awareness. Here are a few of the traps you will want to avoid:
Ponzi or Get Rich Quick Schemes
As your parents may have told you… if it seems too good to be true, it probably is.
- “Double your bitcoin in 2 days!”
- “110% interest in one day”
These are the kind of offers that you need to be wary of because they are the type of deal used to lure people to a scam site. You might be tempted to send a small amount and when you get paid back your 110%, you feel that you can trust the site as it returned your small amount promptly, with interest. This is also a trap as old as the hills: one luring you into a position of trust when you feel comfortable with an even larger amount. The methods are tried and tested ways to steal your money.
The Ponzi scheme is coming up left and right but many people still aren't sure of how they work. In short: the person who sets up the Ponzi will usually get rich and you, probably won't.
In a Ponzi scheme, the early investors are paid out by investments from later investors. Every scheme therefore has its limits and normally will reach a point where the new investors dry up and someone will lose out.
These site owners tend to create dummy logs to make you think people are getting paid
but the structure of a Ponzi scheme is unsustainable and
will eventually collapse, leaving many much worse off.
Bitcoin Gambling Sites "Provably Fair” or “Maybe Not”
Ever come to the conclusion: "This must be a good gambling site… they say they are 'Provably Fair'"?
Trust them? Although this is a neat way of using cryptography to keep things such as deck shuffles fair, you can still be ripped off. Be aware that despite some regulation around online gambling in certain countries such as Canada, the US and the UK, there are many illegal and unregulated sites out there. It is possible to set them up, never pay out, have a rigged, scrolling log that looks very good (but often repeats) and just steal bitcoin.
These sites all claim they are 'Provably Fair' but common sense and a bit of research into some of the more reputable sites will help you stay infomred. If you assume you will lose, you will be right a lot more often than not.
Mine Your Business
Mining pools are everywhere and the numbers are growing. When you join a mining pool, you are in fact trusting these pools with your wages. Please do your homework by checking the Bitcoin Forums first.
Even with all the fact checking and research you can do,
greedy miners and rogue pools can rip you, rob you and leave you high and dry.
A recent development is so-called 'Cloud Mining'. With these, you don't even know the equipment actually exists. Again, be wary of pools where yields are suspiciously low.
Other mining-related scams include equipment purchases that you make, but the equipment never arrives. I would not feel safe doing any bitcoin preorders.
Simple Steps to Safely Spend
It is great to see so many new businesses accepting bitcoin but check out sites carefully, which sell their items for bitcoin only – and don't be fooled by a fancy website! It could be one bad guy in a back room somewhere, raking in the free coin!
Many will be perfectly legitimate sites but trust is one of the major issues for bitcoin, especially for the consumer.
If they are not known to you as an existing business, or if they don't accept other conventional payment methods such as PayPal or Credit Cards, or have no contact information then it might be time to heed the alarm bells.
The following are a few tips to help you decide whether an online site appears trustworthy:
- Does it have an address & telephone number you can call? If it does, I suggest you call it.
- Are there any usernames that you can google, and maybe find them on other social media, then contact them about their site.
- How about an email address? If they have one, send support an email - if you get a response - look at the address it is returned from.
- Ask the site owner to prove that they are legitimate. If they don’t follow through, don’t give them any of your coin.
Your bitcoin wallet is like the wallet in your pocket – except you have the private key for that wallet – so it is incredibly difficult for anyone to steal it and make use of the bitcoin within it. If you use a local wallet like BitcoinQT, or Multibit your wallet is stored locally on your own computer, usually called wallet.dat, and in your 'roaming' folder. You can copy, move, encrypt and store that wallet offline or on a USB stick.
However, if you don’t like or don’t have an up-to-date Anti-Virus software on your PC, don't enter the bitcoin world. There are a few exploits that are well documented. A new one is Fake Flash Player exploits. By watching your downloads and always keeping your network secure you are reasonably safe from malicious software.
Also, be very careful about the browser extensions you download. Some have been found to be malicious wallet-stealers themselves and have cost people a pretty satoshi.
Keeping all your bitcoin in one place is a potential point of total loss. It is best to spread it around a bit until we can all be sure that one wallet or another is totally safe. Hackers are pretty clever and determined, and armed with brute force tools, keyloggers, and screenloggers, these crooks have it easier than ever.
The world of bitcoin is one in its infancy. To say it is tumultuous would be putting it lightly. So far it is mostly unregulated, decentralized, and anonymous – but only up to a point. Remember that every transaction can be seen on the blockchain so there is some transparency.
The crucial thing to remember is when you spend your bitcoins, they are gone. No way to ask for them back, no door you can knock on, no Bitcoin Bank or Customer Relations Manager to phone.
With this in mind, you should be absolutely sure of where your bitcoins are and who you are sending them to when you do.
As Always – Be Alert – Be Accurate – Be Aware
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