Ultimate Guide To Avoiding Cryptocurrency Scam

Just some 4 days back, the Twitter accounts of top corporations, billionares and celebrities were hacked in a cryptocurrency bitcoin giveaway scam.

Table of contents

  • What is Cryptocurrency?
  • What is Cryptography?
  • What is a Ledger?
  • Examples or types of Cryptocurrency
  • How does Cryptocurrency work?
  • What are Cryptocurrency Scam
  • Avoiding Cryptocurrency Scam
  • What can you do?

What is Cryptocurrency?

A cryptocurrency is a digital asset designed to work as a medium of exchange wherein individual coin ownership records are stored in a ledger existing in a form of computerized database using strong cryptography to secure transaction records, to control the creation of additional coins and to verify the transfer of coin ownership – Wikipedia

Cryptocurrency is a form of digital money designed to be secure and in many cases, anonymous – Telegraph

Cryptocurrency is an encrypted decentralised digital currency that facilitates the exchange of value by transfer of cryptotokens between network participants – Investopedia.

Having known what Cryptocurrency is from the above definitions, let us see a few terms associated but not exclusive to Cryptocurrency.

What is Cryptography?

Cryptography is the process of storing data in a particular form (encoded) so that only those for whom the data is meant for can read and process it. Simply put, Cryptography is taking a plain readable text and converting it into unreadable, understandable text or media.
Cryptography is used in banking transactions such e-commerce transactions, computer passwords and bank transaction cards.

The main use of Cryptography include:
Confidentiality– data cannot be read or understood by an external individual
Integrity– No form of alterations
Authentication– confirmation from both sender and receiver
Non-repudiation– user cannot deny his/her intentions in the transmission of information

Cryptocurrency uses Cryptography to be decentralised, secure, ensure peer to peer transactions – ability to transfer funds between individuals without alterations or interference. So cryptography is the pillar or backbone of Cryptocurrency.

What is a Ledger?
From what you studied in school about book keeping in business studies and ledgers, you will get a sense of what a ledger in Cryptocurrency is. It’s just the same thing, only that here, computers are used instead of the age-long book ledger. A Cryptocurrency Public Ledger is a record keeping system that maintains identities of participants as anonymous, respective cryptocurrency balances and record of all genuine transactions.

Examples of Cryptocurrency

Bitcoin
Litecoin
Ethereum
Ripple
Dodgecoin
Coinye, etc

These are just a few out of the many thousands. Infact, Wikipedia records that as of 19 August 2018, there are over 1600 Cryptocurrencies in the internet and the number is still growing. not go into details on each of the Cryptocurrencies but will tell you a few things.

Bitcoin is the first and most popular Cryptocurrency with a value of over $9,200. It was launched in 2009. And that marked the beginning of Cryptocurrency, or you can say cryptocurrency began with the emergence of bitcoin in 2009.

Litecoin came on board in 2011.

Ethereum, now almost as popular as bitcoin and the value steadily growing, it was launched in 2015.

What Is A Blockchain?

Blockchain is simply a distributed, decentralised public ledger. You can say Blockchain is the bigger ledger of Cryptocurrency or the big book. Looking at it, you will notice that Blockchain is actually two words, Block and Chain. A block stores information such as who is participating in a transition, the transaction being made, date and time and amount of money spent. Blocks differ from information to information because a block’s information is not same with another. When a block stores new information, it is added to the Blockchain so Blockchain consists of block strung together. Think of a human chain, and think of each human a block. In Cryptocurrency, before a block is added to the blockchain, it has to satisfy these four things:

There must be a transaction
There must be verification of the transaction.
The block must contain information of the transaction
The block must be given a hash- a unique identification code.

So when a block is added to the blockchain, it is made public for all to see. So in a nutshell, a Blockchain is a Cryptocurrency’s entire record of all transaction history from day one to present date. A blockchain is finite. Yes, it is not an infinitsimal something that never ends because it contains finite transactions which only Increase with time

How does Cryptocurrency work?

Cryptocurrencies have a ledger where all transactions are made public.

Identical copies of the blockchain are stored in every node of the cryptocurrency’s software network. The network here is a decentralised server farm that is run by a group of people called miners who always record and authenticate the cryptocurrency’s transactions.

The transaction of a cryptocurrency is not finished until it is added to a blockchain. This process usually takes minutes to complete. And once it has been added to the blockchain, it cannot be reversed.

Every cryptocurrency holder has a private key. This is a unique identification code that allows exchange of tokens.

Cryptocurrency has a wallet for users. The wallet is  where users have information about the tokens they own (temporarily, though). These wallets can be hacked as well and tokens in it can be stolen. You can backup your wallet on a hard drive, an SD card, or even on the cloud. But it is always strongly recommended to back up a wallet. This doesn’t mean duplicating the tokens but their current ownership and record of existence.

A Cryptocurrency has a finite supply. It is estimated that the last bitcoin will be mined somewhere around the 22nd century.

There are exchanges when it comes to Cryptocurrency. These exchanges are done with fiat currency (dollar, pounds, euro, etc). Exchanges are platforms that  allow cryptocurrency holders to exchange their units or tokens for fiat currency. Examples of exchanges are IQ Option, Luno,  and the defunct Mt Gox. Exchanges usually take a small percentage of each transaction, usually 1 percent, in return for offering you a platform to exchange.

What is a Cryptocurrency Scam?

A Cryptocurrency Scam is a way of tricking people into sending money. They can appear in different forms such as online referall schemes, bogus investment and business opportunities. A Cryptocurrency Scam will always want you to pay money, preferably with bitcoin. They will always include a link to a website where you will send the money.

How to Avoid Cryptocurrency Scam?

From the above, any text, email or message, especially on social media that tells you to pay with a Cryptocurrency eg Bitcoin, then you know that’s a scam. You will definitely be directed to a link for sending money because scams are not done on exchanges, except the exchange itself is a scam, in which case you can easily detect and report. They can go as far as shilling or cloning other real exchanges site, be on the lookout

They will always promise these three things:

1 Guarantee that you will make money

2 Promise that you will double your money quickly

3 Guarantee that you will get free money in fiat currency especially dollars (but not limited to dollar)

When you see the above, then know it is a scam and kindly ignore the message.

What Can You Do?

When you spot a Cryptocurrency Scam, quickly report to ftc.gov/complaint.

Final words.

Because the nature of Cryptocurrency transaction is anonymous, they are generally associated with being illegal. Be careful and wise when dealing with Cryptocurrencies.

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