I do not understand cryptocurrency. Are we inventing new money, making a real-life Monopoly game? Here is one definition of cryptocurrency: a digital currency in which transactions are verified and records maintained by a decentralized system using cryptography, rather than by a centralized authority.
Uh, what?
It went on to say, “Decentralized cryptocurrencies such as bitcoin now provide an outlet for personal wealth that is beyond restriction and confiscation.” (At this point, I’m on the floor in the fetal position and weeping.)
What happened to just money? Well, for all the crypto kings out there, May was not a good month for you, with crypto’s value crashing as it did. Instead, it provided a reminder, especially for seniors, to be suspicious about investing your money, retirement money as well, in such volatile currency.
So, what is the attraction?
For crooks, there can be good reasons to use cryptocurrencies. Once something is paid with cryptocurrency, it’s nearly untraceable. Now that retailers are more aware of and savvy about, gift card scams, crooks are looking for new ways to scam, and crypto fits the bill.
According to AARP, their Fraud Watch Helpline contacts involving Bitcoin scams have tripled. Their advice is this: if a stranger or business asked you to use cryptocurrency to make a payment or transfer money, assume it is fraud.
According to Forbes, between January 2021, and March of this year, 46,000 people lost money, totaling over $1 billion dollars, in cryptocurrencies. The article said more than half the victims said the scam started with an ad, or message, posted on social media. Instagram and Facebook originated 32% and 26% respectively and involved phony investments. I thought Facebook and Instagram were for looking at photos of your dinner or dog sleeping on your couch.
Lonely hearts, also known as “romance scams,” represented $185 million in losses since 2021. Crooks who created fake online identities then developed online relationships with vulnerable targets and bilked them of money with such scams as debts that needed to be paid before they could leave the country they were in to join the victim and be together.
The article concluded by saying that, unlike traditional banks, there’s no formal way to flag suspicious activity and it’s only possible to reverse transactions with a private key that’s difficult to acquire. The rising incidence of fraud has triggered renewed interest in stricter regulation.
The FTC points out three things to remember about crypto:
- Only scammers will guarantee profits or big returns. No cryptocurrency investment is ever guaranteed to make money, let alone big money.
- Nobody legit will require you to buy cryptocurrency. Not to sort out a problem or to protect your money. Suspect a scam.
- Never mix online dating and investment advice. If a new love interest wants to show you how to invest in crypto or asks you to send them crypto, suspect a scam.
Why is cryptocurrency attractive?
According to an article in Investopedia, most cryptocurrencies have a limited supply, capped by mathematical algorithms. This makes it impossible for any political body or government agency to dilute its value through inflation. Moreover, due to the cryptographic nature of cryptocurrencies, it is impossible for a government body to tax or confiscate tokens without the cooperation of the owner.
But the markets can be dominated by speculative trading, meaning cryptocurrencies could again have another month like May.
So, when Matt Damon comes on the TV and tells you to invest in Bitcoin because “Fortune favors the brave,” well the follow-up question should be, “How much Bitcoin is Matt invested in, and did he take cryptocurrency for the ad or good Ol’ greenbacks? Warren Buffett, on the other hand, is convinced crypto “will come to a bad ending.” I tend to side with Buffett.
For me, a man who’s never won a game of Monopoly, I’m not in the mood to lie awake each night wondering if they’ll be anything left in the piggy bank in the morning.
If you are that person though, do your homework.