With all the buzz about bitcoin, more people are now considering it as an investment opportunity. But with anything new and complex, con artists are there to take advantage. BBB scam tracker continues to receive numerous complaints from consumers fooled by phony bitcoin investments and who are often losing thousands of dollars.
Here’s how the scam works. You are looking to purchase bitcoin, so you search online. You find a legitimate-looking website offering to mine the cryptocurrency for a fee. Unlike dollars, pesos or yen, bitcoins are not backed by a government or distributed by a central bank. Instead, bitcoins are created on the peer-to-peer bitcoin network through a process called “mining.” The website asks you to pay upfront, and bitcoins will be transferred into your account. However, after you make the payment, nothing happens. Attempts to reach anyone at the website prove futile.
Other versions of this scam target investors trying to convert bitcoin to their local currency. For example, one consumer used a service to exchange bitcoin for U.S. dollars and transfer the money into a PayPal account. However, the transaction didn't work as planned.
"My bitcoin account showed that the transaction went through, but the transaction timed out," the report said.
Using virtual currencies comes with risk. Their value goes up and down — sometimes sharply — depending on demand. In addition, payments made with virtual currencies aren’t reversible and don’t have the same legal protections as some traditional payment methods. Once you hit send, you can’t get your money back unless the seller agrees. That’s why it’s important to know who you’re buying from and what policies they have regarding refunds, returns and disputes.
How to avoid bitcoin scams
▪ Do your homework. Read about the technology underlying the bitcoin system. You need to know how it works if you want to manage and invest effectively. Make sure your sources are legitimate and not just those trying to sell you something.
▪ Check out the seller’s reputation. Make sure you know where the seller is located and how to contact them if there are problems.
▪ Find out whether the payment will go directly to the seller or through a payment processor, which may offer you additional protections.
▪ Know where to store your bitcoins. It's best not to store bitcoins in an exchange. Exchanges are sometimes vulnerable to hackers, whereas online wallets are considered a more secure place to store your currency.
▪ If you receive something that’s damaged, how will the seller make it right? Will you get a refund in virtual currency, U.S. dollars or store credit?
▪ How much will your refund be? The value of a bitcoin changes constantly so the seller should tell you before you buy what exchange rate will be used for refunds.
▪ How will your refund be processed? To refund a credit card purchase, the merchant usually credits the account. However, because people can change their virtual wallet accounts, a seller can’t always send a bitcoin back to the wallet it came from.
▪ Be cautious with your investment. As with all investments, never invest money you can't afford to lose. Investments come with risks and digital currency is still in a very early stage of development.
Review BBB online shopping tips. Many online purchase scams use similar tactics, and bitcoin is a growing payment method for scammers. See BBB.org/shoppingonline for more advice.
For more trustworthy consumer tips, visit www.bbb.org.
Kelvin Collins is president/CEO of the Better Business Bureau Serving the Fall Line Corridor including 83 counties in portions of Alabama, Georgia and South Carolina. The column is provided by the local BBB and the Council of Better Business Bureaus. The BBB sets standards for ethical business behavior, monitors compliance and helps consumers identify trustworthy businesses. Questions or complaints about a company or charity should be referred to the BBB at 1-800-763-4222, www.bbb.org or by email to email@example.com.