In this week’s episode of the Extra Paycheck Podcast we’re talking about making money with cryptocurrencies such as Bitcoin, Ethereum and Litecoin.
“OMG! Have you heard that Bitcoin just hit a hundred dollars?” – when I think back of the time I heard that, I can’t believe I didn’t buy a bunch of bitcoin currency. Even worse, in 2010 I was offered about 200 BTC for about $50 and of course I refused. “Digital currency? That must be a scam!” – I thought to myself. Just in case you’re wondering, that $50 in 2010 would be worth just about 3 Million dollars right now. Oh well, that’s life.
I am sure you’ve been hearing about cryptocurrency all throughout 2017. Bitcoin going from under $1k to over $15k in one year, Ethereum going from 10$ to around $800 in the same time-frame and many other digital currencies increasing in value certainly got you wondering. Should you invest in it?
DISCLAIMER: I am not a financial advisor and I am not telling you to invest or not invest your money in anything. The main focus of today’s podcast is to give you more information about cryptocurrency to help you stay safe. Also remember to never invest what you can’t afford to lose. Sure, increasing your investment by 1000%-10,000% in a year sounds like a dream but we truly don’t know what will happen to the value of crypto in the future.
Let’s jump into things that you should be looking out for when buying cryptocurrency.
Avoid The Crypto Scams
Since every single news outlet now talks about cryptocurrency – naturally more and more people learn about its existence. Unfortunately many scammers are taking advantage of this situation. Fake coins are being created and marketed every single day. Just a few weeks ago Quebec based PlexCoin was shut down by SEC (Securities and Exchange Commission) on the allegations of being a fraud. PlexCoin’s ICO (Initial Coin Offering) managed to raise an estimated $15 Million before being shut down.
Many ICO scams will come to you through email and social media messages. Forget about enlargement pills, fake crypto is the new spam. My biggest advice here would be to simply ignore all unsolicited messages about cryptocurrency and anything related to it. If your friend sends you an email about a new coin – call that friend to make sure they actually sent that email and not a hacker who gained access to their email account. If your friend admits to actually sending you that email – don’t cash out your life-savings in order to jump on the new shiny crypto, do your due diligence. Research the new currency and try to find as much information about it as possible. Who is behind it, how it works, what differentiates it from other currencies and so on.
We all know that person that tried to sell is Herbalife, or ACN or WakeupNow and we were smart enough to stay away from that. The rule should apply to ICOs.
Use A Reputable Exchange To Get Your Crypto
In order to purchase any kind of cryptocurrency you need to go through an exchange. These exchanges take a fee small fee per transaction so you need to compare different exchanges to figure out which fee is best for you.
Unfortunately as we’re seeing more and more fake ICOs we’re also seeing more and more fake exchanges. A website is created with the only goal of extracting money from you.
The very first and basic thing to do is make sure the website is SSL certified. This rule should apply to every single website where you’re making a purchase or simply giving out any private information. SSL certificates aren’t very hard to obtain but most scammers wouldn’t bother with it. Looks for a green lock sign, word “secured” and https instead of http in the url:
Don’t stop at the SSL though. Research the exchange and make sure it has a proven track record. Reputable exchanges have been around for a little while and you can find loads of customer reviews about these websites. There are many online communities dedicated to ctyptocurrencies and you can find suggestions there.
The 2 biggest exchanges right now are Coinbase (affiliate link) and Kraken. I went with Coinbase simply because Kraken doesn’t work well (or at all) with Canadian customers. Coinbase gifted me $10 USD worth of bitcoin when I made my first purchase and a few month later that $10 turned into about $90 which is pretty cool. This gift is much more than I paid in fees when buying my first Ether. By the way the link to Coinbase in this post is an affiliate link. If you sign up through this link and make a purchase of $100 USD or more we both get $10USD worth of Bitcoin as a gift from Coinbase. Win-win?
Once again. Don’t purchase currency through the first link that you stumble upon. Make sure you’re dealing with a trusted exchange.
Use A Wallet
Most beginners to cryptocurrency keep their purchase within the exchange platform. The big issue with doing so is that any web-based platform can be hacked and cracked. This means that a hacker can potentially gain access to an exchange or to your account within that exchange and transfer the funds to a different account. You can’t do a charge-back or refund of any kind so once the money moves to another account you no longer have any control of it.
To keep your cryptocurrency safe you’ll need to keep it in a wallet. I can’t give you much information about BTC since I only bought ETC. A popular digital wallet for Ethereum is MyEtherWallet.com. It’s pretty easy to set up and it’s completely free (they do appreciation donations and they certainly deserve them). BTC wallet work in the same way.
You will create a password, then MyEtherWallet will create an address, a private key and a Keystone file. You will need either that private key or Keystone+password to access your wallet. You should not keep the private key file on your computer because your computer might get hacked. You can keep the Keystone on your computer as long as you remember the password that you created with it. You can and should write down your private key on paper and keep that paper in a safe. You also should back up your Keystone file (and possibly the private key) to a few different memory cards/USB keys and keep them in different places. Just in case your hard drive dies or there is a fire in your house you will have a backup key at your parents house, office or a bank safe.
Be VERY careful with this information. Your wallet provider does not have access to your password, private key or the Keystone file. If you lose all of that information you will never be able to gain access to your funds.
If you don’t want to use a digital wallet there are now hardware solutions available on the market such as Ledger Wallet or the Trezor wallet. These devices look like USB keys although they’re packed with different features and cost about $100.
Whichever solution you pick, make sure your cryptocurrency isn’t left vulnerable in an exchange. Put it in a wallet.
Beweare Of Malware
Malware and viruses didn’t go anywhere. New viruses are being created now with the sole purpose of stealing your Bitcoin. Make sure to run a good antivirus on your computer and watch out for suspicious activity. If you get an email from Coinbase, Kraken or your digital wallet provider requiring you to sign in – it’s a trap. Just like your bank, these services will never send you a “log-in link” through email or SMS.
Whenever you’re logging into your accounts make sure to type the URL of that service directly in the address bar. Scammers are able to spoof links within an email so never click on those.
Recently a fake app pretending to be MyEtherWallet somehow made it into the App store and got to #3 spot in Finance category over the weekend (good job Apple review team). It is unclear if the goal was to make money by selling the app for $5 a pop or if the creator actually tried to get your wallet credentials in order to steal your ETH. The app has been pulled but you must be aware that situations like this are possible. If you’re downloading an app make sure it’s authentic. Go directly to the service provider website and look for the app on their site. If they don’t have any links to an app then they simply don’t have an app.
Crypto Pyramid Scams and Ponzi Schemes
It is hard to believe that in 2017 people still fall for pyramid scams but unfortunately it’s a fact. As cryptocurrency becoming more and more popular, crypto-based pyramid schemes are popping up all over the place. Some victims that fall for such scams usually claim that “pyramids are illegal, if this was a pyramid it wouldn’t exist!”. What these folks don’t understand is that it takes authorities years to finally bring an illegal pyramid to justice.
OneCoin seems to be one of such ponzi schemes. German regulators recently ordered the company to stop operating in its country. A group of OneCoin promoters in India have been arrested in May of this year on the allegations of OneCoin being a fraud. The company claims to have a magic formula that allows to you to double or even triple your cryptocurrency every single day. Also, the more members you bring under you the more money you make. And if they recruit people under them and those people recruit even more people you keep making money. It’s not a pyramid, it’s a multi level company that operates as a pyramid, looks like a pyramid and smells like a pyramid. Do you see where I’m going with this?
Do you have any cryptocurrency to your name? Have you been scammed into buying any fake ICOs? I would love to hear your stories. Please share them below.
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