Bitcoin For Beginners: How To Avoid Being Scammed By Knowing The Basics

 How To Avoid Being Scammed By Knowing The Basics | 

 

In this ongoing series, I have touched on many aspects of bitcoin and why there is such growing interest in it. We will continue with that journey but for this instalment, I address a question many enthusiastic readers are asking.
I have refrained from focusing on the trading or investment aspect of bitcoin because there is really more to this digital asset. There is no doubt people are looking for easy ways to make money and it seems bitcoin is the latest avenue that allows them to achieve just that.

Growing Bitcoin related scams
However, there is a caveat, those that want to dabble into the buying and selling of bitcoin or those that want to try advanced trading techniques like margin trading, need to gain the requisite knowledge.
Without this knowledge, there is a good chance you will get burnt because there is a high likelihood that you will make the wrong decisions. Equally, trusting an unknown third party to do this on your behalf will have disastrous consequences. There are countless investment opportunities floating around promising out of this world returns and many are falling victim.
This scourge of bitcoin-related scams is a global phenomenon which has even forced the United States’ Federal Bureau of Investigation (FBI) to issue a warning. Criminals quickly understood that as normal business activity slowed down due to the global pandemic, many people would be open to trying out new ideas. Bitcoin trading or mining looks the part.
By just throwing in a few lines about how bitcoin creator, Satoshi Nakamoto made fabulous money mining bitcoin, criminals know they have a good pitch. Sadly, criminals are also using the current cryptocurrency bull-run to help to keep potential investors interested.
It seems very normal that many people want to double their returns in a very short time without having to sweat it out. Criminals are designing fraudulent schemes occasionally tap into this undying need for effortless earnings or a passive income.
However, there is an old saying which goes something like this, “You should only invest in what you understand.” This adage is particularly true in the case of bitcoin trading or mining.

Avoid Being Scammed

The story of bitcoin mining
For instance, if someone approaches you with an offer to participate in a very profitable bitcoin mining what must you do? If you have an understanding of current bitcoin mining requirements you will not be persuaded. So what exactly is this current understanding of bitcoin mining?
When the bitcoin creator launched the project there was only one way to acquire bitcoin and this was through the process of mining.
Bitcoin mining is performed by high-powered computers that solve complex computational math problems. The problems are so complex that they cannot be solved by hand, and indeed complicated enough to put a strain on even incredibly powerful computers.
This mining is necessary because it helps to keep the Bitcoin network secure and those involved in this process are rewarded in the form of bitcoins. Now at the very beginning of this process miners got 50 bitcoins for every block completed.
This release of rewards happens every 10 minutes but this reward system is programmed to reduce the number of bitcoins offered as a reward. Rewards started at 50 but were reduced to 25 bitcoins in 2012. This same thing happened in 2016 when the rewards went down to 12.5 bitcoins. In May the block reward was further reduced to the current 6.25 bitcoins.
And throughout the same period, the mining difficulty increased meaning it became less profitable for less powerful computers to mine bitcoin. In addition, the number of miners grew exponentially such that it became unprofitable to mine as an individual. Miners have long realised that they need to combine their mining power in order to increase their chances of getting bitcoin rewards.
However, since 2009, a lot has changed with respect to bitcoin mining. It is now not at almost impossible to profitably mine bitcoins with less powerful computers. Only very expensive machines that are specifically built for mining get the job done nowadays. Furthermore, the cost of electricity is another factor that determines if the mining is going to be profitable. Bitcoin mining is now mainly lucrative in countries with cheap and reliable electricity.

Information Asymmetry still real challenge
Ideally, when you have this background it is not easy for a criminal to sell you the idea of bitcoin mining. Unfortunately, we live in a world that is far from ideal and many are falling for such types of scams. Sometimes the fraud schemes are not so sophisticated but in other cases, even smart people have been conned.
For example, one major platform which turned out to be a pyramid scheme, Bitclub Network finally collapsed after senior directors of the outfit were charged for various crimes. However, by the time of their arrest and arraignment, an estimated $700 million had been stolen from investors who did not fully understand what they were investing in.
Many of the victims are in Africa where the scheme had preyed on the ignorance that is widespread. There are a lot more similar scams floating around and beginners to bitcoin need to be wary of anything that offers returns that are too good to be true. That is why the focus of these articles is to impart interested readers with knowledge that will help them going forward.
However, before you start investing in bitcoin in one way or the other, you need to remember that bitcoin has a real utility. So what can you buy or pay for using bitcoin?