What You Need to Know about Bitcoin

Confused about Bitcoins? You’re not alone! While there have been many articles about Bitcoin on the news lately, you still may be perplexed as to how it can be used in fraud and what the technology can do for you.

Here are five things you need know about Bitcoin:

1. Bitcoin and cryptocurrency are not interchangeable terms. The topic of Bitcoin gets even more confusing when the term cryptocurrency is added to the mix. Cryptocurrency refers to any type of digital currency. Bitcoin is a specific type of cryptocurrency. Part of the confusion likely started because Bitcoin was the first cryptocurrency.

2. Bitcoin is a virtual digital currency. You’ve probably figured out that Bitcoin is similar to money. And you are correct—sort of. Unlike traditional money, you can’t see or touch Bitcoin. It only exists in the digital world, as a token, and does not have a physical form, such as coins or bills. While the term token is often used to describe Bitcoin, it refers to a digital version, not the physical type of token you put in a video game at an arcade. Instead of the current monetary system, with different countries having their own currency, Bitcoin can be sent anywhere across the globe from one person to another.

3. Bitcoins are anonymous. It’s easy to think of cash as the most anonymous form of payment possible. But Bitcoins are even more so. With cash, you need to physically get the money to the other person—either by handing it to them, leaving it somewhere, or giving it to someone else to pass on. But with Bitcoin, the delivery is virtual and has been comparied to “an untrackable, unhackable version of PayPal, more or less.”

4. People are actually using Bitcoin. While you personally may not use Bitcoin yet, or even know anyone who does, people around the world are using the digital currency to buy and sell products and services. However, because of the distributed and anonymous nature of Bitcoin, it is challenging—if not impossible—to give an accurate number of users. The Bitcoin Market Journal estimates around 20 million users globally, a figure based on the 28.5 million Bitcoin wallets in existence. But many of these wallets may be inactive, and users can have multiple wallets, making total estimates difficult to make.

5. Bitcoins can be used in fraud schemes and identity theft. Bitcoin identity theft is when a criminal steals your identity and poses as you by phishing your passwords or hacking your computer. One way to avoid Bitcoin fraud is to reject solicitations promising “Get Rich Quick” schemes in cryptocurrencies. Common Bitcoin scams include:

• Malware downloads and phishing

• Bitcoin pyramid schemes

• Bitcoin investment schemes

• Fake exchange scams

The safest way to use Bitcoin is to be aware of preventing Bitcoin fraud by securing your identity. Ways to help secure your identity when using Bitcoin is to obtain private security keys, protect those security keys, and always use a VPN for transactions.