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What you need to know before investing in Bitcoin

Created date

October 14th, 2014
Bitcoin
Bitcoin

Crypto-currencies are one of the newest techno trends. They are virtual currencies, not backed up by any government or central bank and used to conduct business online. Bitcoin, established in 2009, was the first crypto-currency and it’s probably the one you’ve heard something about. 

Investors eager for the next big thing have been hearing a lot of buzz about Bitcoin, but before you invest in this emerging currency, make sure you know what you’re getting into. Bitcoin and other crypto-currencies operate in a highly volatile and completely unregulated realm. The value of crypto-currencies rises and falls—sometimes sharply—depending on demand. If the value goes down, there’s no guarantee that it will rise again.

The computer as pick and shovel

Unlike traditional currency investments, Bitcoins are “mined.” Think of it like gold mining, but instead of using a pick and a shovel, you’re using a computer. The best miners are the ones with the fastest and most up-to-date computer systems. It stands to reason that buying a super computer would be a sure way to make a profit through Bitcoin mining.

That’s exactly what more than 20,000 customers believed when they paid in full for one of Butterfly Labs’ Bitcoin mining machines. The company touted the profitability and cutting-edge technology of its Monarch machine calling it the “fastest and most power efficient Bitcoin miner yet.” Various models sold for between $150 and $30,000. Orders were taken and delivery was promised by October of 2012. As of September 2013, the company still hadn’t delivered the paid-for machines. 

When the machines were finally delivered, they were defective. The Federal Trade Commission has filed a complaint against Butterfly Labs, but in the meantime, 20,000 customers have nothing to show for their investment. 

If you’re given a pitch about investing in Bitcoin, do your research. Start with an online search of the company’s name with the word “scam” or “complaint” in the search engine. Do as much digging as you can because once you’ve parted with your money, it will be difficult to get it back.

If you think you’ve been the victim of a scam, contact the Federal Trade Commission at ftccomplaintassistant.gov.

<... you have information about a scam you would like to share, contact me at michele.harris@ericksontribune.com.

 

Facts about Bitcoin

Here are a few things to know:

• Bitcoin prices are highly volatile.

• Bitcoin is still experimental.

• While Bitcoin is not an official currency, you are still responsible for paying the same taxes you would for any other investments or earnings.

• Bitcoin investments are irreversible.

• Bitcoin is not anoynomous.

• Efforts must be made to secure your online “wallet” to prevent hacking or other types of theft.

For more information about Bitcoin, visit bitcoin.org.

 

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