Money for Life work in partnership with the Money Advice Service, an independent organisation set up by government. Money AdviceService provides free, unbiased money guidance across the UK to help people make the most of their money. If you have a question or need help, you can chat to them here.
Thinking about dipping a toe or two into the cryptocurrency pool? Wondering how bitcoin can get you rich fast? In this digital age we live in, it’s natural to get sucked in to the latest online phenomena but like with anything, it’s important to get clued up about the risks involved first. Andy Webb offers the 101 on digital currency and what you can do to say safe.
The first thing you need to know about bitcoin is it doesn’t exist. Not physically at least. There are no actual coins and no notes. There aren’t even debit or credit cards. That might not seem so strange seeing as more and more spending now is done online, but it’s very different to normal money.
That’s because bitcoin and the other “cryptocurrencies” actually only exist in the digital world. The money is essentially just a line of computer code. The “coins” are created – or “mined” – and stored on loads of different computers, working together to process and protect the code.
This new way of doing things means these currencies don’t need to involve any big institutions like banks to store and process the money. By cutting out these middlemen between you and where you spend your money, it’s possible to cut out transaction charges and exchange fees.
Lots of people are excited about the potential this has for the future, but right now the interest is mainly from people hoping to make some quick cash. And some have. Those who got involved early saw their investments grow rapidly. But many people have also lost a lot of money.
If bitcoin is something you’re keen to check out, then you need to know the risks:
It’s possible to make your own bitcoin, but you need lots of powerful computers to do this. Instead, people tend to buy the coins from an online exchange. You need to set up a bitcoin address and wallet first of all, though some exchanges will do it all for you. Just make sure you’ve researched the company to ensure they are legitimate.
If you buy a bitcoin or other cryptocurrency you store it in a digital wallet. You can either spend direct from that wallet, usually via your phone, or withdraw it back to pounds.
But there are only a handful of shops, bars and cafes on the high street and online that will let you use your wallet to buy things. And you’ve no chance if you want to use it to buy your supermarket shopping or pay your rent.
So at the moment, it’s largely only useful as an investment for the future.
At end of 2017, a single bitcoin was worth almost $20,000. But it soon dropped and lost 75% of it’s value. Though it’s value has since increased – though nowhere near that high – the charts can look a little like a roller coaster, full of ups and downs.
That’s no different to other forms of investment, but it’s a risk that should be avoided if you don’t have the cash to lose.
Because there don’t have to be records attached to owning cryptocurrencies, criminals like to use it to transfer and launder money. And they don’t stop there. They’ll try to steal some of your cash too.
Bitcoin wallet sites are particularly attractive to hackers, who could try to get not just your money, but also your personal data.
Scammers also like to target people interested in cryptocurrencies. They can set up fake wallets and exchanges, or trick you into handing over your money. Remember, if it sounds too good to be true, it probably is.
And since there’s no regulation, if something does go wrong you’re really going to struggle to get your money back.
Want to read more?
https://www.moneyadviceservice.org.uk/en/articles/bitcoin-cryptocurrencies
Money for Life work in partnership with the Money Advice Service, an independent organisation set up by government. Money AdviceService provides free, unbiased money guidance across the UK to help people make the most of their money. If you have a question or need help, you can chat to them here.
