Some scams are easy to see, but others might look like a worthwhile investment opportunity. Here are some crypto red flags to look out for.
When it comes to traditional money, it’s easy to see where it is. It exists physically in cash or it’s in your bank account, where you can draw it out from an ATM or as cash-back. With digital currencies like Bitcoin, it’s a little different. While you CAN withdraw from Bitcoin ATMs, the location of where your coins are stored is slightly more nuanced.
You own your private key, not quite the “crypto”
The important thing when owning cryptocurrency is that when you own cryptocurrencies, what you really own is the key to the account that houses the cryptocurrency. Your coins are associated with two sets of keys:
The private key
Your cryptocurrency private key works like a real key. It is unique and is designed to unlock what’s inside. A private key in crypto is private because it offers access to the cryptocurrency inside an account or wallet. It’s like a bank password: Keeping it private keeps the funds inside safe.
The public key
Your public key is like a bank number that you give out so that people can send you money. It doesn’t need to stay private and no one can get to your private key through your public address.
Together, your private keys and your public keys let you access your crypto and provide a way for the receipt of crypto funds.
When you buy crypto or are sent crypto, your cryptocurrency holdings are not actually kept or stored anywhere. Because they’re a digital asset, they are not represented by any tangible asset. Instead of holding cryptocurrency, you hold the keys that are associated with cryptocurrency. If you use an online wallet, the log-in information gives you access to the associated cryptocurrency with your keys and if you use a hardware wallet, the same applies: You own the keys and those keys grant you access to use the cryptocurrency in the account.