Bitcoins or Bitcons? In August 2016 $78m worth of Bitcoins were stolen from a cryptocurrency exchange in Hong Kong. This once again raised concern about the volatility of the currency and the lack of centralized regulation.
For us at Besedo it proves that we’re on the right track when recommending our customers strict policies regarding bitcoins and Bitcoin related services on marketplaces. Leaving it unchecked can have dire consequences for your users and site reputation.
Numerous articles have been written about people making a fortune trading bitcoins and the fear of missing out is spreading to all corners of society. Your users might also feel the pressure to get into the game. But are they knowledgeable enough to navigate the Bitcoin world?
What about you?
Do you know enough to moderate it?
What Are Bitcoins?
Before we start discussing bitcoins and whether you should allow them on your site/app, let’s take a step back and look at cryptocurrency as a whole.
A cryptocurrency is a digital currency that uses encryption secure transactions. Encryption is the art of locking data with a digital key that only interested parties share.
Bitcoin was the very first cryptocurrency. It was launched in 2009 by an anonymous person the identity of whom, despite many attempts to uncover it, is still undiscovered to this day.
Are Bitcoins a Legit Currency?
Bitcoins have value purely because of the perception of their value. It is a decentralised currency also often referred to as a democratic currency because in theory it is only its users who influence the value attached to each “coin”. In reality of course this is not the case. The Bitcoin value is impacted by speculation and negative or positive media coverage can affect how trustworthy people find it and as such the worth. Much like how stocks work.
How Does Bitcoins Work?
Bitcoins don’t actually exist! They are not tangible and there are no physical or digital things embodying bitcoins, only records of transactions.
You have probably heard the term blockchain. This refers to the immense public ledger where all transactions of bitcoins are stored. Whenever a transaction is made it’s added to a list that contains all transactions created within a certain timeframe. This list is then turned into a block that is added to the blockchain. The new version of the blockchain is then broadcast to the entire peer to peer network. The blockchain contains references to all transactions ever made and it even tracks when bitcoins are created by miners.
Before a transaction of bitcoins goes through, it has to be verified. This is to prevent duping. As each transaction is verified, it is not possible to send the same bitcoin more than once. The verification process is what’s also referred to as “Bitcoin mining”, a term you may be familiar with.
When a block of transactions is made, miners turn it into a hash (a short sequence of numbers and letters. Think of hex colors. That is a hashed version of the real code string of the color.) These hashes are stored at the end of the blockchain together with the block they were produced from.
Hashes are easy to create and almost impossible to fake.
Each hash is created from the block in the chain that comes before it and is stored with its own block.
Kind of like this BLOCK# – BLOCK# – etc.
As each block is used to produce the hash for the block that comes next it is impossible to tamper with a hash without the entire chain changing.
Since versions of the blockchain are stored on all computers of the peer to peer network, a fake hash (i.e. an attempt to dupe or steal bitcoins) would be quickly discovered and reversed.
If you are interested in understanding how Bitcoins work in more detail YouTube user CuriousInventor has created a really extensive walkthrough.
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Should You Allow Bitcoins on Your Marketplace?
Despite this complex system to prevent frauds with Bitcoins, it still happens. And due to the unregulated nature of Bitcoins, they are prone to attract the shadier segment of earths inhabitants.
Bitcoin is a very complex concept so allowing it or not on your marketplace is also a bit more complicated than just a yes or no answer.
Bitcoin trading is completely legal, but it’s often used as the currency of choice on so called “Dark Markets”, such as the famous, but now closed Silk Road, where drugs and other illegal items are sold.
The fact that Bitcoin is often associated with dodgy practices means that Bitcoin related ads could potentially carry the seed for a PR nightmare. You do NOT want your site mentioned as a part of the next Bitcoin scandal.
Recommended Moderation Policies for Different Bitcoin Frauds
With all this in mind, what stance should you take when crafting policies for Bitcoins on your site?
The most common bitcoin related ad we see on classifieds sites is people selling bitcoin mining equipment. But we also see other types of services advertised and most of them are scams or at least highly questionable.
Here is a list of bitcoin scams you need to be aware of.
Bitcoin Mixing Services
Because all bitcoin transactions are noted down in the open ledger all of them can be tracked. While it’s hard to pinpoint the actual ID of a trader, some people might feel uncomfortable with this data being available to the entire world. A bitcoin mixing service exchanges bitcoins to different ones that cannot be tracked back to the original trader.
It is basically a digital cryptocurrency money launderer and often used for illegal purposes. Even if the trader is on the right side of the law, the nature of a mixing service makes it prone to scam as they are in the business of hiding transactions making it hard to prove the trader was the original owner in the first place.
The usual setup when mining is that the miners have their own equipment running. With cloud mining a company is paid to run the operation on their machines and then pay out the profits. Usually this ends up being a Ponzi scheme where payments cease once no new people are lured into paying the mining contracts. In extreme cases there never was any equipment at all and all payments were made from new people paying for the service.
Fake Cryptocurrency Exchange Sites
Those who want to invest in bitcoins can trade them much like stocks are being traded. Some of the cryptocurrency exchange sites out there are however run by scammers. They work by either stealing login details or by getting people to deposit money to their wallet, then go unresponsive.
Interest on Bitcoin Deposits
People are promised return on investment if they deposit bitcoins to a specific wallet. The returns will cease after a while and deposits are lost.
Direct Sale of Bitcoins
Bitcoins are sometimes advertised directly for sale. While this can be completely legit and the person on the other end might actually transfer the Bitcoins to the buyer’s wallet, it is an ad type that is prone to scams.
On top of this since the value of Bitcoins is so volatile it might cause your users to make a bad investment through your site which could make them have negative connotations with your brand.
What about Bitcoin Mining equipment?
For the most part Bitcoin Mining equipment should be fine to have on your site. It is a physical piece of hardware and shouldn’t be more prone to scam than say a graphics card.
Knowledge Is the Foundation for Great Moderation Policies
Are you still with us? Great! Bitcoin is a fantastic example of how complex it can be to ensure that you have the right moderation policies in place. You need to understand the products for sale on your site. How they work and everything associated with those products. Armed with facts and understanding, you are able to predict the possible impact to your site and users of allowing products like for instance bitcoins.
That is why it’s increasingly important to keep up with trends in your industry and the reason we share knowledge like this, so together we can make sure the Internet is as safe as possible.
Don’t let scammers take you by surprise, stay on top of current trends with our scam awareness calendar.
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