The Risks of Paying for Purchases with Cryptocurrencies

Although the price of bitcoin has fluctuated in recent months, the popularity of bitcoin has been growing steadily. Financial experts such as Mark Cuban and Warren Buffett have joined in, providing their opinions on whether you shouldn’t or shouldn’t get onto the bitcoin train.

Whatever your feelings about cryptocurrency it’s helpful to know that Federal Trade Commission in a report from 2015 (that was recently revived and endorsed by the Better Business Bureau) makes clear that investing in bitcoin is extremely risky. In fact, just a few years back the FTC declared that it had “received hundreds of complaints involving bitcoins and other virtual currencies.”

“It’s due to the fact that bitcoin is stored and created electronically”, according to the report, “which means it is not controlled or backed by a central government”. Because there isn’t a regulation agency, the worth of bitcoin could fall as fast as it could increase, based on demand. Virtual currency payments aren’t just irreversible, but also they don’t provide the same protections under the law as the conventional payment options, such as wire transfers and credit cards. 

Sadly, more and more banks are blocking transactions to trading platforms for cryptocurrencies like Binance or Kraken to safeguard customers in the wake of an unprecedented rise in loss from investment scams. These restrictions are triggered by the rise of fraudsters who pose as investment advisors in order to trick victims into transferring money to crypto online wallets, where the money could disappear completely without a trace.

The losses from investment scams increased by 42 percent up to PS135.1m in 2020. Banks report an increase in frauds involving crypto in recent months, especially through some previously acknowledged best crypto bookmakers and social media sites. In June the Financial Conduct Authority (FCA) issued a formal caution about Binance Markets Ltd, banning it from operating in the UK. Following the example of the authority, a number of UK banks have now made it clear that they will no longer allow clients from making payments to platforms for trading in crypto.

Some online stores that accept bitcoin as payment, according to the FTC, may not be able to deliver the product in time or they do provide refunds in the form of in-store credits, but not money. This is exactly the reason why it is always crucial to know the merchant, as well as their sales policies, before actually paying for its product or service.  

Today, more than 100,000 merchants around the world accept bitcoin as payment. This includes big-name companies such as Microsoft, Expedia, and online electronics retailer Newegg. There is a rumor that Amazon might soon be able to accept cryptocurrency as well.

If you’re considering one of these transactions or contemplating it, be sure you do your research first. Review the reputation of the seller and only engage with companies that you feel comfortable with as recommended by the FTC.

Find out what exchange rate is used for refunds prior to making a purchase as bitcoin’s value can fluctuate rapidly. Also, read the seller’s privacy statement to learn what data could be collected and shared. If the merchant states that it is using the payment processor, do not forget to read its privacy policy, as well.  

Crypto investments are always risky because the market is unregulated and therefore your money won’t be secured from financial institutions like the Financial Ombudsman Service or Financial Services Compensation Scheme in the event that there’s a problem. Crypto is also the target of criminals who create bogus advertisements that promise to make you rich quickly on social media and search engines often with fake celebrity endorsements. 

These advertisements ask you to provide your information to allow a scammer to call you back with a call that appears to be from an expert in crypto trading. In certain instances, scammers pretend to support staff’ and force users that they need to purchase remote access applications in order that they can manage their devices and deplete their cryptocurrency electronic wallets.