Ransomware demands have become an all too common fact of life in the digital age. While all cyber insurers will advise an insured not to pay the ransom, payments are sometimes made to unlock the insured’s IT systems. In most cases the hackers will want to be paid in digital currency—Bitcoin, for example. Paying in Bitcoin is not as easy as getting cash out of ATM, however. Bitcoin’s decentralized, unregulated nature can be both a boon and a curse; the crypto-currency offers a high degree of privacy, but users are also vulnerable to loss and scams. To ensure that you’re dealing with a Bitcoin exchange you can trust, always keep the following in mind:
- Check the exchange’s reputation before you trade.
Bitcoin sites’ fortunes can change overnight. Consider the fate of big player Mt. Gox. Once the biggest exchange in existence, the company was gutted overnight after a half a billion dollar digital heist. After this record-breaking theft, evidence was revealed that showed the people running the exchange had not been forthcoming when it came to past incursions. Most people holding money at Mt. Gox lost everything. To avoid a similar issue, look at a site’s reputation in places like Reddit’s r/Bitcoin forum before you risk your money. You can also gauge risk based on factors like the exchange’s book volume; if a lot of people are using the exchange, that shows that they have high liquidity and are well-trusted.
- Don’t be greedy.
See an offer on a forum or P2P exchange that is unbelievably good? Don’t believe it. If someone is trading Bitcoins for dollars at a rate that is far cheaper than the current exchange rate, there is a chance that something is amiss. If you are going to use a P2P exchange like LocalBitcoins, choose exchange partners with a high rating and a good history of trades. Those who are offering currency at a rate that is not in line with the current exchange rate could be selling coins from a stolen wallet or offloading coins earned through illegal activities.
- Balance your needs for privacy and protection.
An exchange that lets you buy Bitcoins with a credit card is the least private option, but the one that gives you the most protection. In the event of a fraudulent exchange, you may be able to get your money back. Exchanges that work in cash offer greater privacy but less protection if something goes wrong. An exchange whose transactions are transparent will also, in theory, expose you to more scrutiny. However, the small chance that a transaction will be connected to you is worth the opportunity to audit the exchange’s transactions.
Bitcoin can be a hedge against unstable fiat currencies, a way to get access to markets that might otherwise be inaccessible and a way to support important technology like blockchain. By researching your trading options and being careful about who you do business with, you can get the benefits of Bitcoin without getting taken for a ride.