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Trading Bitcoins & Altcoins safely

Discussion in 'SteamRep Guides' started by PowerLemons, Jan 7, 2014.

  1. PowerLemons

    PowerLemons New User

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    Using Bitcoins and Altcoins are, in some aspects, safer to trade with than with cash. But as with all types of trading, there are risks. These are some guidelines that you should follow on how to trade these cryptocurrencies safely.

    1. Make sure you are sending the coins to the right address
    It's easy to send your precious coins to the wrong address. Receive addresses must be exact, so have even one typo and the payment will be sent into the void. And since payments aren't reversible, they are stuck in the void forever.

    Some tips to prevent this from happening:
    • Send a very small amount of coins (ex. 0.0001 BTC / $0.10) to the address first. If the payment goes through, send the rest of the coins to that address. If it doesn't, make sure that you have the right address.
    • NEVER type down the address. It is really easy to mess up on the address as they are composed of random letters and numbers. Instead, copy and paste the address.
    2. Be wary of non-Steamrep escrows/middlemans
    Note: Escrow is the same as Middleman
    Some users may want to use an escrow from a cryptocurrency-based community and refrain from using a Steamrep escrow, as they may be unfamiliar with Steamrep. Always try to get a Steamrep escrow instead, as they are more reputable than other community-approved escrows. But if it comes to a non-Steamrep escrow, be wary of who the escrow is, and how reputable the escrow is. Obviously you wouldn't trade with an impersonator, but an "approved" escrow can scam too and has happened in the past. This happens more in less established cryptocurrency communities (ex. Namecoin, Megacoin, Dogecoin) compared to more established cryptocurrency communities (ex. Bitcoin, Litecoin).
    Some tips to avoid being scammed:
    • Always try to get a Steamrep middleman. An approved Steamrep middleman is more reputable than an approved cryptocurrency middleman.
    • If possible, check the escrow's history. If the escrow has done a lot of high-valued
    • Off-topic but still important, Bitcoin and other Altcoin escrows usually charge a fee for their services. For Bitcoin, the fee is usually around 1 - 1.5%. Steamrep escrows don't charge anything, all they ask for in return is reputation.
    3. Wait for your coins to become confirmed first
    Bitcoin and altcoins are believe it or not, still susceptible to fraud. There is something called Double Spending. It is possible to send two conflicting transactions in rapid succession into the currency's network. This is called a race attack. Another attack is the Finney Attack. Pre-mine one transaction into a block and spend the same coins before releasing the block to invalidate that transaction.
    Some tips to avoid these attacks:
    • Do not trade unconfirmed coins. Wait for the coins to get a good amount of confirmations before you trade them. Having 0 confirmations is not safe.
    • To avoid the race attack, wait for your coins to have at least one confirmation.
    • To avoid the Finney attack, wait for your coins to have at least six confirmations.
    The chances of having any attacks are very low and unlikely, but it is highly recommended that you wait for your coins to have at least 6 confirmations before they are traded.
    4. Common sense still applies
    Like every type of trading, common sense still applies. Do not trade with anyone who is impersonating, hijacked, a Steamrep scammer/caution, etc. If something seems too fishy or doesn't feel right, don't take the risk and just don't go through with it. More information can be found here, as this guide mainly focuses on Bitcoins and Altcoins.
    Hopefully I listed nearly everything that needs to be said. I wanted to fill in the gap of a cryptocurrency guide as there were no guide based on safely trading cryptocurrencies. If you have any suggestions for this guide, please post them below :)
  2. PowerLemons

    PowerLemons New User

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    Somehow the forum messed up on the formatting at the last bit.
    Hopefully this is fine :oops:
  3. SilentReaper(SR)

    SilentReaper(SR) Retired Staff

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    SteamRep Admin:
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    Here in the Guide section ppl can edit their posts, so you can adjust all you want on the guide.
  4. PowerLemons

    PowerLemons New User

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    Steam:
    STEAM_0:0:34779554
    There is no edit button:
    [​IMG]
  5. SilentReaper(SR)

    SilentReaper(SR) Retired Staff

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    SteamRep Admin:
    STEAM_0:0:89705646
    hmm, ill check that later, for ppl should be able to edit their own OP here on Guides.
    PowerLemons likes this.
  6. PotatoPotato

    PotatoPotato New User

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    Thanks for putting up this guide.

    I have one or two things to add:

    Checking Rep

    If the other party goes first and is paying you in Bitcoins or Altcoins, then you don't need to check their rep because it's impossible for anyone to chargeback. Once you get the money, it's yours and there's no way it can be taken back from you. You should still check trading partners on SteamRep quickly, to make sure you're not trading with a scammer, of course.

    If you're going first, you should check the other person's rep, as you usually would for a Paypal trade.

    Remember that the blockchain is a public record which proves that a payment was transferred from one address to another. Make sure you include payment addresses and amounts in Steam chat, so you can use a screenshot of chat together with the blockchain as evidence if a scam is reported by either party.

    Address checksums

    Mistyping an address is unlikely to cause problems because the address format includes a checksum (https://en.bitcoin.it/wiki/Address) so a mistyped address almost certainly won't be accepted. Anyway, always copy and paste, as the OP says, (or use a QR code). Never try to type out a full address, because you'll go crazy trying to get it right.

    However, checking addresses very carefully before you send money or request money is still a smart thing to do. Although a mistyped address will almost certainly be rejected by your Bitcoin client or wallet site, people have sent payments to the wrong address before for other reasons, such as when autocomplete in the browser suggests an address they used before. Problems with mistyped Firstbits addresses are also possible on Blockchain.info (https://en.bitcoin.it/wiki/Firstbits)

    Zero confirmation transactions

    I don't think waiting for 6 confirmations is necessary for the small amounts you'll be dealing with for Steam trading. Maybe if the deal is worth over $1000, you might want to wait for 4 or more confirmations, I guess. But I think 6 confirmations is overkill, unless double spending attacks got a lot easier and more common.

    Most of my trades are for quite small amounts of money, and I usually don't wait for any confirmations. I know that this is slightly risky, but I've done many (100+) zero confirmation Bitcoin transactions over the past two years, and never had a problem with any of them -- and I've obviously saved a huge amount of time by not waiting for confirmation, because I can complete the whole trade in under a minute. I have enough rep to almost never go first, so trading with Bitcoin works far more smoothly for me than using Paypal.

    My personal guideline for the number of Bitcoin confirmations I require for Steam trading is:

    Up to $30 - 0 confirmations (just check that the transaction was sent with a normal fee. If no transaction fee was paid, then wait for 1 confirmation)
    $30 to $60 - 1 confirmation
    $60 to $100 - 2 confirmations
    $100 to $300 - 3 confirmations
    $300+ - I haven't done trades of this size recently

    Accepting zero confirmation transactions is pretty safe for small payments, if you make sure a transaction fee was paid. Payments without a transaction fee can occasionally take many hours to confirm, or they may never get confirmed, so always wait for at least 1 confirmation if there's no transaction fee.

    To check whether a transaction fee was paid. Look up the address at Blockchain.info, and click the transaction ID to see details of the transaction, including the fee paid.

    Probably the greatest danger in accepting zero conf transactions would be if someone sent you a transaction which relied on an output from an even earlier transaction that was also not confirmed. This has never happened to me, but in the worst case, your payment will never get confirmed, even if they paid a transaction fee, and you won't receive the money. It's possible someone could try to do this deliberately to scam or grief people, though I've never heard of this happening. You would have the chat screenshot and the blockchain to prove that the money wasn't paid, which is probably enough evidence for a SteamRep scam report, but it's obviously not a situation you want to get into.

    There are other ways to scam with double spending or zero confirmation transactions (i.e. Race attack and Finney attack, as OP mentioned), but at the moment, they are technically quite difficult, almost never seen in the wild, and it's really unlikely that someone will try this for small amounts of money.

    Dogecoin

    Dogecoin confirms blocks almost 10x faster than Bitcoin. For Dogecoin, I think you might want to wait for 2x or 3x as many confirmations as you would with Bitcoin, just to be safe - even then, Dogecoin will still be much faster than Bitcoin. If you're making a very large payment with Dogecoin, then maybe take a quick look at the top stories on reddit.com/r/dogecoin first, because Dogecoin has had one or one blockchain forks recently, and it's a bad idea to send money during a fork.