Cryptocurrency Scams and How To Avoid Them
This drawback in accepting profitable blockchain solutions are caused by many reasons but that of cryptocurrency scams have been a major concern
The awareness of blockchain solutions is increasing daily with the crypto market experiencing a rise in billions of dollars weekly.
DeFi and NFTs, the major force behind blockchain velocity have seen their market valuation shoot over 200 billion dollars just this year.
And especially with the talk of Web3 on crypto Twitter, everyone is looking for ways to partake in this new economy.
Every economy runs with a currency
Just as the US dollar fuels a large percentage of economic activities worldwide, cryptocurrencies enable blockchain solutions to run.
This creates a dilemma for people who are interested in the innovations of blockchain but are not ready to embrace cryptocurrencies.
This drawback in accepting profitable blockchain solutions are caused by many reasons but that of cryptocurrency scams have been a major concern.
Two major crypto ethos; privacy and immutability have been the target for bad actors in exploiting crypto projects to steal the funds of people.
Since KYCs (Know Your Customer) and AML (Anti-money laundering) regulations are not present, scams are conducted daily and millions of dollars are siphoned from people.
One of the major reasons these scams have prospered in the crypto space is because people fail to do due diligence in understanding how cryptocurrencies work and the role they play in today's world.
Knowledge is Power
Types of Cryptocurrency Scams
Before taking steps to avoid scams that abound in the crypto space, firstly, it's important to understand the methods applied by scammers in defrauding their victims.
From there on, we'll explain the right steps to take in avoiding them.
Fake Websites
Scammers are becoming aware that people no longer fall for cheap scams nowadays, hence one of the new methods they apply is to impersonate the website of a legit company or project. This way a victim feels free while falling for their tricks.
Over a million fake websites currently exist and sometimes you can hardly tell the difference between them and the original, considering that their UI and logo will be the same.
Top crypto exchanges and wallets have been cloned by scammers causing people to lose their hard-earned money by engaging/investing with them.
Solution
One of the differences between a fake website and the original is in the page URL. Check the URL bar of the website you are visiting; does it have a lock icon or is there an "https" indicating security?
If not, then the website is probably a fake.
We often overlook such tiny details when surfing the web, hence scammers target them when carrying out their deception.
Also, be careful with the rate at which you click third party links.
You might receive a link to register or invest in a crypto project, exchange or wallet since most companies use referral links to attract people to their platforms by promising users a little bonus for referring others.
The bad thing with this method is that scammers are currently using these "referral links" to redirect people to fake websites that perfectly impersonates the original.
It is advisable to avoid clicking on referral links and employ the use of coupon codes if you must go through a referral system.
A lot of people have lost millions of dollars in many impersonated websites, it is better to consider these steps to be on the safe side.
Pump and Dump Scams
This is one of the most popular scams when it comes to stocks and cryptocurrencies. Although people still don't fully understand how it works.
Pump and dump scams involve groups of investors constructing false information, rumours and exaggerated news about a cryptocurrency they hold and selling when the price rises due to increased popularity and investments.
Considering how bitcoin, is profiting early investors, who will want to miss out on the next big thing
Pump and dump scam operates differently depending on the methods applied by the scammers but they all follow the law of demand and supply.
The scammers usually congregate on social media platforms especially Telegram and Discord, claiming to have inside information about the next big project. Sometimes they go as far as publishing fake news on different websites.
Once investors start trooping in, the price of the currency starts rising due to the increase in trading volume. The scammers capitalise on this price increase and sell off all their holdings, driving the price of the cryptocurrency down sharply. And causing new investors who followed their hype to lose almost all their investments.
Cryptocurrencies with low trading volume and small liquidity are often the target for perpetrating this type of scam because a little surge in trading volume often influences the price greatly.
These scammers often toy with the mind of victims telling them the currency rose as was predicted, and they were only unlucky not to cash out the right time.
Solution
Cryptocurrencies are not get-rich-quick schemes, just like every investment you need to take time to understand them and the risks involved or consult professional financial advisors.
There are other information you can employ to avoid this scam. We'll explore them further as we go on.
Crypto Ponzi/Pyramid Schemes
Crypto Ponzi schemes are scams aimed at luring investors through marketing tactics of promising high return on investment and low-risk high reward ratio.
Such schemes often pay early investors with the money from more recent investors under the disguise that the profit was gotten from tactical business activities. Their true intention becomes revealed when new investments stop flowing in.
Another way to propagate this scam is to promise insane profits via referral rewards especially since young crypto projects depend on referrals to gain publicity.
Victims of such scams are usually newbies in the crypto space who are only attracted by the potential of cryptocurrencies to yield a high return on investment.
Some of the top crypto Ponzi schemes include Onecoin defrauding investors of over $5.8 billion and BitConnect where investors lost about $3.5 billion.
Solution
To avoid this scam, keep in mind these red flags:
1. When you are promised a very high ROI and extremely low risk for your investments
Every legitimate cryptocurrency site, project, or personnel informs their customers about the risks of cryptoassets including the possibility of losing your money.
But no crypto scam will tell you this.
They often preach to clients that profits are guaranteed for every investment and their most used words are:
It's 100% risk-free, Guaranteed 100% return on investment
Any crypto project or website that promises these are scams and should be avoided.
2. Having complex business processes that can't be easily explained and refusal to reveal documents attesting to the project's legitimacy
Once a crypto project is reluctant to reveal its business framework or its roadmap, then you should be alarmed. Although some projects do use fake business roadmaps and frameworks to lure investors.
It's important again to do your research no matter the reputation of who's behind the business/project; carefully analyze every business opportunity before deciding whether or not to invest.
ICO Scams
ICOs (initial coin offerings) have been a major target for carrying out crypto scams especially since the crypto market is highly unregulated.
The process of conducting an ICO usually involves fundraising for a new project and giving investors its token according to the amount invested.
ICOs have made people millionaires overnight but a lot of persons have also lost good money by falling victim to scam projects.
In an ICO scam, the developers/influencers behind the project suddenly disappear after amassing a good amount of money from investors.
Pincoin and iFan, one of the most popular ICO scams, siphoned over $870 million from investors. Other ICO scams include Plexcoin, ACChain, and Savedroid.
Solution
Two important metrics to consider in spotting this scam are:
1. Check for the whitepaper of new crypto projects and recommendations from experienced developers before investing in them
Before a cryptocurrency conducts an ICO, the developers/company firstly releases a Whitepaper.
A Whitepaper in the crypto space is a document where the technology and purpose of a crypto project are clearly explained - like the problems it aims to solve, the solutions and its architecture.
Everyone knows bitcoin provides a way for conducting transactions securely and Ethereum serves as a decentralized computer. What can this new currency do?
Cryptocurrencies with interesting and good use cases are often recommended by experienced developers in the crypto space. However, recommendations can be faked, hence it's important to ask questions on the Twitter handle of developers who supposedly recommended a new project.
Also, top crypto blogs will release articles about a currency recommended by highly experienced developers.
Note: There are some crypto projects without a good use case (shitcoins) that sometimes multiply your investment, but the risk level with such investments are quite high.
2. Transparency
Another important metric to consider is transparency. A project that isn't transparent with their ICO sales and milestones they have reached is probably a scam.
Every legitimate project should be transparent enough for users to know their progress and certain drawbacks they have experienced.
Some projects claim to be 100% perfect and solve all the challenges faced by currencies in the crypto space, but nothing can be farther from the truth.
Most times you'll find out that almost all the comments the project receives on its social media platforms are positive.
This is already a red flag because no matter how good and innovative a project might be, community members will always criticize and suggest changes to features they are not comfortable using.
Top currencies like Bitcoin, Ethereum, Binance Smart Chain, Solana, and Ripple often get criticised concerning some of their features. Hence, no project can be a saint in the crypto space.
Mining Scams
Bitcoin and other top cryptocurrencies are seeing price increase yearly and what better way to get them than to mine them for free or a small token using your smartphone and PC.
This is the lie scammers sell to their victims when conducting mining scams.
Scammers nowadays build apps and convince victims to send them crypto or fiat currencies to access mining services. Others claim to allow mining for free while they inject bugs in PC/phones to copy sensitive information from victims like email addresses, passwords, etc.
They provide false figures indicating your mining progress is going smoothly and when it's time for withdrawal the scam is unravelled or victims are further played.
Some scammers will ask victims to send withdrawal fees in bitcoin or Ethereum to a wallet and after receiving the currencies, they disappear without a trace.
This scam works in different ways but with the right information, you can spot them.
Solution
Most cryptocurrencies that require mining have evolved from just PC mining to the use of powerful hardware like ASICs (application-specific integrated circuits) and GPUs (graphics processing units).
Crypto mining is a competitive task and people who get involved dedicate good money to building mining farms and pooling their resources together via the use of mining pools to enable them to profit from it.
Before getting involved in mining a currency, you must understand the consensus mechanism used by its network and how the currency works in general.
Be alarmed whenever you come across an app indicating you can mine Bitcoin or Ethereum with your phone as these currencies can't be mined with such.
Some cryptocurrencies don't require mining but use other methods in reaching consensus, hence the possibility of 'mining’ them doesn't exist. It all boils down to doing your own research and having thorough knowledge about cryptocurrencies.
Private Key Scams
Scammers employ this method under the guise of giving out airdrops for users to claim by dropping their wallet private key.
And immediately users drop their private key, the scammers withdraw all the funds in their wallets and vanish into thin air.
Solution
The private key of your wallet should be treated like your ATM PIN as it is the only access to withdraw funds from it.
The only requirement to receive an airdrop or other cryptocurrencies is the public address of your wallet. Any website or person requesting your private key is a scam and should be avoided at all costs.
Although wallets often used nowadays are hot wallets where users don't have to deal with managing their private keys. But if you prefer using other types of wallets make sure to keep your private keys only to yourself.
Conclusion
The world of cryptocurrencies isn't one to be ignored because of few scams that can be easily avoided with the right information.
Keep in mind that having a good understanding of cryptocurrencies should be your priority before thinking of investing. And if an offer sounds too good to be true, then it probably is.
With the proper mindset, your crypto journey will be blissful and full of good testimonies.
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