While cryptocurrencies and digital assets have taken the world by storm in the last few years, their rise has unfortunately come hand-in-hand with the rise of crypto scams. Cybercrime has always been prevalent in our generation, and the rapid growth of crypto has provided more opportunities for fraud than ever before. According to a report by Chainalysis, 2021 has been a field year for cryptocurrency scams, with fraudsters getting away with over $14 billion in crypto assets. Crypto is regarded as a high-risk, high-reward asset, and most of the projects are open source, giving hackers the opportunity to exploit the code or hack into the systems. Given the fact that the crypto market is only going to get bigger as technology advances, it is important to look into these cryptocurrency scams and understand how to be safe from scams.
The Different Types of Cryptocurrency Scams
Investors often fall victim to different kinds of cryptocurrency scams, and a few examples are given below. It is important to note that the following is not an exhaustive list since the number of ways in which fraudsters operate is limitless, and the most important takeaway is to learn how to be safe from cryptocurrency scams.
Fake Websites and Apps
Scammers often create fake websites that masquerade as legitimate crypto trading exchanges or official crypto wallets to trick victims into trusting their services. These fake websites are very similar to bigger authorized websites and encourage users to trade with their platform until the website ultimately shuts down or declines users’ attempts to withdraw money from their investments. Fake cryptocurrency apps also work along the same lines.
A scam as old as the internet — phishing — happens when scammers extract personal information from investors, such as their crypto wallet usernames and passwords, through fake websites, emails, or phone calls. They often present enticing offers to features to lure users onto their platforms, which leaves them vulnerable to an attack on their crypto wallets.
Pump and Dump Schemes
This kind of cryptocurrency scam works on the simple forces of supply and demand, wherein scammers create hype about a particular coin or token through social media to stimulate demand, which causes an upward push in price. The scammers then sell their holdings of the now-hyped coin at a price far above its realistic value, inevitably causing a crash in the asset’s value.
Fraudulent Initial Coin Offerings (ICOs)
Similar to IPOs, crypto startup companies use ICOs to raise money from future users. In this type of scam, customers are attracted by dangling the opportunity to invest in a new currency that could make them rich overnight and are promised a discount on their new crypto coins in exchange for active digital currencies. This alleged new coin, however, never sees the light of the day as scammers take their stolen crypto and disappear.
Sounds scary? Learn How to be Safe from Scams
Crypto scams are much more prevalent these days, which is why it is important to be able to distinguish a swindle from a legitimate activity and learn how to be safe from scams. Here are some red flags to be on the lookout for:
Occasional emails, some advertisements, and a few phone calls here or there to keep customers invested is good marketing on the part of a company. However, spamming emails, uncontrolled social media ads and excessive phone calls convincing you to act fast are glaring warning signs.
Every cryptocurrency should have a whitepaper accompanying it, explaining how it was designed and how it would work. If the company/individual refuses to provide the whitepaper or if it seems out of order, the cryptocurrency could be a scam.
Promises of Guaranteed Returns
Crypto is a volatile market, and any company claiming to provide guaranteed returns on their digital currencies is a red flag. Legitimate companies and developers know that the probability of their currency going up overnight is as much as the probability of it going down, which is why they warn investors that all investments should be at their own risk.
Scarcity of Information
If a company does not have a social presence, a legit website, or team members about whom information is available, tread carefully. Trust is a very important factor in any kind of training, and actual companies try to build trust in their customers through publishing information about the people behind the currencies.
Trading on crypto platforms leaves you open to a ton of different risks, with falling victim to crypto scams being a major one. Thus, it is essential to understand how to be safe from scams while trading in crypto. Firstly, it is important to do thorough research about the companies and the digital assets you are planning to invest in, try to stick to established names in the business, and gain a complete understanding before starting trading. Moreover, it is essential not to succumb to pressure that scammers might try to put on you through constant emails or phone calls and, most importantly, keep your crypto wallet key secure.