There’s no doubt that cryptocurrency has changed the world. It offers something that had never been done before. You will read stories all over the internet about “crypto millionaires” claiming how they invested very little, sometimes less than £100 and made back a fortune.
Some of these stories are true, there is always going to be the lucky few, but please don’t believe that this is a crypto “norm”. It isn’t and a lot of people of there are trying to sell you a course, sell you a token or offer to manage your assets, promising a massive increase in value almost overnight.
With crypto getting bigger, making larger waves in the financial community, there are always going to be scams you have to be on the look out for. In todays blog, we are going to cover some of the most common scams and hopefully help you avoid falling into them.
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Ponzi and pyramid schemes.
One of the most common crypto scams out there today is the ponzi scheme. Scammers will reach out to you, promising you high returns on investments, claiming the earlier you get involved the larger your share in the profits will be. They can keep the earlier investors happy to start with my feeding them money and payments from newer investors, just to show a return and keep them off their back and from asking too many questions.
Eventually the recruitment of these new investors slows down, or stops entirely and the whole scheme falls apart, leaving the majority of the investors with little or no return at all.
How do you spot a ponzi scheme?
– Be wary of any project that promises “guaranteed” returns on your investment, promising little or no risk.
– Always avoid platforms that require you to invite new members or investors to make a profit.
– Always do your own research when investing in a project. Look around at social media accounts, see what people are saying about the project. Look for honest write ups from real investors, not “bot” accounts.
– Remember the basics. If something sounds too good to be true, it probably is.
Fake initial coin offerings (ICOs) and rug pulls.
Initial coin offerings (ICOs) were once a very popular method for a new token or a start-up to raise money for their new project. When they became popular, they also became a playground for scammers, realising they could prey on peoples FOMO (Fear Of Missing Out) on the newest “next big thing”.
Scammers using the cover of a new ICO get the attention of investors by promising new crypto projects, only for all the money invested to disappear, along with the project.
Much like above, rug pulls act in a very similar fashion. These can raise a good amount of capital behind the project, only for it to them become suddenly abandoned and all the invested funds are gone.
How do you spot fake initial coin offerings and rug pulls?
– Check out the team behind the project. Do they have a history of working in the blockchain? What other projects have they worked on? These questions need answers before even considering any investment.
– Take your time look over the whitepaper and tokenomics. Make sure they are well structured and lay out realistic, achievable goals.
– Be on the look-out for third-party audits of the project and transparency throughout the development process.
– Don’t trust a project just because it is being promoted by an influencer, or appears in a lot of advertising over the internet. Money buys advertising, whether from a person or a website and offers no real proof of trust.
Phishing scams.
A phishing scam is a common tactic, often used to steal the private keys from a wallet to gain access to their login credentials, and in turn their assets. Scammers will often create a fake website, or send fake emails claiming to be a legitimate crypto service, whether it be an exchange or wallet provider. Once the user inputs their credentials into the website, or connects their wallet to the site the scammers are them able to take a copy of that information, log into the wallet themselves and drain it of all of the funds inside.
How do you spot phishing scams?
– Make sure to always double check any website address you are visiting. Scammers will often use websites with a very similar web address to whatever they are trying to impersonate.
– Never open links or click attachments in your emails from senders you don’t recognise.
– Always ensure that you enable 2FA (Two-Factor Authentication) on all of your crypto accounts to give you an extra layer of security.
– Only download software related to wallets or exchanges from the official source, never download it from a third-party website.
Fake exchanges and wallets.
Another common scam that has been on the increase recently involves the scammers offering a new wallet, or access to a new exchange that promises much lower fees than the major exchanges or access to excusive tokens. While these platforms may look normal upon a first look, they will often completely block withdrawals and close the website and/or wallet overnight, taking any users assets with them.
How do you spot fake exchanges and wallets?
– Only use well-known, regulated crypto exchanges with a good, long-standing reputation.
– Check the legitimacy of any exchange or wallet by looking at user and community feedback.
– Always avoid any exchanges or wallets that offer you trading bonuses or free cryptocurrency for signing up.
– If you are unable to speak to customer support, or find any contact details for the exchange or wallet, avoid them at all costs.
Pump-and-dump schemes.
A pump-and-dump scheme is appearing more and more with the increasing popularity of cryptocurrency. It involves artificially inflating the price of a certain crypto through misleading advertising campaigns, social media hype of completely fake endorsements from a well known company or person.
Once investors have started to buy into the crypto, the scammers sell off all of their holding of the currency, causing the price to crash and leaving all the new investors will little or no return from their original investment, let alone any kind of profit.
How do you spot pump-and-dump schemes?
– Be wary of any cryptos price that jumps up massively, without any underlying, core values or fundamentals.
– Never invest in an asset based on an endorsement from a celebrity or a social media influencer.
– Do your own research. Always look at the whitepaper of any project, research the team involved and take a good look at the community and all social media platforms before you part with your hard earnt money.
– Don’t think about making “millions” overnight when you see a coin skyrocket, think about how much you could lose if its being unnaturally pumped and you enter at the wrong time.
Crypto Analyst‘s Final Thoughts.
With the crypto space still being relatively new and still evolving, so are the scams. While the promise of overnight, high returns can be tempting to anyone, always do your own research and don’t take anyone at their word. Best case, they could be dragging you into a scam unknowingly. Worst case, they are trying to steal from you.
By staying up to date with the latest news and scams within the crypto space, you can keep yourself and your assets safe.