Blockchain is still a hot topic in the world of technology. It excites all of us so much with the amazing innovative possibilities that it brings. Cryptocurrency and digital wallets have entered our lives thanks to blockchain technology as well. Cryptocurrency is basically digital money, there are no physical bills or coins. Some are embracing this new way of investment and stockbroking very quickly.
However, wherever the money is, fraudsters are also there. Expectedly, as the cryptocurrency gains more acceleration, scammers pay more attention to developing foxy cryptocurrency frauds. According to the data of the Federal Trade Commission of USA, between October 2020 and April 2021, more than 7000 people lost over 80 million dollars to cryptocurrency scams in the USA. Numbers are multiplying at an incredible rate. Hence, we have compiled the 5 most common cryptocurrency frauds and a few tips on how to avoid them for you.
Top 5 Cryptocurrency Frauds to Watch Out for
- Investment and Business Opportunities
This fraud type is also known as “Warranty fraud” because the fraudsters promise you definite, risk-free profit. They make very assertive claims that are too good to be true, and they actually sell hope to investors. Fraudsters convince investors to make large investments in their scam as if it was a one-time opportunity. However, there are no guarantees in the crypto world, there is always the risk of losing. So, if a website or someone promises you a guaranteed return of investment, it is high probably a scam.
- Initial Coin Offerings (ICO) and Non-fungible Tokens (NFTs)
We hear and learn new things about the crypto world more and more as the time goes on. Most of us already have heard about NFTs or non-fungible tokens. It’s a form of buying valuable unique pieces with cryptocurrencies. Unlike coins, they can’t be traded for an equally valued piece. NFT frauds are a whole another subject to dive into because fraudsters are considerably active in that area. They use many different ways of scamming including fake NFT stores, various kinds of impersonations, fake bidding, and insider trading.
ICOs or initial coin offerings, on the other hand, are the first offering of a new coin for sale. Many fake coins possess a whole non-existing team and a backstory. While you think that you’re making an early bird profitable investment to a newborn coin, you might be investing in a scam. You might run into websites that advertise an upcoming profitable coin that you can deposit for already. Yet, the coin won’t exist probably.
- The “Rug-pull" Scams
Have you watched the Korean TV show “Squid Game”? Probably you did. Most of us have heard about the grand cryptocurrency scam that takes place after the show. A new coin called "Squid" was introduced into the market and suddenly hundreds invested into the coin. Its value bounced up at once then the owners of the coin disappeared into the dark with all the money. This fraud act is called a rug pull.
Another form of a rug pull is following a similar pattern at first by booming the value of a coin and then selling all the holdings at once. Initially, fraudsters invest a lot in a cheap coin then they manipulate other investors to invest in the same coin. Then they sell all their share at the same time which will end in a sudden drop in the value of the coin.
- The Good Old Phishing Scams
We are all familiar with phishing scams today. It is a fraud trend that never goes away. The idea is always the same: you get an email or a text message with a questionable link and a call-to-action text in it. When you click the link, the fraudsters can acquire many different data, mostly your credentials.
Crypto fraudsters mainly target the digital wallet keys of holders. They create a fake website for a coin or for a special offer for certain holders. These kinds o websites require you to log in or somehow share your wallet key. If you share your key, then they can access your digital wallet and your funds. You should be very careful about the emails you get that are concerning your funds and digital wallet. Always double-check all the information including the sender's mail address, the images, and the logo in the mail, and make sure it is safe before clicking on any link.
- Imposter Scams
Imposter scams may involve imposter websites or mostly personal social media accounts of trusted sources such as celebrities, economists, well-known business people, and so on. Scammers may hack the accounts of these kinds of people or create new fake accounts that look very real. Through the social media accounts, they manipulate investors with irresistible-looking opportunities. This is in fact a kind of investment scam. Similarly, the fraudsters promise unreal earnings to investors if they take action now, only from a trusted source’s mouth.
How to Protect Your Coins from Crypto Scams
- Beware of the Red Flags
In many cases of fraud, there are generally certain red flags that you may notice. For example, in the Squid Game cryptocurrency fraud, some investors wanted to sell their holdings, but they couldn’t. Furthermore, there were grammar mistakes on the website of the coin. These are only the two examples of the possible red flags of a scam. The other examples might be guaranteed return of investments, mistakes on the logos or images, uncertainties about the details, or being pushed to invest at the moment.
- Decide Carefully When to Pay with Cryptocurrency
If somebody is asking you to pay with cryptocurrency, it is a scam, it is actually this simple. Cryptocurrency is not exactly controlled by the government and if you transfer your coins to someone, there is no way to get them back. This is why fraudsters prefer crypto payments, so that they can easily pocket your money. So, before you make a payment to someone, for an asset, you should make your research.
- Take Good Care of Your Wallet Key and Credentials
As we already mentioned, if you use a digital wallet, your key and credentials are unique because they guard your investments directly. As for many other accounts, you should always use a two-step identity confirmation and hide your credentials offline if possible. Because, unfortunately, fraudsters can access almost all online bases.
- Choose Crypto Exchanges Wisely
Although cryptocurrency is decentralized, and you don’t need the support of a bank or any other intermediary institution still there’s a third-party involved in your transactions. You need to use crypto exchanges to trade and make transactions. There’re exchanges like Binance and Coinbase, which have gained credibility over time. However, there have already been various crypto exchange scams all over the world. So, make sure you think twice before putting your money in if you encounter a newly established crypto exchange.
A Few Last Words
Now we have covered the 5 most common cryptocurrency frauds and a few tips on how to avoid them. We hope they will be helpful because apparently cryptocurrency and other blockchain-enabled technologies will be here in our lives for a while. It's best to build a profound understanding of how cryptocurrency works before putting any money in it and don’t forget that the risk is always there and for everyone.
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