Cryptocurrencies have become viral among intelligent investors, which could possibly result in big profits. However, people who want to get rich quickly could be easily deceived into thinking there are no risks in the crypto market… before they get trapped in scams.
Though users use crypto to purchase goods and services and even withdraw funds from specialised ATMs, digital currencies do not work like government-backed money. Investors should be ready for possible significant gains or big losses because of the volatility of cryptocurrency. Crypto investments are not protected by regulatory bodies like traditional financial products, such as mutual funds, bonds, and stocks, either.
Alarmingly, the number of cryptocurrency frauds has increased. In just six months, from October 2020 to March 2021, an estimated 6,800 complaints regarding cryptocurrency investment scams have been received by the Federal Trade Commission (FTC).
Here we should note that most crypto scams are just upgraded versions of classic frauds. These are the following:
Phoney websites. Bogus sites can bombard users with fake testimonials. If you use a crypto-based site, make sure it’s SSL protected, has no spelling mistakes or false promises and has positive reviews online. One example of a trusted site is Bitcoin Loophole, which connects brokers and traders.
Ponzi schemes. Illegal actors who sell crypto and want to attract people to invest in it are often involved in Ponzi schemes. One notorious scheme was orchestrated by BitConnect: before it was shut down by the feds, the fake company raised more than $2 billion from its victims. Crypto investors should be knowledgeable about the crypto market.
Endorsements by famous people. Investors often get scammed by con artists who pretend to be billionaires or celebrities. Sadly, they are lured by false promises that their invested crypto will multiply but end up losing money instead.
Romance scams. Cybercriminals often tackle victims and their emotions. Scammers may start asking someone to trade or invest in digital currencies through dating apps. An estimated 1,800 crypto-focused romance scams were reported to the FBI’s Internet Crime Complaint Centre (ICC) from January to July 2021, with approximately $133 million in losses.
Pump-and-dumps. Another strategy that crypto scammers do is to inflate a crypto’s price by planting rumours and using fake strategies. This aims to attract investors to purchase the given coin, which will increase its price. Then scammers would sell their coins, making a profit and, as a result, plummet the value of the currency.
Hacks. Some scammers lure people into investing by setting up fake crypto exchanges or pretending to be legitimate crypto traders. There are also online hackers who hack people’s digital wallets. Scammers may even send a message pretending to be a government official who seeks payment through crypto for a fee, debt, or bill.
Things to Do to Avoid Scams
Be aware of the risks involved. The cryptocurrency sector is volatile and speculative. Even if you manage to avoid scams, your risk losing your capital.
Research. Personal data is valuable information. Thus, before providing sensitive data or credit card info, thorough research must be done on any digital wallet provider or digital currency platform.
Think before making a decision. Investors should not fall victim to FOMO and other emotions scammers play with.
While there is no doubt that the crypto sector is here to provide numerous benefits beyond the financial industry, it is a fact that there are many risks involved.
Criminals will always take advantage of what is currently hot in the financial market. Thus, investors should be savvy in identifying scams related to cryptocurrency. Carry on due diligence!