In the inevitable scramble for riches that has accompanied the rise of cryptocurrencies, it is not surprising that many unscrupulous characters have egressed from the shadows in an attempt to part unsuspecting enthusiasts from their digital fortunes. With losses totaling over $4 billion USD in 2019 alone and individual losses frequently topping $100,000, identifying and evading cryptocurrency scams has never been a more essential skillset for investors.
It’s a wild west out there in the world of digital finance, but with careful attention to detail and a basic awareness of common scam typologies, you can greatly reduce the likelihood of becoming a victim. There are a few simple measures that everyone – from the first-time buyer to the seasoned trader – needs to understand if they are to remain safe.
Let’s delve into the bizarre and somewhat disconcerting world of cryptocurrency scams and how you can guard against them.
Cryptocurrency Scams: The Usual Suspects
First and foremost, let’s familiarize ourselves with the common scams proliferating within the crypto landscape today.
Ponzi Schemes:
Titularly named after Charles Ponzi, who became infamous for using the technique in the 1920s, a Ponzi scheme is a form of investment where returns for older investors are generated by the capital from newer ones. Those behind cloud mining services are often Ponzi schemes masquerading as legitimate investments.Phishing Schemes:
Phishing scams are designed to appear as official communications from cryptocurrency platforms, tricking users to reveal sensitive information, including login credentials or wallet keys.Fake Cryptocurrencies:
Some entities create fake cryptocurrencies, launch them with fanfare and persuade investors to invest in what they describe as the “next big cryptocurrency.” However, as soon as they raise sufficient funds, the fraudsters disappear, and the currency collapses.Initial Coin Offering (ICO) Scams:
Initial Coin Offerings (ICO) are used by cryptocurrency startups to raise funds for their projects. Scammers, however, use fake ICOs to lure investors and use their money for their personal gain.Pump and Dump Schemes:
Deluded investors are led to believe that a coin is about to expand enormously. This drives up the price, allowing the scammer to sell his holdings at a significant profit before the coin then collapses.
Techniques to Remain Safe in the Digital Finance Landscape
Familiarizing yourself with common cryptocurrency scams is one thing, but actively protecting yourself from falling victim to them is another. Here are several defensive practices everyone should consider implementing:
Educate Yourself:
Stay informed about the basics of cryptocurrency and blockchain technology. The more you understand, the less likely you are to fall prey to scams.Look for Red Flags:
These include guarantees of high returns, pressure to buy immediately, complex jargon, and flashy marketing tactics. Remember, if it’s too good to be true, it’s probably fraudulent.Use Authenticate Crypto Exchanges:
Look for registered and regulated platforms for trading and investing in cryptocurrencies. These platforms comply with legal requirements and follow security measures to protect users.Securely Store Your Cryptocurrencies:
Use hardware wallets, which are the safest way to store your funds. They are physical devices that are immune to online threats.Be Careful with ICOs:
Many ICOs are legitimate, but many more are fraudulent. Do your research before investing in any ICO.
Stay Vigilant, Stay Safe
The decentralized and anonymous nature of cryptocurrencies makes them an appealing prospect not only for aspiring financiers but also the less honest elements of society. Ultimately, as cryptocurrency becomes increasingly mainstream, regulatory measures will likely come into place to protect users from scams. However, until that happens, staying informed, remaining vigilant, and exercising common sense are the best forms of defense.
While aren, the wild west of cryptocurrency can sometimes seem a lawless and overwhelming place; armed with knowledge and patience, you can ensure you strike digital gold rather than fall foul of the bandits. Keep yourself educated and stay safe.
Sources:
– “Crypto Crime Summarized: Scams and Darknet Markets Dominated 2020 by Revenue, But Ransomware is the Bigger Story.” Chainalysis Blog, 26 Jan 2021. https://blog.chainalysis.com/reports/2021-crypto-crime-report-intro-ransomware-scams-darknet-markets
– “Top 5 Cryptocurrency Scams to Be Aware Of.” CoinCodex, 8 Apr 2021. https://coincodex.com/article/10839/top-5-cryptocurrency-scams/
– “How to Prevent Cryptocurrency Hacking.” FinTech Weekly, 5 Jan 2021. https://www.fintechweekly.com/magazine/articles/how-to-prevent-cryptocurrency-hacking
– “How to Keep Your Cryptocurrency Safe.” Forbes, 30 Nov 2021. https://www.forbes.com/advisor/investing/how-to-keep-cryptocurrency-safe/
