Planning to join the cryptocurrency trade but feeling a bit scared by the reality of scams around it? Whether you’re an aspiring retail investor or an established cryptocurrency trader, it’s important to be aware of some common crypto scams and how they can be presented to you.
Key Takeaways
- The scramble into cryptocurrency trade in recent years has attracted the attention of both investors and scammers alike.
- More often than not, crypto scams aim at getting private information like security codes or fraudulently convincing people into depositing cryptocurrency to a jeopardized digital wallet.
- Scams under social engineering like phishing, giveaways, romance scams, extortion emails, and so on affect the general public, but they’re more common regarding cryptocurrency.
This post will look at some of the best tips to help you spot common crypto scams and stay safe online. But first, let’s get to know what the scams are.
What Are Crypto Scams?
Crypto scams are trickeries targeted at acquiring personal information including security codes. Or, deceiving unsuspecting people into submitting cryptocurrency to fraudulent digital wallets.
Types of Crypto Scams
Basically, crypto scams can be divided into two broad types:
- Endeavors targeting access to the target’s digital wallet or authentication credentials including security codes and passwords.
- Transmitting cryptocurrency directly to an account in the name of a scammer as a result of impersonation, deceitful business openings, or other vicious reasons.
3 Most Common Crypto Scams
Although there may be other crypto scams out there these are the most popular.
Social Engineering Scams
To execute social engineering scams, many scammers utilize psychological manipulation as well as lying to access crucial user account information. These kinds of scams trick people into believing that they are trading with a trustworthy entity like tech support, a famous business, and so on.
Romance Scams
To facilitate romance scams, scammers mostly use dating websites to trick unsuspecting victims into believing that they’re in a genuine relationship. Then after gaining some level of trust in the relationship, they incorporate attractive cryptocurrency openings and the exchange of either authentication credentials or the coins.
Giveaway and Imposter Scams
To attract their potential victims’ attention, here scammers pledge to either multiply or match the cryptocurrency transferred to them in what turns out to be a giveaway scam. They also attempt to pose as influential people to achieve the same.
5 Best Tips to Spot Common Crypto Scams
While there isn’t any assurance that any given blockchain or cryptocurrency-associated startup will be legit or profitable, the tips shared below can greatly help you to spot and avoid crypto scams.
1. Get to Know Better the Developers and Administrative Team
One of the most important success aspects of any cryptocurrency is the administrative as well as developers’ team behind it. The cryptocurrency industry is led by major brands, with celebrity developers such as Ethereum the founder of Vitalik Buterin. Which can make or break new projects by easily getting their names incorporated into a development team. As a result, it’s increasingly popular for scammers to falsify developers for their scams.
The most recommended solution to this, deceitful scheme is to properly research the project’s team members before investing. For instance, it’s a red flag, if you can’t get any information regarding a given developer or administrator on social media platforms like LinkedIn and others. And just in case the information is there, you have to ensure that their activity reflects their number of likes and followers too.
People who hardly connect with their followers, but miraculously enjoy the company of a lot of fans may be fake. Additionally, it’s necessary to verify if their qualifications are up-to-date and equal to the task.
2. Pay Keen Attention to The Whitepaper
A cryptocurrency whitepaper is a basic document for the project. It should clearly state the setting, strategy, goals, interests as well as implementation timeline for any given blockchain-associated project. Whitepapers can surely expose a lot; companies with flamboyant websites may disclose they don’t possess a foundational sound vision. On the contrary, companies running websites full of grammatical and spelling mistakes may possess a whitepapers with strong concepts and a proper implementation plan.
The best way to analyze a whitepaper is to keenly read through it. Find out whether it has supplementary resources, such as legal interests, financial models, and implementation roadmap as well as SWOT analysis.
Companies without whitepapers should surely be avoided. Nonetheless, a defrauding company can possibly present a convincing whitepaper, as was the case regarding the PlexCoin; this corporation succeeded in raising more than $15 million before the SEC (Securities and Exchange Commission) of the US intervened to close it down.
3. Examine the Token Sale
Each ICO or cryptocurrency will rely on a token or currency system to enable the process of crowdfunding. Legit corporations ensure the system as well as the token sale progress easy for prospective investors to see. Hence, it’s a bad sign if a company makes it hard for an investor to chart their ICO’s progress. Certain scam ICOs will conceal the progress of their token sale in the name of personal contribution addresses. And this impedes prospective investors from watching how much has been put forward and what is left in the sale.
4. Examine the Project Feasibility
While it may seem obvious, ICOs, and cryptocurrencies with the greatest chances for success are those that have the fundamental structure to outlast their competitors. Many launches, even highly-publicized ones, have sputtered after initial interest faded. Your best chance of a successful investment relies on a company having an achievable, feasible set of aims. The company should have a compelling concept for the time being, but it also must be able to carry that concept over into execution over the short and long terms alike.
Getting along with the question of feasibility is the problem of transparency. Companies that have outstanding concepts and models are more likely than others to want to be as transparent as possible with the broader community. Look for companies that aim to keep potential investors up to date with regular, detailed progress reports on a company website or social media. It’s also useful to look if a company has a timeline for what has taken place in the development process, as well.
Exercise Caution
Even the most prosperous ICOs and cryptocurrencies are banged for being fueled by speculative investing. The notion of getting rich quickly on an investment in the latest project is attracting enough to pull seasoned investors and beginners into risky investments. Be careful as you look for new investment opportunities in the ICO and cryptocurrency spaces. Be aware that projects appearing extremely good to be true possibly are. Take your time scrutinizing every detail, and assume that the absence of significant information may be an endeavor to hide a hazardous model or concept.
Refer to outside sources to verify the legitimacy of any project before investing, and often ask questions about what you quite don’t understand. The cryptocurrency and ICO spaces give enormous opportunities for investors who have done their homework and come up with informed investment decisions. They also feature ambushes, which can lead to large amounts of money being lost due to scams, crimes, or even legitimate businesses that aren’t designed properly and are unlikely to succeed.
Crypto FAQs
According to the federal trade commission, these are the commonly asked questions about cryptocurrency.
What is cryptocurrency?
Cryptocurrency is a type of digital currency that generally only exists electronically. There is no physical coin or bill unless you use a service that allows you to cash in cryptocurrency for a physical token. You usually exchange cryptocurrency with someone online, with your phone or computer, without using an intermediary like a bank. Bitcoin and Ether are well-known cryptocurrencies, but there are many different cryptocurrency brands, and new ones are continuously being created.
How do people use cryptocurrency?
People use cryptocurrency for quick payments, to avoid transaction fees that regular banks charge, or because it offers some anonymity. Others hold cryptocurrency as an investment, hoping the value goes up.
How do you get cryptocurrency?
You can buy cryptocurrency through an online exchange platform. Some people earn cryptocurrency through a complex process called “mining,” which requires advanced computer equipment to solve highly complicated math puzzles.
Where and how do you store cryptocurrency?
Cryptocurrency is stored in a digital wallet, which can be online, on your computer, or an external hard drive. But if something unexpected happens, your online exchange platform goes out of business, you send cryptocurrency to the wrong person, you lose the password to your digital wallet, or your digital wallet is stolen or compromised, you’re likely to find that no one can step in to help you recover your funds. And, because you typically transfer cryptocurrency directly without an intermediary like a bank, there is often no one to turn to if you encounter a problem.
How is cryptocurrency different from U.S. Dollars?
There are important differences between cryptocurrency and traditional currency.
Cryptocurrency accounts are not backed by a government. Cryptocurrency accounts are not insured by a government like U.S. dollars deposited into a bank account. If you store cryptocurrency with a third-party company, and the company goes out of business or is hacked, the government has no obligation to step in and help get your money back.
Cryptocurrency values change constantly. The value of a cryptocurrency can vary rapidly, even changing by the hour. It depends on many factors, including supply and demand. An investment that’s worth thousands of dollars today might be worth only hundreds tomorrow. And, if the value goes down, there’s no guarantee it will go up again.
So now you have all the information you need to make informed decisions.
