Scams are increasingly affecting the crypto industry which receives many unwary new investors every day. A scam is an act of defrauding someone after earning their trust or accessing their personal information. Scams, like hacking and thefts, are unethical and unacceptable.
A report by the Crypto Aware organization revealed that scammers and hackers made away with more the $2.3 billion in the past eight years. Therefore, this begs the question:
Why are there so many crypto scams?
The primary motivation behind any scam is to gain financial returns. However, scams can be in any field or business; but for various reasons, online crypto trading has the leading and most expensive cases of scams. Here is why:
The Crypto Industry is New and Decentralized
As we all know, the blockchain industry is in its baby years. Actually, dozens of countries are yet to legalize the use of blockchain technology in their respective states. This has one disadvantage; it restricts the access to necessary information and tools to prospective traders. Scammers seize the lapse in the dispensation of information to defraud the less informed traders.
Lack of Proper Technology
Since the blockchain relies on a decentralized ledger, tracking the flow of currencies is almost impossible. This creates leeway to scammers and hackers as there is no way of tracking and retrieving lost assets.
In standard financial institutions, banks act as middlemen and store the information of everyone accessing the saved funds. The blockchain industry has no middlemen, and scammers are free to make their catch.
Luckily, many platforms have invested in secure and encrypted technologies to keep the bad guys at bay. Unfortunately, the majority of scams in crypto markets happen before the victims settle on a platform. Let us look at the top 5 crypto scams of all time.
1. Ponzi Schemes
Ponzi schemes are generally pyramid schemes. These schemes thrive by paying existing members the dividends brought in by new membership sign-ups. Therefore, these groups can succeed as long as the membership ratio is balanced.
Why is this a scam?
In a functional Ponzi scheme, no products are sold; the members rely on the investments made by new members. The system collapses when there few new members than old members.
In crypto industry, Ponzi schemes will scam new people to sign up and see their investment multiply more than ten times. The members are then adviced to invest heavily and earn quick rewards.
An excellent example of an infamous Ponzi Scheme is Bitconnect. The scheme lured thousands of people who invested their lives on it. Eventually, the numbers grew excessively big, and the ship sank when the US government sanctioned it. As it collapsed the prices of Bitconnect tumbled down.
Ponzi schemes use online campaigns, conferences, online scams, and malware to attract unsuspecting desperate people. The Government of the United States doesn’t support pyramid schemes at all levels.
2. ICO Frauds
Before we delve into the details, ICO s are legit investments when companies adhere to set rules and regulations.
What are ICOs?
Well, ICOs (Initial Coin Offering) are tokens offered by a cryptocurrency company to its investors on a coin which is yet to be developed. Investors will buy the tokens, which will give them access to the platform when it is launched.
The problem starts when companies offer fake ICOs. A company will advertise its ICOs and get clients to buy them, but in the real sense, there will be no coin to be launched. An ICO scam is a severe offense in crypto market, but criminals still practice it.
The effect of fake ICOs has made the Chinese government ban ICOs altogether. In the US, ICOs have to follow stringent regulations which affect marketing and increase the cost of coin development.
A good example is the Centra Tech, which was affiliated with Dj Khaled, who invested $32 million on their platform. However, in 2018, the company was charged with fraudulent activities, including selling virtual assets.
3. Phone Porting
If you thought only newbies get scammed, you are wrong; phone porting targets established personalities in the crypto world. It involves taking control of your cell phone line remotely (using another phone)
How it is, does this work?
Well, if your hacker knows a few details about you say Phone number, names and other information, he can personate you and make a call to your service provider who will change your details such as passwords.
The second method involves a scammer calling you and hacks (ports) your cell phone line to another phone while you are talking. After the call, they will have all your details with them.
How to stop phone porting
There are several remedies to this nightmare;
- Contact your service provider and change your passwords.
- Transfer your phone line into a new line
- Contact your bank to monitor any suspicious activities and secure your accounts
4. Exchange Scams
Despite being sourced from a decentralized system, most cryptocurrencies are sold at exchanges. Unluckily, this only exposes traders to more scammers. Nothing disappoints a newbie in the industry than turning up at an exchange only to find out that their order is non-existent.
Luckily, this type of scam is rare and easily detectable. Look out for companies that promise unrealistic discounts on bitcoin. Furthermore, scammers often use URLs that are not encrypted; they don’t start with HTTPS.
Phishing is a way of luring users into giving away their details. Scammers use these details to access users’ accounts and wipe it clean. There are several ways through which you can be phished.
Yes, scammers can easily track you on social media and extract important details about you, including address, location, and date of birth. Furthermore, they will send spammy links to your social media accounts in the hope of getting you to click them.
Scam companies create websites that replicate trustworthy sites. They will then personify the legit website and con unobservant users. Typically, they will hijack your log in details during your registration in-process and use it to access your real account.
How to Avoid Scams
Every problem has a solution. However, for a dynamic challenge as online scams, finding a single solution is difficult. It is even more difficult with cryptocurrency, which is conducted multi-nationally. Here are our suggestions on what you should do to avoid being scammed.
- Keep all personal information private. Your gains and market escapades should entirely be your business. Scammers can access you through social media, emails, and even phone calls. Staying private doesn’t raise any eyebrows.
- Set up strong and secure passwords for all your trading accounts. Have different passwords for different accounts. Secondly, you can have two-step verification with one time passwords.
- To protect your account from phone porting, request your service provider to set a secure PIN for you. This will prevent access by any third party scammer.
- Only conduct business with legitimate companies. Check out the companies verification on their portfolio. They should be registered under the responsible regulator in its respective country.
- Avoid spammy emails. In case you get spammy content on your inbox delete it without clicking any links.
Stay safe while trading online
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