5 Crypto Scams You Need to Know & How to Avoid Them
After losing her mother at the age of 24, Nicole Hutchinson got a $280,000 inheritance from her mother’s house. This inheritance was geared toward helping her family build a great life in California.
Because Nicole was lonely and decided to make new friends in the beautiful state of California, she began to use the online dating website “Hinge.” There, she met a man named “Hao” and they became friends. She began to feel a strong connection with Hao when he told her that he came from China, where she was adopted.
He knew a lot about cryptocurrency and started suggesting to her that they invest in that area to improve their finances. I was like, “I’ve never invested in my life. I don’t know anything about cryptocurrency either. So I was very skeptical,” she said. But Hao reassured her that this was his area of expertise.
Hutchinson said Hao told her to create an account on a legitimate site, Crypto.com. Then he sent her a link and told her to transfer money to the new link, which he said was a cryptocurrency exchange platform.
She began investing with $50 as a test but quickly increased her investment due to her newfound friend Hao’s trust in the site.
By December, their accounts showed a combined balance of $1.2 million, and Hutchinson decided it was time to cash out. That’s when the site told her before she could withdraw her money, she would have to pay a hefty “tax bill” of roughly $380,000.
She discovered that the cryptocurrency investments weren’t real. All her and her father’s funds had gone into the scammer’s pockets.
Though this story was originally told in CBS News, it is one of many examples we’re seeing as the number of cryptocurrency scams rises. According to the Federal Trade Commission (FTC), from October 2020 to March 2021, reports of crypto-related scams increased dramatically, with nearly 7,000 people losing over $80 million in total assets.
Because this virtual currency is not backed by the government, its value is solely determined by supply and demand. This is the source of the market’s high volatility, which can result in massive gains or losses for investors. It is not clear how cryptocurrencies work or how to avoid the numerous scams that exist is why these scams continue to thrive. This is the topic of my article today!
Cryptocurrency Scams: What They Are and How to Avoid Them
Even though there are many different forms, crypto scams can be divided into two categories:
The first method entails gaining access to a target’s digital wallet or authentication credentials. Scammers attempt to obtain information that will enable them to access a digital wallet or other private information such as security codes. In some cases, this may even imply physical access to hardware. The second method is to send cryptocurrency directly to a scammer as a result of impersonation, false investment or business opportunities, or other malicious means.
The forms of crypto scams include:
Bogus Websites
Because of the awareness of Ponzi schemes, scammers have become creative in their tactics. Instead of asking directly for your crypto private keys, they use bogus websites to access them. These are websites full of fabricated testimonials and crypto-jargon that promise investors huge guaranteed returns.
These websites may even be clones of original websites, having the same UI and logo. These websites could even have fake testimonials or trade records. Scammers have cloned popular cryptocurrency exchanges and wallets, causing users to lose money. A list of fake cryptocurrency websites was published by Crypto Chain University. It’s a good idea to take a look at them here.
Avoiding Bogus Websites
One of the differences between a fake website and the original is in the page URL. Check the URL bar of the website you are visiting; does it have a lock icon or is there an “HTTPS” indicating security? If not, you should stay away from the site.
Also, beware of the rate at which you click on a third-party link. If someone you don’t know sends you a pitch about a cryptocurrency investment that involves NO RISK and huge rewards, that is a red flag. If you get a call or text from anyone claiming to be a governmental agency that seeks a crypto payment to cover a bill or fee, that is another red flag. Ask a lot of questions before you click a referral link to a platform that talks about cryptocurrency investments.
Pump and Dump Scams
This is one of the most common cryptocurrency phishing schemes. A $4 billion scam on Safemoon was investigated by Coffeezilla, a cryptocurrency channel. Pump-and-dump schemes involve a group of investors and social media celebrities making up false information, rumors, and claims. The goal is to entice investors to buy, inflate the price, and then sell, causing the currency’s value to fall. Scammers congregate on social media platforms such as Telegram and Discord, claiming to have insider knowledge of upcoming projects. To back up their claim, they will sometimes publish fake news on various websites.
Because of the increased trading volume, the price of the currency begins to rise once investors begin flocking in. Scammers profit from the price increase and sell all of their cryptocurrency holdings, causing the cryptocurrency’s price to plummet. As a result, new investors who bought into the hype have nearly lost their entire investment.
This investment’s primary targets are cryptocurrencies with low trading volume and liquidity, as even a small increase in trading volume results in a massive price increase.
Avoiding Pump and Dump Scams
The most important thing you should do here is to understand the risk. Cryptocurrency is speculative and volatile. There is no guarantee of huge returns. As the FTC notes, “An investment that may be worth thousands of dollars on Tuesday could only be worth hundreds on Wednesday.”
Also, resist the pressure to buy right now. Before investing in any crypto-asset, make sure you do your homework.
Crypto Ponzi Schemes
A Ponzi scheme, according to the Securities and Exchange Commission, is an investment scheme in which existing investors are paid alleged returns from new investor funds. Organizers of Ponzi schemes frequently entice new investors by promising to invest in high-return opportunities with little or no risk.
Crypto ponzi schemes entice investors by promising a low-risk, high-reward ratio. Under the guise that the profit was earned through tactical business activities, early investors are frequently compensated with funds from more recent investors. When new investments stop coming in, their true motives are revealed.
Scam victims are typically newcomers to the crypto world who are only interested in cryptocurrencies’ high return on investment potential. Onecoin, which defrauded investors of over $5.8 billion, and BitConnect, which defrauded investors of about $3.5 billion, are two of the most well-known crypto Ponzi schemes.
Avoiding Crypto Ponzi Schemes
Any crypto project that can’t be easily explained and does not hold validated documents to prove its legitimacy is a red flag. It’s important again to do your research. No matter the reputation of who’s behind the project, you should carefully analyze every business opportunity before deciding whether or not to invest. Don’t be lazy!
Also, watch out for any crypto project that doesn’t warn you of the risk of losing all your money. Cryptocurrency is NOT 100% risk-free. Any site refuting this claim should be avoided.
Initial Coin Offering (ICO) Scams.
An initial coin offering (ICO) is a method of raising funds for a new project by issuing tokens to investors based on the amount invested. People have become millionaires overnight as a result of ICOs, but many people have also lost a lot of money as a result of scam projects. In an ICO scam, after collecting a large sum of money from investors, the project’s developers disappear.
Pincoin and iFan, one of the most well-known ICO scams, defrauded investors out of over $870 million. Plexcoin, ACChain, and Savedroid are examples of ICO scams.
Avoiding ICO Scams
One of the best ways to protect yourself is to do extensive research on the project’s team members before investing. The whitepaper is the foundational document for a cryptocurrency or an initial coin offering (ICO). At all costs, avoid companies that do not provide whitepapers, and read and analyze the whitepaper thoroughly.
Any ICO will use a token or currency system to make the crowdfunding process easier. Because of legitimate businesses and endeavors, the system and the token sale’s progress are transparent to potential investors. Keep track of the token sale numbers for the ICO. When looking for new investment opportunities in the ICO and cryptocurrency space, proceed with extreme caution.
Mining Scams
Bitcoin and other top cryptocurrencies are seeing price increases yearly, and what better way to get them than to mine them for free or for a small token using your smartphone and PC…
When it comes to mining scams, this is the lie that scammers tell their victims. Con artists nowadays create apps and persuade victims to send them crypto or fiat currencies in exchange for mining services. Others claim to allow free mining while injecting bugs into PCs and phones to steal sensitive data such as email addresses and passwords from their victims.
They give you false figures to make it look like your mining is going well, and then when it’s time to withdraw, the scam is exposed or the victims are exploited further. Some scammers will ask victims to send withdrawal fees in Bitcoin or Ethereum to a wallet, and then they will vanish without a trace after receiving the currencies.
Avoiding Mining Scams
The majority of cryptocurrencies that require mining have progressed from using only PCs to utilizing powerful hardware such as ASICs and GPUs (graphics processing units). To profit from crypto mining, participants invest a significant amount of money in mining farms and pool their resources through the use of mining pools.
Before getting involved in mining a currency, you must understand the consensus mechanism used by its network and how the currency works in general. Be alarmed whenever you come across an app indicating you can mine Bitcoin or Ethereum with your phone, as these currencies can’t be mined with such.
Some cryptocurrencies don’t require mining but use other methods to reach consensus, so the possibility of mining them doesn’t exist. It all boils down to doing your research and having a thorough knowledge of cryptocurrencies.
Conclusion
Because of a few scams that can be easily avoided with the right information, the world of cryptocurrencies should not be dismissed.
Keep in mind that before you consider investing, you should first gain a thorough understanding of cryptocurrencies. And if something appears to be too good to be true, it most likely is.
If you approach cryptocurrency correctly, your crypto journey will be blissful and full of positive testimonies.
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See ya… Emmanuel.
