How to Avoid Common Cryptocurrency Scams (Basic)
If you have fallen victim to a cryptocurrency scam, you’re not alone, and millions of people around the world have been taken advantage of by these swindlers. Furthermore, a total of 1.7 billion dollars was lost to cryptocurrency scams during 2018 in the US alone.
There are a variety of tactics that are used by these types of scammers, and they have been known to implement both old and new scamming methods. While there are many techniques that are used, one of the most common methods is the Ponzi scheme. In addition, the use of automated software is commonplace.
Here is a basic guide to avoid losing your coins, at some point I may write an advanced version:
Fake “Initial Coin Offerings”
While some initial coin offerings can be a great way to invest in cryptocurrency, there are many that are outright scams, and this is an extremely common way for cryptocurrency scammers to take advantage of investors. Essentially, these offerings are where a company that’s creating a new cryptocurrency requests payment in Bitcoin, Ethereum, Litecoin, or another legitimate cryptocurrency in exchange for a discounted rate on the new cryptocurrency that they are creating.
The only problem is that sometimes these companies do not create a new cryptocurrency at all, or they put little to no effort into promoting it. It is common for initial coin offering scammers to go to great lengths to make the coin appear legitimate, and in some cases, these efforts can be highly convincing. Here are some tips that can help you to determine if an initial coin offering is legitimate or not:
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- Check reviews to make sure that there is no speculation that the company is a scam, and make sure that you’re looking for reviews on credible websites.
- Stay away from any initial coin offering that guarantees that the cryptocurrency will take off.
- Make sure that there is plenty of accurate information about the coin that’s being created, and if insufficient information is offered about the cryptocurrency, it may be a scam.
- Be on the lookout for shady practices, including market manipulation and insider trading.
- Read the Whitepaper (See: How to Read & Analyze a Crypto Coin Whitepaper)
How Often Are Initial Coin Offerings Actually A Good Investment?
There are some initial coin offerings that were a good investment, and one example of such an opportunity was Filecoin. This initial coin offering was backed by some substantial investors, and this helped them to succeed. Furthermore, there are some initial coin offerings out there now that look promising.
Pump And Dump Schemes
Pump and dump schemes are not likely to affect Bitcoin as this cryptocurrency has an extremely large market cap, but smaller altcoins are very vulnerable to pump and dump schemes. Essentially, pump and dump schemes are where the altcoin’s value is inflated artificially using misleading statements, and the scammers will purchase a large amount of the cryptocurrency as the price is rising.
After they have made a large amount of money, they sell the cryptocurrency, and investors are left with a cryptocurrency that has little value as the public loses interest in the currency. While Bitcoin appears to be a thriving cryptocurrency, there are some financial experts who believe that even Bitcoin could potentially be vulnerable to pump and dump schemes on a smaller scale.
While Bitcoin is not small enough to be vulnerable to a standard pump and dump scheme, it could be possible for speculators to have some influence over the price of Bitcoin, and this could result in a certain amount of losses for Bitcoin investors. Here are some tips that can help you to identify a pump and dump scheme:
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- If you find that there is a lot of information about an altcoin that appears to be much more positive than is warranted, this is a sign to stay away.
- If you find that the bulk of investments in the altcoin are from a singular individual or organization, this is a major warning sign.
Ponzi Schemes
Ponzi schemes are common in the world of altcoins, and they allow those who invested in the cryptocurrency very early on to profit but not those who invested later. However, those who invest later are effectively paying the early investors (particularly the scheme’s creators) without realizing it.
It can take a significant amount of time for a Ponzi scheme to be discovered, and that’s because the early investors who are profiting are often are unaware that the funds are coming from those who invested in the cryptocurrency more recently. However, eventually, the scheme begins to fall apart.
If the scheme is not caught by the authorities, there are several ways that Ponzi schemes can fall apart. In some cases, the operator will simply take the money that is tied up in the cryptocurrency and take off. In other cases, there are no longer enough new investors to keep the scheme going and/or later investors begin to demand their money back. Economic downturns can result in more people demanding their money, and this can cause the Ponzi scheme to collapse.
Nonexistent Cryptocurrencies
In some cases, the cryptocurrency that is purported to exist simply does not exist, and the scammers simply take fiat currency from investors and offer nothing in return. There are many ways that these scams are promoted, and it is common for them to lure in victims online or through cold calling.
There is no reason why anyone would call you to give you information about a real cryptocurrency opportunity, and one should be similarly wary of any “offers” that are delivered via email.
Impersonation
In some cases, the scammers mimic legitimate organizations, and this can often be quite convincing. Often, the impersonators will claim that they are offering Bitcoin, Ethereum, or another credible cryptocurrency at a “discounted” rate.
Furthermore, these types of scams often use phishing, and this allows them to gain access to your passwords on legitimate wallets and coin trading websites to steal the cryptocurrency investments that you already have in your account.
Therefore, you should be leery of anyone who calls or emails you and claims to be from a reputable Bitcoin exchange, such as Coinbase. A legitimate trading platform will not contact you unsolicited by phone or email, and such messages are guaranteed to be a scam.
In some cases, these types of scammers will even pretend to be the “CEO” of one of these organizations and have some sort of “special offer” or “alert about your account”, but this is also a form of fraud. It is not uncommon for this type of cryptocurrency scam to set up a fake social media account posing as an executive for a major trading platform, such as Coinbase.
Fraudulent Wallets
In some cases, bitcoin wallets can be fraudulent, and they steal your coins rather than providing a place to securely store your funds. Because there are many fraudulent cryptocurrency wallets, it is important to only choose cryptocurrency wallets from organizations that you know to be credible, and extensively read reviews online before deciding on a Bitcoin wallet.
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