Cryptocurrency is pretty much mainstream now. From seasoned investors to a beginner enthusiast who just learned what "blockchain" means, a lot of people are looking for that opportunity to invest. But whether you are a tech bro or an amateur, you have to be careful and watch out for scammers lurking around.
A BBB report shows that about 80% of Americans were targeted and lost money to crypto and investment-related scams last year. With cryptocurrency fraud all around, you need to be extra careful or else you could be a victim. Here is what you should know to avoid losing money to crypto scammers.
Why is Crypto Fraud Becoming More Popular?
The increased interest in cryptocurrency has resulted in the proliferation of crypto-related fraud and scams. One key reason is the anonymity and decentralized nature of cryptocurrencies.
Decentralization ensures cryptocurrencies are not controlled by a single entity. However, this unregulated nature of blockchain transactions makes it easier for fraudsters to cover their tracks and avoid detection by authorities.
Another reason crypto fraud is becoming more popular is the equal influx of new and often inexperienced investors into the market. Many people fall victim to crypto scams because they lack the experience to detect the red flags that could signal a potential scam. Scammers also exploit the beginners' lack of understanding of the technical jargon associated with the crypto ecosystem.
Common Types of Cryptocurrency Fraud
To avoid being defrauded of your money by a crypto scam, you have to first know your enemy. There are so many crypto scams out there. Here are some of the most common traps to watch out for:
1. Fake ICOs (Initial Coin Offerings)
An ICO is when a new cryptocurrency is launched, similar to how it works in the stock market. Many scammers create fake ICOs to lure in investors, promising them groundbreaking technology or tempting returns. However, once they have accumulated the funds they need, they run away, leaving you with worthless tokens.
2. Phishing Scams
A phishing scam is made to appear like a legitimate crypto exchange or wallet. Scammers who attempt this would typically send emails that appear to be from a trusted source, requesting you to click on a link or provide sensitive information. If you fall for such, your entire crypto wallet could be drained.
3. Ponzi Schemes
These kinds of scams are popular and often come in the form of an investment which guarantees high returns with little risk. Usually, returns are paid to earlier investors using the capital from newer investors, rather than from profit earned. Eventually, when there are not enough new investors anymore, the scheme collapses.
4. Fake Exchanges and Wallets
Scammers can also create fake crypto exchanges or wallets that look very similar to legitimate ones. They lure you in with low fees or special offers, only to later steal your funds once you have deposited them.
5. Rug Pull Scams
This scam involves scammers creating a new project, raising money from public investors through hype, then suddenly disappearing. Another sad tale of worthless tokens and vanished funds.
How to Avoid Losing Money to Crypto Scammers
Now that you know the usual scams, let’s talk about how you can protect yourself from losing money to scammers.
- Do Thorough Research: You need to do the hard work of researching before investing in any cryptocurrency. Find out who’s behind it, what their track record looks like. Also look for credible reviews and verify if the company is registered with any regulatory bodies.
- Use Reputable Exchanges and Wallets: Stick to well-known, established and reputable platforms. Look away from newer, smaller, and lesser-known exchanges, especially if they offer deals that seem too good to be true.
- Secure Your Private Keys: Your private keys are pretty much your lifeline in the crypto landscape. Ensure they are well protected. One good recommendation is to use multi-factor authentication whenever possible. Another obvious one—never share your keys with anybody.
- Be Wary of Public Wi-Fi: Always avoid accessing your crypto accounts on public WiFi networks. If you must, use a VPN to encrypt your connection and protect your data. Free internet is always great, but it can leave you exposed in this case.
Final Notes
As the crypto industry continues to expand, both individual investors and regulatory authorities should remain vigilant and combat the trend of scamming. Consumer protection is important, and the least you can do as a potential investor is to educate yourself.