Four common crypto scams and how to avoid them
Tempted to invest in cryptocurrency, but worried you’ll lose your money? Here are four common crypto scams to watch out for, and how to avoid them.
Over the last few years, public interest in cryptocurrency has skyrocketed. There are an estimated 420 million internet users who hold some cryptocurrency, based all around the world.
Asia constitutes the vast majority of crypto owners, with an estimated 260 million people holding some currency. However, ownership of cryptocurrency is a worldwide phenomenon, with many millions of owners across all continents.
Crypto has gradually been establishing itself as a realistic payment option, with some of the world’s biggest companies accepting cryptocurrency as a form of payment. And, thanks to the introduction of crypto cards, crypto owners can spend their money easily at any business which accepts VISA payments.
As crypto has continued to grow in stature, however, there’s been an increase in the number of scam artists coming out of the woodwork. Here, commercial and asset finance company, Anglo Scottish Asset Finance, take a look at some of the most common cryptocurrency scams, and how you can identify and avoid them.
1) Fraudulent coins and tokens
Some forms of crypto scams involve scammers posing as established companies and offering fraudulent coins or tokens. As growing numbers of companies enter the crypto space, scammers send out emails posing as a respected company and stating that they’re entering the crypto world with their own form of coins or tokens.
There have been cases of scammers creating social media websites, adverts and even entire websites to back up their fraudulent activity. Once you get your hands on one of these ‘tokens,’ the scammer can gain access to your wallet and drain your balance.
Always be sure to do your own research – if an established company has issued their own coin, you’ll be able to corroborate this information on news sites.
2) Pump and dump schemes
Sometimes, scammers will work in collaboration to build hype around a certain new coin – they might use email marketing or social media to promote the currency. Traders are drawn to invest in droves thanks to the excitement that’s been built up.
Once the new investors have driven the value of the currency up, the scammers quickly sell theirs, maximising the value of their sale and leaving value of the currency to plummet. The new investors are quickly left with nothing of value.
Another common crypto scam is phishing, where crypto scammers target the private keys you use to access your wallet. Scammers will pose as a trusted partner or offer an investment opportunity before directing you to a website which instructs you to input your private key information.
Once they have access to your wallet, they’ll drain your balance. Never give out your private key unless you’re completely confident of who you’re giving it to and why.
Some scammers will pose as somebody you meet online – it could be a dating website or something platonic like a social media site. Often these people are prepared to play ‘the long game’ and gain your trust over weeks or even months of communicating.
Then, they’ll start to ask for money, or will present you with an investment opportunity out of the blue. As soon as you’ve sent the money, they’ll disappear.
How to spot a crypto scam
There are some common elements which tend to appear across various scams, making them easier to spot. Here are some of the most common hallmarks of crypto scams.
Don’t trust big promises
Typically, scammers make extortionate promises designed to entice people in – offering guaranteed profits or return on investment. Because cryptocurrencies’ value fluctuates, profit can never be guaranteed.
Scammers might use the offer of free money or talk about fake ‘case studies’ where people have made millions. Whilst crypto investments have the potential to earn you big money, there’s no certainty involved.
Check the whitepapers
When a company issues a new coin, the initial coin offering will always be accompanied by a lengthy whitepaper. The piece will explain the rationale behind the coin issuing, how the currency has been designed, and how it will work.
The whitepaper is one of the most crucial aspects of the initial coin offering, and is a reliable resource which is difficult for scammers to replicate. If somebody is offering you the opportunity to invest in the new coin, pay close attention to the whitepaper – spelling errors or a general lack of professionalism could expose the scam.
Beware cold calling
Some scammers will contact you directly out of the blue with investment opportunities or false promises. In this event, be extra vigilant to ensure the safety of your money. These people may fabricate a time-sensitive event to try and push you to make a rash decision – they may quote a short investment window to put pressure on you.
This isn’t to say the value of cryptocurrencies don’t change quickly. In fact, making a well-timed investment or selling up at the exact right moment could ensure you maximise your profits. However, if you’re unsure about the validity of what you’re being told, then take the time to do your own research before actioning anything.
How to avoid crypto scams
So now you know four of the most common crypto scams, and some of the warning signs to look out for, how can you best protect yourself? Here are some tips to avoid being conned.
Do your research
If you’re thinking about making a crypto investment, stop and think first! It can easy to jump at a tantalising opportunity, but be certain to do your due diligence before to avoid being caught out. If you’ve not heard of a new cryptocurrency, check for a reliable-looking whitepaper and confirm with trusted news channels beforehand!
Use trusted channels
If you’ve been offered an investment opportunity but are unsure about its veracity, you can usually fall back on trusted channels. If your investment requires an app, be sure to download directly from the Apple or Google Play Stores.
Some scammers have the ability to make fake apps, though these are usually taken down quickly by app store admins. If you’re unsure, check the ratings and reviews before downloading.