The growth and expansion of the cryptocurrency space and blockchain technology is nothing less than fascinating. The new trading paradigm that’s revolving rapidly and technological innovation has attracted a huge number of investors over the years, but this also includes a substantial number of scammers. In the past decade, various cryptocurrencies have created millionaires and this has prompted others to follow their route. The only problem is that while these people want to invest and make a profit, some criminal elements have taken this as an opportunity to take advantage of them.
A large number of potential investors end up refraining from investing in this constantly growing industry because of the constant increase in the number of cryptocurrency scams. If you want to invest in the cryptocurrency market, but don’t want to end up being scammed, it is best to know common scams and learn how to avoid them. Let’s check out some routine cryptocurrency scams that you can learn to avoid:
- Initial Coin Offerings (ICOs)
These refer to fundraising mechanisms for newly introduced cryptocurrencies. Those who invest in ICOs are given tokens in the new business. While a lot of ICOs are legitimate, there are also those that don’t have any technology or business plans to support them. Lots of them are launched with a whitepaper created by individuals who have no industry or technology experience.
- Unregulated Brokers and Exchanges
You can find hundreds of unregulated online brokerage firms and exchanges that offer cryptocurrency and related products. All investors need to be wary of get rich quick schemes and too-good-to-be-true promotions. Once they convince people to deposit their money, these firms impose outrageous commissions and implement tough conditions to make it difficult for investors to withdraw funds. Some of these unregulated exchanges and brokers will steal your money outright.
- Bitcoin Trading Systems
An entire industry of automated trading systems has been developed due to Bitcoin’s volatility. These products are advertised as a way of beating the market arbitrage prices of different exchanges. However, you shouldn’t fall for the hype because most Bitcoin exchanges have hefty fees and expensive withdrawal processes for trading Bitcoin via fiat currencies, such as euros or dollars. Moreover, settling Bitcoin trades can take hours, which eventually eliminates the profits you earn from Bitcoin arbitrage and can even lead to losses.
- Fake Cryptocurrency Wallets
With the launch of Bitcoin and numerous other currencies, there was a demand for wallets to store these cryptocurrencies. Therefore, you can now find a huge range of such wallets online and even download them on your smartphone through the Play Store. But, it should be noted that not all of these wallets are authentic. In fact, there are plenty of them that are fraudulent and despite making big promises about letting you control your money, they will take your private keys and also steal your cryptocurrency.
- Pyramind or Ponzi Schemes
Even though spotting this scam is the easiest thing, lots of crypto investors end up falling for it just the same. If you come across a crypto project that actively encourages recruiting new investors for maximizing your profits, it is a red flag and should be considered a Ponzi scheme. This model is designed to scam the one who enters this scheme later on. Furthermore, if you find crypto schemes that are promising you absurd returns, they also fall under the category of Ponzi schemes. If you are being offered outrageous returns or being asked to recruit people, it is a good idea to avoid investing in it altogether.
- Phishing Scams
Another common type of scam in the cryptosphere are phishing scams where the scammers attempt to get you to divulge your seed keys, username or password. Fake airdrops and Punycode are the most commonly used tactics. Scammers will send you a link that will lead you to a fake page. This page would naturally look exactly like a legitimate crypto trading service. A free Airdrop is provided to you to sweeten the pot. In most cases, users are asked to send a certain number of Ether or Bitcoins to a spiked MyEtherWallet.
- Fake Groups and Online Communities
Joining a community or a group is one of the top ways to research about tokens, coins and digital assets. However, a number of fake companies and developers are taking advantage of it by luring people to their fake websites. Initially, they offer you information, send you an invitation to join their group and then create fake excitement or promotion about a new coin.
This is one of the oldest scams that have been used in the cryptocurrency market and yet many people still end up falling for it. The goal of these scammers is to persuade people due to which they are able to sound promising and talk so well. When trading, investing and researching, you need to be very careful and not trust anyone’s word, particularly when it involves digital assets. It is still possible to join communities and forums and you can gather opinions and information. But, if someone offers help and it seems suspicious, you should think twice before accepting it or just decline.
This is one of the most sophisticated forms of scams that you will find in the crypto space. In this kind of scam, scammers choose to make fake Facebook or Twitter accounts for impersonating the actual legitimate project or the team behind it. There are numerous impersonators on Twitter who act like Binance’s CEO or VitalikButerin and announce airdrops and other things that are certainly not true.
- Pump and Dump Groups
In the traditional market, pump and dump groups are quite common on Slack, Telegram and IRC and the crypto market hasn’t been spared either in this regard. There are various crypto groups on Telegram that have more than 40,000 to 100,000 members in it. These groups are not made for sharing information or communication; instead, they are used as tools for manipulating the price of altcoins boasting low market capitalization.
In this way, those who act first or fast are able to benefit whereas those who are bit late have to deal with plummeting prices within a few minutes. You can find a number of tools in the market that can be used for monitoring the increase in volume of a particular cryptocurrency and can be used for identifying such schemes.
Now that you are aware of some of the common cryptocurrency scams, it is time to understand how you can avoid them altogether. Obviously, you don’t want to lose your hard-earned money and you can mitigate the risks by following a couple of rules:
- Only invest what you can afford to lose
As compared to bonds and stocks, cryptocurrencies are a lot more volatile and the industry is rapidly evolving. An altcoin that enjoys immense popularity today may not exist a month or a year later. Put simply, traders should be aware that they can lose everything once they start trading in the crypto market. Therefore, you should only invest in this sector that you can afford to lose.
- Do your due diligence
Before you open an account with exchanges or brokers, it is essential for you to do your due diligence. You will not have a problem in finding news on a daily basis relating to the crypto industry and reviews of new exchanges and products are also available. Find good and reliable forums that share authentic information and can give you advice about your investments.
- Watch out for red flags
There are some typical red flags that you should know about when it comes to cryptocurrency. Watching out for them ensures that you don’t end up being scammed. Some of the red flags are:
- Promise of astronomical gains: Don’t forget that if anything sounds too good to be true, then it probably is. You should always be skeptical and suspicious of any project that’s offering you high returns on your investment, which is not in accordance with the average returns in the market.
- Asked to invite more users: When you want to invest, but are asked to invite other users to the project is a clear indication that you are falling for a Ponzi scheme. Yes, affiliate programs do exist, but they are distinguished by the fact that they are voluntary. They do not demand people to invite others in order to be part of a project.
- Have to share private keys: Remember this rule of thumb; your private keys, passwords and security phrases should not be shared with anyone. Any project, individual or ICO that asks for your private keys, passwords or security phrases are just trying to scam you. Private information doesn’t have to be divulged in any form of investment. It is private for a reason.
- Previous scam: A scam will always stay a scam. If an individual, project or startup has been accused of being a scam anytime in the past, you need to be careful because there is a good chance that they will scam again.
- Team behind the project: You shouldn’t just trust websites or articles of a project. It is crucial for an investor identify that the team behind a project has legitimate LinkedIn profiles. If possible, you should go beyond that and perform a complete background check with Twitter/Facebook or Google. If there is no public information available about a team, there is a strong possibility that it could be a scam.
Following these few tips can make a big difference when you are investing in the crypto market and Xtrgate can help you avoid scams.