Cryptocurrencies have always been notorious for their volatility. The end of 2020 is around the corner and there is an uptick in their values. Bitcoin, for example, is pushing the boundaries, crossing the $17,000 mark. Yet, it had dipped below the $5,000 mark in the start of spring. The huge difference in the prices over a period of time is the greatest attraction of cryptos.
Fueled by the enormous ups and downs, malicious parties have capitalized on this to create an atmosphere where they convince people to invest in their ventures, promising returns that are many folds higher than the poor souls would ever see in their lives. Today, the cryptocurrency sector is full of stories of people who invested a large amount of money into different crypto projects, with the developers only to vanish, taking all the money and leaving the investors with worthless coins.
You’d be surprised that even after so many years, there are still people who fall to different types of scams. The scams of today have gotten much more intricate, with the scammers getting smarter. The average investor they target has little information on cryptocurrencies and how their financial system operates.
Here are a few cryptocurrency scams types that you should avoid at all costs:
Scam #1: Cryptocurrency Exchanges
Please bear in mind that not all exchanges are fake or after your money, obviously. There are some legitimate exchanges with a large investor and trader base, who are enjoying selling and buying cryptocurrencies. However, there are always some bad apples in the basket, so you need to keep an eye on those.
Exchange scams happen through a single exploit. Unlike traditional crypto wallets, which a crypto holder has the sole access to, cryptos are handed over to the exchange when deposited. The exchange takes custody of the assets on your behalf. Only trust large and main stream crypto exchanges. A new crypto exchange that just seemed to pop out of nowhere will probably take your money and go away.
If you find an exchange that promises you world class services, almost nil fee and how you will become a millionaire overnight, avoid it.
Scam #2: Fake Cryptocurrency
Probably the most used scam method, there are still a few running around – there was even a fake COVID-19 cryptocurrency launched during the pandemic! So, what’s exactly the problem?
Cryptocurrencies are just a bunch of codes and that means anyone with a bit of programming knowledge can create their own. Flashy website, outstanding reviews and graphs indicating the future of the token brighter than Bitcoin are the typical ways these scammers promote their coins. They also use different methods such as scouring different internet forums, Telegram and WeChat groups, looking for people who are interested in making profits and convincing them to invest.
We strongly suggest you to never commit and check out big crypto news websites for information. These websites do their own due diligence before putting up sponsored news and press releases, so the projects mentioned there are a bit safer.
Scam #3: Fake Cryto-Celebrities
Often, scammers use the power of social media. They make fake profiles of celebrities, actors and other famous people and make posts as if the famous person is claiming that he or she has invested in a project and backs it. They ride the wave of people looking towards their idols and listening to what they have to say.
The fake accounts tell people that the project they are backing is real and they have themselves either invested, or they endorse it, compelling people to invest their hard earned money into it.
Naïve people actually jump on to the bandwagon and buy the tokens of the projects. Remember, if the project is actually endorsed, the news should be big and covered by major crypto news websites. If it’s not, it’s probably a scam and fake.
Scam #4: Pump and Dump
Another tactic scammers use is the pump and dump scheme. This is an old concept, used in traditional stock and securities’ exchanges as well. A group of people will invest a large amount in a low end cryptocurrency, changing the supply and demand balance. As the demand is artificially created, the value of the crypto tokens will rise. The sudden increase will catch the eyes of other investors, who will start buying up the tokens as well, further fueling the rise of value.
This even has its own term, FOMO. The Fear Of Missing Out. With more and more people buying and holding the tokens, the price goes into a steep climb. The initial investors, who are the scammers, will suddenly dump their holdings, liquidate and take away the cash. When the dumping begins and the buying frenzy changes to a selling one, other people find out that the tokens they bought are now worth a fraction of the current price.
To avoid pump and dump schemes, do a bit of searching on the reasons behind the rise of value. If there’s no significant news to back up the rise, don’t give into the temptation to buy!
The bottom line is: if it’s to good to be true, it probably isn’t. The crypto sector is still highly unregulated and there are little in the way of laws that protect investor rights. Stick to the main coins and study news and graphs carefully before making any investment decision. Ask around, perhaps there will be someone you know who has a deeper insight and would be able to guide you better.