The cryptocurrency market is one of the most revolutionary networks of the past decade. It allowed people to hold their financial assets more securely and invest in their future. However, blockchain technology isn’t perfect, and some people have found ways to break into these systems by taking advantage of others’ lack of knowledge.
This happened with Bitcoin, too, since it’s the first cryptocurrency ever. Although now the Bitcoin price chart shows how well the cryptocurrency is doing, the network is full of scams at every step. That’s because although bitcoin’s blockchain is secure and well-programmed, scammers know how to promote their rip-offs by offering to give random people a small part of their investments in return for certain favors, such as sharing their content or signing up on their cryptocurrency programs.
Such a phenomenon isn’t unusual since blockchain and cryptocurrency are quite new, and people are unaware of the complexity of information it requires to invest and work with tokens properly. Even now, as mining gets more challenging and the number of cryptocurrencies is increasing by the day, it’s difficult to catch up and not get scammed.
But you will now learn how to distinguish these shams and protect your portfolio.
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Fake crypto exchanges
Fake cryptocurrency exchanges exist and offer what all beginner investors want―free bitcoins. The scammers create counterfeit websites and advertising strategies to allure investors who don’t know the market and convince them to sign up for an account and make an initial deposit. After that, the cryptocurrency exchange will suddenly disappear.
If you don’t want to be caught in these fraudulent tricks, it would be best to stick with using the established crypto exchanges in the market, which are usually the most known ones. It’s also recommended to research any exchange companies you want to use for your investments. Remember that when it comes to money and assets, no one will give you any for free, only to help your portfolio grow.
When dealing with ICO stocks (Initial Coin Offerings), you may be used to receive new tokens issued by certain companies. But when it comes to scams, new and fake ICOs are sent up for the investors to pay for getting early in the initial offering. After the money is exchanged, the ICO never takes place, and people are left without their investments.
In this case, too, researching the ICO is best before you want to put your money to risk. From verifying the website to the company publishing this offer, try to investigate a little and get your questions answered. Some groups like FINRA (Financial Industry Regulatory Authority) provide tools to build background knowledge about what you’re investing in.
Social engineering scams in crypto are the same tactics used in regular money scams, like charity ones. These methods include hacking, social media scams, and phishing. For example, one common scam consists of emails from trustworthy exchange companies advising you to update your password or personal information. They usually include suspicious links and poor grammar, and similar spelling mistakes.
The best way to avoid these scams and protect your crypto investments is to be aware of the potential risks. Therefore, keep up with the latest scam attempts and know you should never share your password, and companies never ask their customers for such personal information.
Ponzi schemes are just like pyramid schemes, with people who are working in such crypto organizations for a longer time and are paid for involving new investors in their programs. It’s common for scammers to use bitcoin to lure beginner investors.
The first red flag of such schemes is the promise that your investments have no risk included and you’ll be guaranteed profits. This never happens with any financial assets, especially in the crypto industry, where the market is volatile, and profit depends on many factors, such as supply, demand and media coverage.
Pump-and-dump bitcoin scams are more common after the GameStop event back in 2021. This bitcoin scheme involves a few traders or investors who will buy a particular asset to increase its value. After this considerable surge, investors sell everything, which affects all those other investors who bought bitcoin in the initial run-up.
You can see it’s a scam by looking at the founders. If they’re anonymous, it’s for a reason, which is usually fraud. At the same time, if they’ve revealed their identity, you should still check their personal information and look into the token they’re issuing.
Rug pulls are similar to ICOs, but they’re not tied to any public offering. They might happen on the blockchain, where a team will create and advertise a project with a new crypto token, which will increase the price. After getting enough coverage and a considerable number of investors, they abandon the project, and the token’s value gets to zero.
There are two main types of rug pulls. Hard pulls include a malicious link programmed into a token, whereas soft rug pulls happen when developers dump their crypto assets shortly after the start of the project. To check the project’s accuracy, it’s best to see if the currency is liquidity locked1, and if there isn’t any secured through smart contracts, it’s definitely a scam.
Man-in-the-middle scam involves a third party that obtains information from an investor’s account and their used exchange platforms, such as passwords or other personal information. Although these happen quite rarely, as scammers need to be technically prepared, they can intercept wireless internet signals and get into someone’s system.
Such scams are more likely to occur in SaaS businesses and e-commerce sites as these organizations manage more crypto assets since the crypto inclusion has spread to many industries. A strong and protected system will help avoid such unpleasant happenings.
Bitcoin scams always happen because people are not adequately protecting their systems and assets. Another contributing factor is that crypto is relatively new to the market. But with enough knowledge, skills and online protection, you can keep your assets in a safe place.