The crypto world is full of opportunities and pitfalls at the same time. While this new digital economy offers great chances for anyone willing to invest their time and money, it also comes with several risks. The rise of cryptocurrencies has led to unprecedented scams in the digital world. As a result, many new investors have lost their money after being misled by so-called ‘experts’ or coming across fake ICOs. However, if you know what to look for, you can avoid falling victim to crypto scammers. The article below will outline some of the most common scams in the crypto world and how you can protect yourself against them as a new investor.
What Is A Scam?
A scam is any fraudulent activity used to trick people out of their money, often targeting people who can be more easily tricked, such as investors who don’t know much about the digital economy.
There are many different types of scams in the crypto world. The most common ones are outlined below.
- Ponzi Schemes: Ponzi schemes are fraudulent investment platforms that promise high returns on your investment. After you give them money, they use it to pay back early investors with your money and generate revenue for themselves.
- Fake Exchanges and Wallets: Many exchanges and wallets are set up by scammers who steal your money by shutting down the service and taking your money with them. Fake exchanges can also be classified as Ponzi schemes.
- Initial Coin Offerings (ICOs): ICOs are a great way for crypto investors to make money by buying the tokens of companies that plan to launch their cryptocurrencies. However, scammers also buy ICO tokens intending to dump them later on when the price has increased and profiting off others’ investments.
- Dumpers and Dark Pools: Dark Pools are trading platforms that are not available to the public. Some crypto scammers use these platforms to dump their holdings by selling them off at an unfairly low price to drop the overall price of a certain token.
Ponzi Schemes
These are fraudulent investment platforms that promise high returns on your investment. After you give them money, they use it to pay back early investors with your money and generate revenue for themselves, meaning you will never see your money again, as it’s being used to pay other investors rather than your profit.
Keep an eye out for red flags when dealing with investment schemes. If you find an investment that promises high returns without having any risk involved, it’s most likely a Ponzi Scheme. Ponzi Schemes often pay out for a certain period until the scammers behind them decide to close up shop and disappear with your money.
One way to avoid falling victim to Ponzi Schemes is to only invest in blockchain-based companies listed on an exchange. If you invest in companies that aren’t listed on an exchange, you risk falling victim to Ponzi Schemes.
Fake Exchanges and Wallets
Many exchanges and wallets are set up by scammers who steal your money by shutting down the service and taking your money with them. Fake exchanges can also be classified as Ponzi schemes. When you use an exchange to purchase cryptocurrency, your money goes into a ‘hot wallet.’
This type of wallet is connected to the internet and, therefore, is more susceptible to hacking or being stolen. After you give them money, the exchange will place it in their own ‘cold wallet.’ You can easily withdraw your money from the exchange once it’s in the cold wallet. However, many exchanges do not place your money in a cold wallet. Instead, they keep it in a hot wallet and tell you that you can’t withdraw it.
They may also shut down the exchange and keep your money for themselves, an example of a fake exchange scam. Fake wallets operate similarly: scammers will take your money and keep it for themselves, often without you realizing it. To protect yourself against fake wallets and exchanges, you must find out which exchanges and wallets are trustworthy.
Initial Coin Offerings (ICOs)
ICO scams are becoming increasingly common as more and more investors are interested in getting in on the blockchain boom. However, there are also a lot of honest ICOs out there that are worth investing in. Scammers use the following methods to trick you into investing in their ICOs: –
- Fake Websites: Some scammers set up websites that look very similar to the ICOs they are scamming. They will use fake websites to trick you into investing in their ICO.
- Bogus Team Members: Some scammers will pretend to be team members, making it seem like their ICO is even more trustworthy.
- Bogus Whitepapers: Scammers will post fake whitepapers on ICO websites that are very similar to actual whitepapers for real ICOs, making it harder for you to tell what is real and what is fake. To protect yourself against ICO scammers, research the ICOs you want to invest gin. Check their websites, team members, and whitepapers to see if they are legitimate. You can also use websites to check if an ICO is a scam. Some of these websites include ICOAlert and ICO Watchdog.
Dumpers and Dark Pools
Dark Pools are trading platforms that are not available to the public. Some crypto scammers use these platforms to dump their holdings by selling them off at an unfairly low price to drop the overall price of a certain token. Keep an eye out for sudden price drops in the tokens of your interest. It might be a Dark Pool scam if it’s a sudden price drop, and it doesn’t seem to make sense.
You can use a stop-loss strategy to protect yourself against Dark Pool scams. A stop-loss strategy involves setting a price below which you will sell your tokens, thereby protecting yourself against a sudden price drop.
Summing up: Protecting Yourself Against Crypto Scams
The crypto world is full of opportunities and pitfalls at the same time. While this new digital economy offers great chances for anyone willing to invest their time and money, it also comes with several risks. The rise of cryptocurrencies has led to unprecedented scams in the digital world. As a result, many new investors have lost their money after being misled by so-called ‘experts’ or coming across fake ICOs. However, if you know what to look for, you can protect yourself against crypto scammers.
