Cryptocurrency is a type of digital, decentralized currency created and exchanged through cryptography.
The value of cryptocurrency fluctuates, which means it can go up or down, making it an attractive target for fraudsters hoping to profit from the fame and popularity of cryptocurrency without having to actually buy any.
In this blog, we’ll delve deeper into the world of cryptocurrency scams and discuss ways to protect your crypto investments. Let’s dive right in.
Common Cryptocurrency Scams
The remarkable growth of cryptocurrency has also brought a rise in cryptocurrency scams. It’s essential to be aware of the common scams out there so you can keep your crypto safe.
Here are a few prevalent crypto scams you should watch out for:
Hackers and scammers are always looking for ways to trick people into giving up their money or personal information. Investment scams are common, where victims are told they could make huge returns if they invest a certain amount in cryptocurrencies, but they don’t get any return on their investment.
Sometimes these victims are led to believe that if they just give a little more money, then that will cover their losses and bring them additional success. Some investors end up paying thousands before realizing the scammer is not going to deliver what was promised and is probably long gone with their money by then.
You’ll want to take extra care when you see a cryptocurrency investment scheme offers the following:
- Guaranteed gains, regardless of market conditions. The cryptocurrency market fluctuates so dramatically that no one can say with certainty that any particular coin will go up in value.
- Early access or exclusive deals. If a project is legitimate, it won’t require your money right now to reach its goals. Rather, it should be clear about its plan and timeline for development. If a project isn’t willing to be straightforward with these kinds of details, then they’re not worth your capital—or your trust.
- Pyramid schemes. Don’t fall into the trap of believing you’ll get exponential returns if you invest more money and recruit new members who do the same thing; all that happens is everyone loses their money except for those at the top of the pyramid.
Exchange hacks are common and can be very serious. An exchange is a platform where you trade cryptocurrency for other cryptocurrencies or real-world currencies like dollars.
They’re essentially online banks, except they’re not regulated by many of the same bodies as banks (like the Federal Deposit Insurance Corporation), meaning that if something goes wrong, you don’t have a safety net to fall back on.
While most crypto exchanges enforce various security measures, they aren’t immune to cyberattacks. Needless to such, such attacks could take a toll on your investments and earnings.
The best way to protect yourself when you buy cryptocurrency on these exchanges is to enable two-factor authentication (2FA). That means every time you log into your account or withdraw money from an exchange, your phone will receive an SMS with a code to verify it’s you trying to access your account.
Hackers who manage to get through will still have one extra level of security to overcome before they can steal your funds.
Pump and Dump Schemes
Pump and dump crypto scams are often associated with new cryptocurrency projects. The developers pay celebrities and social media influencers to endorse the new token, thus creating hype and amplifying its value.
When the value reaches an all-time high, the developers and promoters cash out their earnings, leaving other investors to deal with losses.
How to Protect Yourself from Crypto Scams
Now that you know about common cryptocurrency scams, it’s important to learn how to protect yourself from them. The best ways to ensure your safety include:
- Do your research before investing. It’s essential that you take the time to do your homework and research any companies or projects you’re considering investing in thoroughly. Don’t be tempted by promises of large returns, and don’t invest more than you can lose.
- Don’t disclose private information. Be wary of anyone asking for personal information, such as passwords, Social Security Numbers, or bank account numbers. Never give out this type of data online or over the phone.
- Avoid investment schemes promising high growth percentage returns with “guarantees.” Most legitimate investment opportunities don’t promise quick returns, so any investments offering guaranteed gains are likely unregistered offerings fraudulent in nature and should be avoided at all costs.
- Be alert for Ponzi schemes pretending to offer cryptocurrency investments and other financial services, as they’re not legitimate entities—they’re designed to steal money from investors interested in cryptocurrency opportunities without delivering on their promises.
Tips to Avoid Cryptocurrency Scams (for Investors)
The Federal Trade Commission (FTC) has some advice for investors who want to keep their money safe:
- Make sure you know what you’re buying, where it’s coming from, and who’s behind the investment.
- Look for red flags of a scam. One such example is when an investment opportunity sounds too good to be true.
- Don’t fall for pressure tactics or give out your private key (the unique code that lets you access your cryptocurrency wallet).
- If someone promises you guaranteed returns on your investment, avoid them like the plague—because it is one.
- Don’t let anyone rush or pressure you into purchasing cryptocurrency without taking time to research and think about what you’re doing. A legitimate company will respect that.
Tips to Avoid Cryptocurrency Scams (for Miners and Users)
The best tip a cryptocurrency user or miner can keep in mind when it comes to protecting themselves from scams is to stay informed. Knowledge is power, and letting yourself stay in the dark on what’s going on in the space is one of the main things that can lead you into a scam’s trap.
Here’s some useful advice:
- Miners should stick to ASIC chips. These are specifically made for mining, whereas GPU mining has become obsolete as it relates to Bitcoin mining.
- Users should use a hardware wallet or a cold storage wallet. Software wallets are less secure because they’re more connected to the internet. So, if there were some kind of malware involved with your transaction, it could potentially be compromised.
- Users should use a VPN (a virtual private network) when accessing their crypto wallets online. VPNs encrypt your traffic and anonymize your IP address and location. It keeps hackers from tracing your activity back to you or getting access to any personal information you may have stored on your computer.
- Users should use crypto trackers like Delta or Blockfolio that give users real-time updates on their portfolio balances. It helps them know precisely how much cryptocurrency they own at any given time, as well as its current value relative to fiat currency (like USD).
Before you buy crypto with a credit card or convert cryptocurrency (into fiat currencies) on an exchange, do your due diligence and protect yourself. Study crypto markets and prices. Be wary of investing in new projects. And steer clear of invest investment schemes that promise guaranteed profits or exponential returns.