With cryptocurrencies gaining in popularity, the number of frauds targeting investors has also increased. From phishing attacks to fake exchanges, scammers are continually upgrading their strategies to deceive individuals new to the crypto world.
So, whether you are an experienced investor or just starting out, understanding these risks is essential for protecting your crypto investments.
Says Kaushal Bheda, director of Pelorus Technologies: “Be very careful when approached by anyone promising extraordinary returns on your investments. If it sounds too good to be true, it is a scam. Educate yourself about cryptocurrency and don’t take advice from those asking you to part with your hard-earned money based on such promises.”
Types of Cryptocurrency Scams
Here are the common types of cryptocurrency scams.
1] Pump and Dump Schemes: Pump and dump schemes are a kind of fraud that is common in the cryptocurrency field. It includes false marketing and excitement to artificially inflate the price of cryptocurrencies. Once coordinated purchasing drives up the price, fraudsters sell their respective holdings at a profit, causing a sudden decline in the price and large losses to inexperienced investors.
2] Fake ICOs: Initial Coin Offerings (ICOs) are used by new crypto projects to raise funds. Scammers take advantage of this by establishing false ICOs that include a plausible website and advertising materials. After collecting investments, the fraudsters disappear, leaving investors with worthless assets.
3] Phishing Scams: In phishing scams, fraudsters impersonate legitimate cryptocurrency exchanges or wallet services to trick individuals into divulging their login credentials. These phishing attempts can come through emails, text, or social media messages. Once the scammers gain access to the investor’s accounts, they can steal the funds.
4] Fake Cryptocurrency Exchanges: These scams involve fraudulent websites that mimic real cryptocurrency exchanges. They lure investors with promises of high returns or special bonuses. After funds are deposited, victims find themselves unable to withdraw their assets, as the scammers disappear with the money.
How To Protect Yourself from Cryptocurrency Scams?
As cryptocurrency scams become more sophisticated, it’s crucial to take proactive measures to safeguard your investments. Here’s how you can protect yourself from cryptocurrency scams.
1] Read The White Paper Thoroughly: Before investing in any cryptocurrency, carefully examine its white paper. A legitimate white paper will provide detailed and clear information about the project’s technology, objectives, and operations. Watch out for white papers that are vague, poorly written, or lacking in detail, as these could signal a scam.
2] Verify Team Credentials: Conduct research on the cryptocurrency project’s crew. Reliable projects will have transparent team members with verifiable professional backgrounds. Look for detailed profiles and past achievements. If the team is anonymous or lacks credibility, it may be a red flag.
3] Be Cautious Of Free Offers: Avoid ventures that offer free coins or tokens or guarantee high returns. In the world of cryptocurrencies, offers that appear too good to be true are a potential red flag. Authentic investments will require thorough investigation and financial commitment, so be wary of anything that promises easy profits.
4] Check For Transparent Communication: Ensure the project has open and regular communication with its community. Reliable projects will provide consistent updates, answer questions transparently, and engage actively with their audience. If communication is sporadic or evasive, it could indicate a potential scam.
5] Use Verified Exchanges: Stay with well-known and trustworthy Bitcoin exchanges. Investigate each exchange’s trustworthiness, examine user feedback, and confirm its registration with financial regulators. Be aware of exchanges that advertise unrealistic bonuses or returns, as these may be intended to entice naive investors.
How Cryptocurrency Scams Differ From Financial Fraud?
Cryptocurrency scams operate under different dynamics compared to traditional financial fraud.
Adds Bheda: “Cryptocurrency scams differ from other types of financial fraud because, unlike traditional banking, there are no effective measures to stop transactions once a scam occurs. While you can report scams involving banks and potentially halt transfers, the anonymity of crypto makes it much difficult to trace and investigate the movement of assets. This lack of regulation and the ability for crypto to cross international boundaries complicate efforts to follow the money, making recovery significantly more difficult.”
What To Do If You Have Been Scammed?
If you have been defrauded, the first thing you should do is notify the appropriate authorities, including police, and any Bitcoin sites involved. This can help recover stolen money and prevent additional fraud.
Additionally, if your bank account or credit card was utilised in the scam, alert your financial institution right away. They can provide advice on how to halt the transactions and potentially reclaim lost funds. Finally, consult with legal and cybersecurity professionals.
