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Being affected by a crypto scam is indeed common these days. This is due to the fact that the crypto sector is not regulated to an extent that it would be safe for everyone to venture into it. Crypto scam records have been increasing manifold in recent times. Therefore, it is necessary that you are aware of things that are related to a cryptocurrency scam to be able to prevent yourself from getting trapped in one. For this purpose, we decided to bring this article to you that contains all information on crypto scams.
What Is A Crypto Scam?
Before venturing into the answer to the above-mentioned question, let’s first know what a cryptocurrency is. Well, a cryptocurrency is a digital currency that is based on a blockchain where its records are stored in a decentralized manner with the use of cryptography. Now, to answer what is a crypto scam we would note that it refers to any illegal act that happens in the cryptocurrency domain that involves loss of funds for one and unethical profits for the other. There are four prevalent crypto scam types, which are:
- Traditional Theft
- Scam ICOs
- Pump and Dump Schemes
- Ponzi Schemes
A crypto scam is strong enough to wipe off millions of dollars in seconds. In the past, not only common people but even companies suffered the wrath of such activities. A crypto scammer would just think of themself and not what would happen to the affected party. This is why you need to beware of such things that take place in the crypto sector. We would address the frequently asked question of whether is crypto legit before talking about the types of crypto scams.
Is Crypto Legit?
Well, to answer ‘is crypto legit’ or not we need to first state the fact that it is a universal thing, therefore its legitimacy varies from country to country. In some countries like India and the USA, there are some laws framed for the crypto space thus making it legit (while regulatory talks are still continuing). Some countries have also imposed taxes on the profits that are earned in the domain. However, since mainland China has imposed a complete ban on it, crypto is illegitimate in that country.
Types Of Crypto Scams
We just noted the types of crypto scams that happen frequently in one of the sections above so here is an easy explanation for those. In addition, we have stated the ways where you can deter yourself from being at a loss of funds by being trapped in a well-woven trap.
Traditional Theft
Theft exists in all forms in every domain so the crypto space would obviously not be spared. Since the sector is not known about properly by people and is luring customers, it is an opportunity for any crypto scammer to make money. Theft can be in the form of phishing as it is one of the easiest ways to conduct a scam. This works by tricking someone to click a particular link that is then used to extract important information including account passwords and private keys.
This is usually done by creating a malicious replica of a trusted site. Such a trap is not recognized by the user in time and once they enter the details on there, the crypto scammer gets access to all the confidential information. However, there are ways that can aid you in preventing yourself from being affected by such fraud. These have been listed below.
- Install trusted anti-virus software in your system that will prohibit such malicious activities from getting through.
- Never ever share your private key information anywhere even if a site that looks trustworthy asks for it.
- Store large amounts of crypto assets in hardware wallets (cold wallets) in an offline manner as these thefts can only access online funds.
Scam Initial Coin Offerings
An Initial Coin Offering (ICO) is similar to an Initial Public Offering (IPO) that stock market enthusiasts would know for sure. An ICO is conducted when any new crypto is developed and is ready for launch. In this phase, they are known as ‘tokens’ that after listing in exchanges become a cryptocurrency. Crypto scams often happen through such ICOs.
For instance, the Squid Game crypto scam that happened last year in the month of November was one that led to a loss of over $3 billion of funds. The crypto had reached a high of $2,864 and then within a few minutes it plunged to a ‘zero.’ It is an example of a scam ICO that takes advantage of ongoing trends. This one benefitted from the popular Netflix series, Squid Game.
The crypto scammers who are behind these scams often hold massive amounts of coins in their own wallets so that the liquidity in the market is less. The whitepapers for such ICOs generally promise high returns and also state ‘perfect reasons’ for them. However, due to a lack of liquidity even if a holder witnesses a 500% surge in the coin, they would not be able to exit their positions.
Thereafter, when the crypto scam gets popular and they see more orders coming in they sell their huge stake and disappear. This act is known as a ‘rug pull’ or getting ‘rugged’. In order to avoid getting affected by these scam ICOs, here are a few cautionary measures:
- Before investing in an ICO research about the team and go through the whitepaper carefully and review it.
- Go through the blockchain records to know that not any single wallet holds the majority of the stake.
- Make use of advanced community tools that audit new tokens and coins to track scams if any.
Pump And Dump Schemes
Pump and dump schemes might sound similar to scam ICOs but it is not exactly so. This type of crypto scam can be conducted several times using a single cryptocurrency. What actually happens here is that the creators or developers of the crypto try to create hype in the market by spreading false information. They would do anything to drive the prices up.
Such types of crypto scamming undertakings even use false photoshopped images to gain people’s trust. Investors would try to acquire a stake as early as possible and the crypto’s price will indeed go up unprecedentedly, reaching a peak. This is when the people who own a major stake in the crypto will dump all their possessions at once causing the price to fall abruptly. This would cause immense losses to those who had invested while the crypto was gaining in value. The precautionary measures are:
- Extensively researching claims before making an investment decision.
- Participating in open forums such as Reddit to get hold of different opinions on the crypto that is in ‘trend’.
- Don’t consider crypto projects that mention too-good-to-be-true claims.
Ponzi Schemes
Ponzi schemes are ones that work on a pyramid basis. They rely on the mechanism of getting new investors whose money would be ‘robbed’. Here the early investors are paid off the profits that come from newer investors. In this case, a crypto scammer(s) would ensure to build a good image in front of people to be able to get fresh investments. In this type of crypto scamming operation, the initial adopters would do the marketing as well since they are given the opportunity to earn higher profits.
Often people would trick you into believing that since the first 10 investors have been relishing the profits, you also have an equal chance. However, it is not what it seems. Those early investors will continue getting their share along with the additional contribution that you made but in return, all you would get is losses. To be safe from being trapped in such a crypto scam, follow the points noted below.
- Don’t go for crypto projects with a multi-level marketing agenda.
- Beware of promises and claims that offer unprecedented returns.
- Stay away from projects that you don’t understand the working of.
A Watchful Wrap-up!
Crypto scam cases have been rising currently and during a crypto market meltdown, we don’t want you to be negatively affected further. Therefore, try adhering to the safety measures that have been listed in this article. In addition, you can conduct your own research on the matter to learn anything new. Do read up on cybersecurity protection and prevention of loss of crypto funds to stay safe. Also, think more than twice before making a new investment and only do so after proper analysis and review since crypto scamming is very easy but prevention is not.
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