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Fraud is as old as the hills, but it adapts well to the changing reality and innovative markets, soaring to new heights as society and technology move forward. Where there is money, there are scams. Ergo, the crypto industry is a true breeding ground for fraudulent activity.
Hundreds of scams happen every year: investors lose their money on shady ICOs and fake tokens, crypto novices get themselves into Ponzi schemes, crypto holders have their funds stolen on exchanges and from online wallets. In 2019 alone scammers stole over $4.26 billion from crypto holders! Sometimes it seems inevitable — if you own digital coins, you’ll get scammed sooner or later. Well, we think it’s not necessarily true.
One can educate themselves about different types of cryptocurrency scams and avoid falling victim to fraud. Knowledge on the matter will help you detect a sham before it’s too late, protect yourself from the con men, and perhaps even contribute to their apprehension. So, how do you spot a crypto scam? Let’s dive into the murky world of crypto fraud and take a look at ten signs of suspicious financial ventures.
The first and most obvious sign that has to raise flags is an unrealistic promise: when something seems too good to be true, it usually is. Fast pay-offs, zero commissions, overly lucrative deals, and other tempting offers have to undergo scrutiny right away.
Crypto enthusiasts are a pretty tight crowd: most key figures of the community personally know each other, and the rest often cross paths on field-specific online platforms and offline gatherings. If a person who has never been heard of in the crypto community launches a project, it is probably a crypto scam or some kind of risky venture that may involve scam methods. Always check if a project’s founder has a strong connection to the crypto community and past collaborations with trustworthy parties.
For instance, the founder of the infamous Quadriga exchange, Gerald Cotten, had participated in a couple of fishy-smelling projects that had been basically ignored by the community. Only when Quadriga collapsed, the public realized how suspicious Cotten’s ties were.
Cryptocurrency projects that are not based on blockchain definitely have to be put under a microscope. A centralized ledger facilitates all kinds of crypto scams as there is no transparency, and the transactions can be subject to manipulations. In their turn, conspiracists should reconsider their “Bitcoin is a scam” refrain: it is virtually impossible to forge transactions on a publicly distributed ledger like the Bitcoin’s blockchain.
It is a good idea to examine the project’s website before getting involved. Some of the red flags are stock pictures with photoshopped logos, a sketchy office location, weird-looking reviews, and so forth. One could do with verifying team members on LinkedIn and running some of the website pictures through google image authenticity check.
Most scammers fear legitimate crypto forums like a plague. They won’t promote their projects on popular fintech hubs or professional message boards. Instead, they hunt for gullible prey on social media, using various scam methods to allure users to the project. Pitching a product on a crypto-related Twitter thread is probably a desperate attempt to defraud yet another target.
Statements like “Elon Musk gave thumbs up to this project” and “We are glad Buterin approves of our network” are usually easily verifiable and are fake nine times out of ten. Piggybacking on prominent figures or well-known projects is a clear-cut symptom of a cryptocurrency scam. Some fraudulent platforms also adopt parts of legit platforms’ names in an attempt to be associated with them.
One doesn’t need a degree in economics to understand that no legitimate crypto investment can double overnight. Promises to turn $100 into $150 in 24 hours are a classic sign of a Ponzi scheme and an outright lie.
The wording is extremely important in spotting a sham. Most projects, real and fake, claim to be faster, cheaper, somehow better than their competitors, but if there are no visible grounds for those claims, it is a probable sign of crypto fraud. Dissecting the technical side of the matter will help you conclude if the project is trustworthy or not: it should be open source.
If a project involves “bring a friend — get a benefit” kind of arrangement, it is not necessarily a rip-off, but if it is entirely based on this idea, there may be something wrong with it. A legit crypto venture won’t make you lure more people in to get profit from your investment.
Sharing your passwords, private keys, or secret phrases is a definite no-no when it comes to crypto. Security information solicitation is one of the most obvious scam signs. It is not always a head-on request though: beware of copycat websites disguised as famous well-respected platforms. One URL typo — and a good old sign-in button turns into a scammer’s door to your account.
Crypto scams mostly happen for two reasons. First of all, people lack credible information about the crypto world, which makes it harder to spot shady discrepancies and scam signs. Secondly, in nearly every country regulations lag behind the industry — it can be utterly confusing even for experienced crypto geeks as most aspects of the crypto realm are underregulated.
We can’t do much about the latter, but learning more on how to avoid a scam and how crypto technologies work in general is something everyone can try to do. Scammers capitalize on our greed, despair, thrill, foolishness, but above all, they take advantage of our unawareness. The more you know about crypto scams, the better you are protected against them. You can never be too careful when it comes to your money, so stay alert for scam signs and don’t stop educating yourself in the crypto field.