How to avoid fraud when investing in cryptocurrency
Cryptocurrency or crypto is a digital form of currency. Everyone wants to invest in this booming market and make big profits. It does not have a central issuing point, which makes crypto vulnerable to scams. Crypto uses a decentralized control mechanism, generally a blockchain, that publicly records transactions in digital form.
As of May 2021, there will be over 10,000 cryptocurrencies in the world – Bitcoin is one of the most popular among them. The other coins are commonly referred to as altcoins, which means alternatives to bitcoin. The list includes big names like Litecoin, Peercoin, Namecoin, and the famous Dogecoin, along with thousands of other altcoins.
However, the crypto market is still uncharted territory for many and one needs to do thorough research before investing in it to avoid scams. The lack of adequate information, the steep appreciation of crypto, and people’s eagerness to make quick money have attracted scammers.
So if you are an investor, especially a new one, in the crypto market, here are some scams and the lessons you need to learn to reduce the chance of being scammed.
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Disadvantages of impersonating celebrities / social media identities:
No, we’re not kidding, this happened. In fact, one of the biggest cryptocurrency-related scams was a “giveaway scam” involving Tesla CEO and SpaceX founder Elon Musk.
Not so long ago the Federal Trade Commission (FTC) reported that investors lost more than $ 2 million to scammers posing as Musk in just six months. Targeting Bitcoin and other cryptocurrency investors (read Dogecoin), the scammers tweeted a link to a Bitcoin wallet from Musk’s account and asked investors to send money that would “multiply”.
Since Musk often mentioned cryptocurrencies and bitcoin in his tweets, his followers didn’t think twice before sending money and ended up losing it. The same report also suggests that cryptocurrency-related fraud cases rose 1,000 percent from October 2020 to March 2021.
Image: Courtesy Odd Andersen / AFP
lesson – Always check deals against authentic sources like press releases and website announcements, even if shared by your favorite celebrity or verified social media accounts.
From online dating portals to video streaming sites like YouTube, crypto scammers use every possible medium as bait to attract new investors. On top of that, crypto is still a new area with investment-loving people and is the perfect place for scammers to attack vulnerable users.
Loud on FTC report, Fake investment cases since October 2020 have hit an all-time high. 7,000 people have reported a total loss of more than $ 80 million. Since this is all so new, investors share their passion and knowledge on multiple portals, creating another base for scammers who tend to offer tips to get investors to spend their money.
Image: Courtesy of Alexander Sinn / Unsplash
The same report even mentioned that online romance is a huge part of cryptocurrency scams that trick users into thinking they are in long distance relationships. Later, the scammers persuade them to invest in an upcoming cryptocurrency. About 20 percent of the money that has been lost to online romance scams since October 2020 has been spent on cryptocurrencies. That’s not all, most of these people are in the 20-49 age group.
lesson – Carefully research the company before investing. The crypto community welcomes #DYOR (do your own research). Hence, investors large or small have to invest time to find out everything about the cryptocurrency, even if the person you are dating seems to know everything and the deal sounds promising.
Malware scams and viruses
New malware and viruses have emerged and pose a greater threat to investors using websites to buy cryptocurrencies. Such malware software gains access to a user’s accounts and takes the remaining balance away, leaving the investor with nothing.
Image: Courtesy of Markus Spiske / Unsplash
lesson – Use two-factor authentication for all of your currency transfer apps and check which platform you will be redirected to for the transfer. Also, make sure that the website tries to download attachments automatically. You will also need to update your antivirus and system firewall.
These are the biggest craze in the crypto market right now. Before we tell you how not to get scammed though, let’s start with what exactly Non-Fungible Token (NFT) is.
NFTs are unique digital widgets that exist on the blockchain. In general, these are digital works of art that sell for a lot of money. These make a back and forth between marketplaces, which serves as a playground for fraudsters.
Remember the headline “Beeple Sold NFT Art For $ 69 Million”? Yes, that’s what we’re talking about. There are many ways people can be scammed into selling or buying NFTs.
Image: Courtesy AFP Photo / Christie’s Auction House / Handout
Canada-based artist Derek Laufman was the victim of such a scam. The Verge reported an incident where Laufman was made aware of the fact that a scammer created a profile with his name on Rarible, a website that sold NFTs, and went so far as to verify it to let. Laufman’s art has been digitized without his permission and put up for sale on the website.
Impersonating as an artist is one of many ways to be betrayed in the NFT world. In such cases, the scammers attempt to sell famous pieces quickly and at very low cost before being reported. Counterfeiting, counterfeit shop windows, and fraudulent bidding are other ways scammers can steal your money.
Lesson – Always make sure the account you are buying from is verified. Never give out personal information to third parties or to websites that look even a little fake. Use tools like MetaMask for security. Pay attention to the URL of the site and how you are directed to it. If the currency transfer process does not match your regular online payment method and the page where the payment must be made is not your online banking page, do not proceed with the payment.
Altcoin pump and dump
Another famous cryptocurrency scam that has scared investors is the Altcoin Pump and Dump, which is similar to penny stocks and is usually cheap.
A crypto guru or influencer buys large quantities of a cheap coin and starts promoting it on their social media. Then they would ask investors to buy it, which resulted in an increase in the value of the coin. Once that’s done, the influencer lets go of all of their coins with a massive profit.
Image: Courtesy Fred Dufour / AFP
One name that comes to mind when talking about it is John McAfee (pictured), the creator of the McAfee antivirus. In December 2017, he tweeted that he would be talking about a unique altcoin every day, adding that “most of the 2,000 coins are trash or scams”.
The tweet continued, “The few that I’m connected with, I’ll tell you. I have no position on the rest. These coins will change the world. You can support change. [sic.]”
Starting tomorrow, I’ll be talking about a unique altcoin every day. Most of the 2,000 coins are rubbish or fraud. I’ve read every white paper. The few that I am associated with, I will tell you. I have no position on the rest. These coins will change the world. You can support
– John McAfee (@officialmcafee) December 20, 2017
This is a clear example of an influencer trying to increase the value of a cryptocurrency. McAfee and his bodyguard Jimmy Gale Watson Jr relied on the former’s large following on Twitter and had talked about a coin every day to add to its value, which was later allegedly sold.
According to the BBC, McAfee was charged with money laundering and conspiracy to commit fraud in March 2021. Through the pump-and-dump program, the two collected a hefty 2 million US dollars. But that wasn’t all, they also received $ 11 million from the cryptocurrency startups for promoting their coins.
lesson – Don’t fall for celebrity promotional gimmicks and invest your savings in them. Do your own research and ask about the coin, but don’t fall for a hearsay trend.
Do you remember DeFi100 and scammers hacking the website? DeFi is the abbreviation for decentralized financing. It is a platform that is now trying to reinterpret the traditional trading methods to make them more user friendly and allow more people to participate. It enables investors to contribute their cryptocurrency to companies and earn from it in the form of interest. The virtual money is linked to the company and, in return, high profits are drawn from it.
Image: Courtesy Charles Deluvio / Unsplash
Scammers love it because they can create a DeFi platform that looks real but is far from it. Investors are forced to lock their money through contracts. The scammers then steal it without giving the owner a chance to find it.
Lesson – Don’t be too anxious to get any interest or profits, and do a good research of the platform before investing your money. If the administrator asks for your private keys to fix an issue, it will be a red flag and your indication that the administrator is an impersonator as no one will ever ask for your private information.
Therefore, be thorough in your research, trust only authentic sources of information and watch out for misdirected and incorrect information on social media. If possible, speak to an expert before investing or carry out your plans from a friend who has been into crypto longer than you. These are some simple steps you can take to avoid scams in the cryptocurrency world.
(Main image source: Dmitry Demidko / Unsplash; main image source: André François McKenzie / Unsplash)