Cryptocurrency is one of the most popular investments of the past few years. The crypto market is booming, with billions of dollars traded and bought quarterly. However, despite this increase in popularity, the crypto industry is not without its fair share of scams. Coinbase, one of the world’s largest and oldest cryptocurrency exchanges, has come under fire recently for several of its users being victims of scams on its platform.
Due to its relative novelty, many are still skeptical about investing in cryptocurrencies, and any scam is sure to exacerbate this suspicion further. Hundreds of millions of dollars in cryptocurrencies are traded daily without issue, although, like any other investment, there are always scams to be wary of.
Identifying a Potential Scam
Here are some warning signs to keep in mind if you think you might be the potential victim of a crypto scam:
- Promises of guaranteed returns: While this is certainly not unique to crypto, any financial investment, crypto or other, cannot guarantee a certain outcome in the future. Any investment promising certain returns is a major red flag.
- Dubious or non-existent whitepapers: All cryptocurrencies should have a whitepaper that explains the design and function of the coin. This is a critical facet of a cryptocurrency, and if it does not make sense or does not exist, be very wary.
- Suspicious marketing: There are nearly 20,000 different crypto coins, and most of them have been created within the past few years. Many crypto coins engage in aggressive marketing campaigns to stand out in such a crowded marketplace. While this is an understandable tactic, be suspicious of marketing claims that make superfluous claims.
- Unknown team: Understanding and knowing the coin’s creators and who is running it are essential to a good cryptocurrency. Be cautious of hard-to-find biographies and an inactive presence on social media or the web.
Types of Scams
There are many different types of scams to keep an eye out for:
- Phishing scams: Often targeting information relating to crypto wallets, phishing scams target a wallet’s private keys to gain access to the wallet’s funds. These scammers often send an email to lure owners to a specific website that entices them to enter their private details. Once they have acquired the private key information, they drain the wallet.
- Fake websites and apps: Scammers often create fake sites or trading platforms that mimic real websites and wallets to deceive unsuspecting investors. Though they typically have similar domain names to the sites they mimic, there are always subtle disparities you should look for as they are telltale signs. Scammers also create fake apps for this purpose, although they are often removed quickly. To be prepared, always look at the reviews and number of downloads on any trading app, and do your research beforehand.
- Pump and dump: Scammers and hackers will mass market a particular coin or token via email blasts or social media, incentivizing investors to buy the coins and subsequently driving up the price. Once the price is inflated, the scammers then sell their holdings en masse, crashing the coin’s value. This type of scam can happen in a matter of minutes.
- Fraudulent initial coin offerings (ICOs): An ICO is something start-up crypto companies often use to raise money and generate interest. Potential investors are often offered a discounted price on the new coins in exchange for sending more established coins such as bitcoin. Many ICOs have ended up being fraudulent and have gone to great lengths to deceive potential investors.
Protecting Yourself from Scams
There are nearly 20,000 cryptocurrencies currently on the market, with more being added daily. Though there are many legitimate coins and investors who have made lucrative returns, the industry is still relatively new and attracts all different types of people, some of which have pernicious intentions.
There are certain precautions investors should take when investing in crypto, particularly if you are new to the industry. So many scams target newer and lesser-known coins, often overpromising and underdelivering. A good rule of thumb, especially if you are starting out, is to stick to popular coins, such as Bitcoin, which is far more established and well-known. Though buying through older and more established exchanges is not a foolproof way to avoid scams, sticking to reputable exchanges is a must when buying cryptocurrency. Reputable exchanges include Gemini, Coinbase, and Binance.
While investing in well-known coins on established exchanges will likely protect you from most scams, it is not the panacea for all scamming problems within the crypto field. Using good judgment is key. If something seems too good to be true, then it is probable that it is. Anything offering astronomical returns or guaranteed profits will almost certainly be a scam.
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