Crypto scams have been happening since the dawn of Bitcoin. According to Bolster’s cryptocurrency scam report, the number of scams grew 40% to 400,000 cases in 2020. The researcher predicts that this would further increase up to 75% in 2021, based on the level of malicious activity that took place in the previous year.

Despite the secure nature of blockchains, cryptocurrency hacks have been on a stratospheric rise. You could possibly say that blockchain makes it more difficult to track the scammers due to its complicated code.

It's no secret that we're still in the early stages of cryptocurrency and everyday we break new grounds. For every new innovation, there's always a way to get people scammed. So how do people identify and avoid these scams in the virtual currency world?

Scams in the cryptocurrency space

  • Phishing

This is a type of scam that is used to target customers from major banks. Unsurprisingly it is also common in the cryptocurrency space.

Targeted customers receive an email from their bank, or in this case from their exchanges or wallets, stating that their account details are needed. This email contains a link that redirects the targeted customers to a different site that is identical to the exchange or wallet they operate. The moment their account details are filled up on that site, the scammers gain access to their funds on the real site.

So, how does one prevent such scams from happening?

★ Make sure the website you’re visiting is a genuine website. In this case, make sure it has “https” and not “http”.

★ Avoid clicking on suspicious looking links.

★ Use google authenticator or 2FA to enable withdrawal.

★ Never disclose your private key. This is the key that gives access to your funds on exchanges.

  • Fraudulent ICOs

ICO which stands for Initial Coin Offering is a situation where the public is invited to buy a coin at its inception. In the first half of 2018, ICOs raised about $11.8 billion. With people having a limited amount of knowledge on cryptocurrency, it was a breeding period for scammers. The promise of a new coin being the next BTC has attracted people into investing in coins that show such promise at its early stage and eventually end up being a failure.

How does one avoid fake ICOs?

★ Conduct proper research on the project.

★ Look at the team behind the project.

★ Read the whitepaper.

★ Make sure to read on the tech and basics of that token.

  • Impersonation giveaway scams

This type of cryptocurrency scam has existed for a very long time. A celebrity or a well respected person in the society promises a huge amount of money, or in this case cryptocurrency to the public, only if they make a payment first and that gets them to receive double of the amount they deposited.

This practise is well used by scammers on social media as they either hack the celebrities account or create a fake one with the verified blue tick on the account.

This scam is all about taking advantage of FOMO (Fear Of Missing Out). Bots are created that show that people are getting paid, and this results in people rushing into making a bad decision because they feel they are missing out. Similarly, there will be lots of likes, shares, retweets and other social proofs, but this means nothing since this can be generated by bots.

So, how does one avoid an impersonation giveaway?

★ Assume that anytime a celebrity wants to do a cryptocurrency giveaway, it’s a scam, especially when you’re told to give out a certain amount of cryptocurrency first.

★ Always double check the name of the account promising the giveaway.

★ Using a blockchain explorer to check the cryptocurrency address to know how much the scam is making is another way to avoid being scammed. This act shows if the address is sending any money out or just receiving.

  • Pump and dump

One of the most popular crypto scams is the pump and dump scheme. Investors are rallied and brought to buy a certain token in a large quantity, in a bid to increase its value. Once it goes up, the founders of this token make a huge sell off, dumping the price of the token and running off with the profits, leaving the investors with a dead token. A particular red flag for such a scheme is the promise of getting rich quickly. When there's no real project that gives the token relevance, the tendency of it being a scam is high.

One major example was the GVT pump and dump. In January 2018, a fake account posing to be John McAfee tweeted a support for the GVT coin (coin of the day). John McAfee was a crypto enthusiast and cyber security guru. This tweet pushed the coin from $30 to $45 and trading volume doubled four minutes after that tweet. Fifteen minutes later, the price was hovering around $30 with the early buyers nowhere to be found after they took their profit from the spike in its price.

How does one avoid being caught in a pump and dump scheme?

★ Be very cautious when dealing with coins with a low market cap and have a sharp increase in its value.

★ Be wary of fake news from crypto influencers who hype coins.

★ Always have a well planned out research strategy on coins before investing in them.

The above are a few out of the many ways a person can be scammed through cryptocurrency. In conclusion, in a bid to take advantage of the many opportunities the crypto space offers do not be overly greedy and naive. Take your time to learn about whatever coin, exchange or wallet you're going to be dealing with.

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