Identifying a Cryptocurrency scam

Right now, cryptocurrency seems to be everywhere. Now and then, we hear reports of some cryptocurrency's value skyrocketing. Nearly every day, a new firm announces that it will accept cryptocurrency payments for goods and services. Even celebrities are endorsing these new alternative payment methods, which can affect their values.

Many individuals are increasingly diversifying their investment portfolios by adopting cryptocurrencies. First-time investors perceive it as an excellent way to start investing or make some quick money. However, like with anything new, you should do your research to ensure that it is suitable for you. However, besides all this, you must also keep an eye out for scams.

What Are Some Common Cryptocurrency Scams?

Whether they like it or not, crypto investors expose themselves to this new and increasing danger of fraud and scams. Here are the most common scams and red flags to watch out for whether you have crypto in your investment portfolio or are considering investing in Bitcoin or Ethereum in the future.

Social Media Giveaway Scams

Today, people on social media like Twitter and Facebook often surprise you with their generosity. If you look at the comments section of a highly engaged tweet, you'll probably find that a crypto company or influencer you follow is doing a giveaway. In exchange for a single BitCoin/Ethereum, you are promised ten times that amount. Isn't it too good to be true? Unfortunately, it is. That's a rule of thumb to follow regarding many of these frauds.

When someone asks you to provide money before delivering you a reward, it's unlikely that they're hosting a real giveaway. Keep your guard up while receiving such communications on social media. They may seem to have originated from accounts you recognize, but this is all part of the con. The scores of messages praising the account for their kindness are all fake or automated.

You may ignore them. To determine whether or not they are genuine, it is necessary to examine the profiles in detail and note the differences. Sooner or later, you'll figure out that the Twitter account or Facebook page is fake.

Always remember, if a genuine company or organization does decide to do a giveaway, they won't ask you to send any money or cryptocurrency assets.

Demanding Payments in Crypto Only

If a seemingly trustworthy individual or retail organization declares that it cannot accept any currency other than Bitcoin or Ethereum, there's a high chance it's a hoax. Bitcoin and other altcoins are a growing asset class. Thus, analysts believe legitimate institutions will not accept only cryptocurrencies without accepting U.S. dollars or other fiat currencies through traditional methods such as wire transfers, cheques, credit and debit card payments, and cash.

In general, anybody requesting payment in cryptocurrency may be seeking to hoard it and profit from its increasing value. And unlike banks, the world of blockchain lacks KYC standards. This implies that users may create wallets without presenting legal identification, a Social Security number, address, or contact information. Although blockchains are public and provide permanent, open-access records, anyone may transact on it anonymously, making it easier to dupe you, steal your money, and flee.

Games and digital collectibles

Skilled programmers may now develop new games and entire fictional universes on the blockchain that can turn out to be a hoax, much as we witnessed with the 'Squid Game' scam.

Convincing eager blockchain beginners to acquire a game's freshly issued currency or token is a simple approach to stealing their money. If enough individuals push up the price due to supply and demand, the fraudsters have a chance to sell all of their assets and vanish in a maneuver commonly termed as a 'rug pull.'

There is no FDIC insurance or fraud protection when it comes to blockchain, unlike bank accounts for government-issued currencies. When your cryptocurrencies are stolen, the only method to get them back is for the receiver to reimburse you directly. It's quite unlikely that would happen on a decentralized exchange. Even if larger cryptocurrency exchanges have more robust safeguards against fraud than their smaller counterparts, investors still run the risk of having their funds disappear for good.

Cryptocurrency ICOs

New varieties of cryptocurrencies are constantly being developed, and the addition of new currencies to the blockchain is often achieved following a funding event referred to as an initial coin offering (ICO). However, ICOs may also be used to defraud people. Someone may offer you a once-in-a-lifetime chance to invest in a new kind of cryptocurrency and promise you profits of 1,000% or more. They may then pressure you into transferring a bunch of fresh coins into a compromised digital wallet or 'pump and dump' by buying the currency and dumping it when the price skyrockets as people rush to buy in.

Romance Scams

Crypto frauds are also common on dating apps. The FTC estimates that between October 2020 and March 2021, cryptocurrency accounted for about 20% of the money lost to romance scams.

In this scenario, long-distance or digital interactions are used in scams, in which one side pressures and encourages the other to acquire or supply money for some new cryptocurrency that is truly just a technique to defraud people out of their money.

These scammers are very convincing, and their profiles look like real users. The simple tip here is to not take trading or investment advice from strangers you meet on dating platforms.

Fake Mobile Apps

You may download a malicious app without knowing if you aren't cautious enough. Users are often tricked into downloading malicious software, some of which are close copies of legitimate apps.

When a user first launches a malicious program, it may seem to function normally. But these programs are usually developed only to steal your cryptocurrency. There have been several cases where people have downloaded fake applications from developers pretending to be well-known cryptocurrency businesses.

In this case, most of the victims think they are transferring money to the platform's wallet address while they are sending money to the fraudster's address. Once the funds have been transmitted, there is no way to reverse the transaction. The apps usually disappear or get taken down after several victims are duped.

Another factor that contributes to the effectiveness of these frauds is their ranking. Malicious applications often get high rankings in the App Store or Google Play, giving them the illusion of reliability. To protect yourself from these, make sure you only use download links from reputable sources or the official website. Always verify the publisher's identity before installing from Apple's App Store or Google Play.

Phishing Scams

This sort of fraud is as old as the internet, but there have been new developments regarding cryptocurrency. Just like a 'normal' phishing attack, malicious actors send emails to lure recipients into clicking malicious links and providing personal information, including crypto wallet key information.

However, unlike passwords and usernames, you only get one private key to your blockchain wallets. This is the result of blockchain's decentralized nature, which assures that no one entity has access to your information, but it also causes an issue because you can't replace or alter your private keys if it has been compromised.

The golden rule here is never to share your private keys with anyone.

How to identify a scam Cryptocurrency project?

Learn About the Team

The team of developers and administrators working on a cryptocurrency is crucial to its success. Star developers like Ethereum's creator Vitalik Buterin have an enormous influence on the success or failure of a cryptocurrency project just by having their names attached to the development team. Scammers take advantage of this fact by creating fake history and resumes for their projects' purported creators.

To avoid falling victim to this con, it's important to do your homework on a project's team members before putting money into it. Negative indicators include a lack of information about a developer or founder on social media platforms like LinkedIn. Verify whether the profiles' activities are consistent with the number of followers and likes they have accumulated, even if the profiles themselves exist. People that have thousands of followers but never interact with them may not be legitimate.

Verifying the existence of the development team is just the first step; you also need to check if they have the necessary expertise to run such an operation. You need to ask yourself. Is the founding team as experienced as they say they are? Is it directly related to the task at hand?

Check out the White Paper

A whitepaper is a core document for any project or ICO. Any blockchain-based project should have a whitepaper outlining its motive, expected objectives, proposed model, possible challenges, and intended schedule for rollout. Whitepapers can disclose a lot about a crypto project, even if their website seems legitimate on the surface. On the other hand, even if a company's website is riddled with misspellings, its white paper could reveal an unshakeable foundation for its ideas and a well-thought-out strategy for putting them into practice.

Reading the whitepaper carefully is the first step in assessing a project. Make sure the whitepaper you're looking at contains all the tools you need to get started, such as SWOT analysis, a legal concerns section, a financial model, and a plan for execution.

Avoid at all costs any company that doesn't provide you with a whitepaper. Even yet, a fake corporation might provide a compelling whitepaper, as was the case with PlexCoin; this company raised almost $15 million before the U.S. Securities and Exchange Commission (SEC) stepped in to shut it down.

The purpose of a whitepaper is to address any concerns an investor may have about a project, including how it plans to succeed, what steps will be taken to do so, and how it will differentiate itself from similar projects.

How Realistic Is This Project?

While it may seem apparent, the most successful ICOs and cryptocurrencies are those that have the essential framework to outlast their competition. Even well-publicized releases have often failed to gain traction with consumers once their initial buzz dies.

An organization with goals that can really be accomplished is more likely to provide a positive return on investment. The firm needs to have a compelling idea, but it also has to see that concept through in the short and long term.

Similar to the feasibility concern is the problem of transparency. Companies with groundbreaking ideas and approaches are more likely to value open communication with the community at large and appreciate community feedback. Find companies that make an effort to keep prospective investors informed by posting frequent, thorough updates on the company website or via social media. The existence of a proper roadmap is also helpful.

Exercise Caution

Even the most well-received initial coin offerings (ICOs) and cryptocurrencies face criticism because of the role that speculation plays in their growth. Both seasoned investors and beginners might be tempted by the promise of quick financial gain from a stake in a promising new venture.

If you're on the lookout for fresh investment possibilities in the ICO and cryptocurrency markets, proceed with caution. Avoid engaging in projects that seem too good to be true. Spend plenty of time looking over every tiny detail and always assume that if scammers are trying to conceal a flawed model or idea, they won't rest until they've succeeded.

If you're looking to invest in a project, it's a good idea to get a second opinion from a reliable source and ask any questions you have that the project's website doesn't address. Investors that are well-informed and able to make informed decisions will find huge possibilities in the cryptocurrency markets.

However, they also include risks that may result in significant sums of money being lost owing to scams, frauds, or legitimate enterprises that are just poorly planned and unlikely to succeed.

End Note

There are a plethora of methods that bad actors may employ to steal cryptocurrency from unwary individuals. To avoid the most typical frauds, you need to be aware of the methods often used by scammers and have your guard up at all times. Make sure you're only ever dealing with verified sources, and if an investment opportunity seems too good to be true, it generally is.

Disclaimer: Cryptocurrencies are highly volatile and subject to market, technical, and regulatory risks. Crypto trading requires one’s own diligence, and Cryptoforce will not be responsible for any losses incurred. Any information provided here should not be regarded as Cryptoforce’s technical or financial advice.