5 Bitcoin scams to avoid in 2021
By Samuel Becker (5 minute reading)
Where there is money, there are crooks – it is a relationship as old as time itself. So it’s no surprise that enterprising scammers started launching cryptocurrency and Bitcoin scams almost as soon as the technology was born.
While Bitcoin scams and frauds may be relatively new, many of the more common snowshoes involving crypto use age-old tricks to achieve their goals. Almost all types of fraud – whether Bitcoin scams or phishing attempts – are rooted in a schemer’s ability to gain the trust of a victim. It’s about gaining someone’s trust; that’s why they call them “crooks” after all.
With that in mind, here are some of the most common Bitcoin and cryptocurrency scams. This list should give people a good idea of what to watch out for so that they can protect their assets, even before you start investing in crypto.
Common Bitcoin Scams to Avoid
1. Fake cryptocurrency exchanges
One way to attract potential crypto investors who are eager to get in on the stock? Create a cryptocurrency exchange, even if it isn’t real. Yes, fake crypto exchanges exist and in some cases have been used to scam investors out of their money.
For scammers, it can be as simple as luring crypto investors with the promise of free bitcoin (or something similar) to get them to sign up for the exchange. Then, after making an initial deposit, victims may find that none of it was real, and they were turned away from their deposit.
As to how to avoid these fake exchanges? Stick to the known, established crypto exchanges is a start. Think twice before creating an account with a new or unfamiliar exchange, and be sure to research to make sure it’s above the board before making any moves. Refer to industry sites and newsletters, message boards and forums, and other reputable sources of information to learn more about the credentials and reputation of an exchange. And it never hurts to remember the advice our parents and grandparents gave us from a young age: If it sounds too good to be true, it just might be.
2. ICO and fake cryptos
If you know buy IPOs, then ICOs should ring a bell. ICO stands for “initial coin offering,” and it’s more or less the same as an IPO. This is when a new coin or crypto makes its debut in the market.
It’s sure to grab attention, right? This is also what fraudsters think. And that’s why ICOs, or ICOs promoting fake cryptos, are ripe for scams.
An ICO scam can work like this: A fake ICO can be teased, asking pony investors for money to enter early. The money is traded, then the ICO never happens and the investors never get their money back.
These types of scams are common. So much so that the United States Securities and Exchange Commission (SEC) published a website which simulates them, only to lead you to educational tools when trying to invest, instead of stealing your money.
As with any investment, it is a good idea to do your research before investing any money in a crypto ICO. Try to find out as much as you can about the company in question – from sources other than yourself or the tease that interested you first. And take advantage of tools like those provided by the SEC to educate yourself.
3. Social engineering scams
Many of the same tactics used to scam people out of their money or personal information are also used in the crypto realm. This includes things like hacking, social media scams, phishing attempts, etc.
For example, crypto investors may receive an email asking them to update their password or personal information on a crypto exchange – a phishing attempt, which aims to trick users into providing their credentials. . With this information, a fraudster could potentially gain access to an investor’s assets and liquidate them. Always double check the sender’s address on emails like this – an address riddled with typos or weird fonts is probably a fake. If possible, compare it to previous emails from the exchange that you know are legitimate. Rather than clicking on the links in the email in question, go straight to your crypto exchange. There you will be able to see if your password or personal email needs to be updated.
It is also important to be careful on social media. Impostor social media accounts can contact you and ask for investments or deposits, only to take your money and run. A good rule of thumb? Go with your gut and don’t trust social media accounts – it’s too easy for bots or others to create fakes.
4. Ponzi schemes
Ponzi schemes are very similar to pyramid schemes. Essentially, it’s a hot potato game, with the older investors being paid with the product and the investments of the new ones. It’s a common pattern in financial circles that has found its way into the crypto world.
The government has taken on Ponzi schemes in the crypto community, and that includes those who use Bitcoin to attract new investors. In fact, government regulators say they root out and prosecute numerous cases of the Ponzi scheme every year, including those involving cryptocurrencies.
A typical red flag indicating a Ponzi scheme (or almost any type of fraud): the promise to invest your money risk-free for you with the guarantee of huge profits. The truth is that in investing there is always a risk and there is no guarantee of return.
5. Bitcoin Pump-and-Dump scamsp
For investors who know even a little about the stock market, the term “pump and dump” should be a household term, especially after the Gamestop titles early 2021.
A pump and dump system involves a number of traders or investors buying an asset (e.g. Bitcoin for example, or a penny stock), which increases its value. Then, with high values, they sell it all – or ‘throw it away’. Investors who bought during the initial period are often taken under water as a result.
Of course, this same game can be played with cryptocurrencies. Government regulators, such as the U.S. Commodity Futures Trading Commission (CFTC), have warned that pump and dump systems can be particularly effective in crypto and warn investors to do their homework before taking investment decisions.
The world of crypto can be risky if you don’t know what to watch out for. In this sense, investing in cryptocurrency is not much different from investing in other assets. Where there is wealth or value there will inevitably be crooks, fraudsters, and con artists (or women) trying to find a way to get their hands on it.
By taking some protective measures, people will be better able to protect their assets. This includes researching a business before investing in it and using a little common sense – a good rule of thumb is that if something sounds too good to be true, it usually is. case.
It never hurts to be suspicious of anyone who contacts you to request a deposit, make a payment, or send them money in some other way. If a crypto exchange or ICO gives you a guarantee of some kind, that’s another red flag. And if someone or a company gives you something for free, be very careful. Businesses don’t often make money by giving things away.
Keeping your mind on yourself and avoiding anything that may seem sketchy should keep the majority of crypto investors safe from scams, whether you are new to the market or a seasoned veteran.
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