One would think they’ve already thought of all scamming schemes before bitcoin entered the stage in 2009. However, as soon as it rolled out, several scammers rose to the challenge. They tricked people and took their hard-earned funds. Thus, I made a review on how to recognize cryptocurrency scams and what to do in order to avoid one. The following guide contains a list of existing schemes. You, as a crypto investor, can reference it before you put your money on the table.
Scams and Their Impact
It is no laughing matter when a scam knocks on someone’s door. The same is even truer in a young industry, such as cryptocurrency. This is mainly due to the fact that everyone is trying to promote it. With frauds running amok, many investors and businesses lost their vital assets, with some firms even closing their operations altogether.
Take the case of initial coin offerings (ICOs), where one of the largest frauds in the crypto world took place. A Vietnamese firm held a fundraiser and gathered around $660 million for tokens called Pincoin and iFan. They, however, never returned them. Modern Tech, the ICO owner, promised an efficient P2P platform for transactions to take place. Using multi-level marketing campaigns, two tokens advertised themselves separately, taking in large audiences by storm.
Another famous scam was BitKRX, a Korean “exchange” that claimed to be a branch of famous crypto business called KRX. In 2017, multiple clients reported that their fiat funds were stolen revealing the fraud. The bitcoins they supposedly purchased had vanished without a trace. The amount taken from investors is unknown up to this point. However, it is surely measured in millions.
Types of Cryptocurrency Scams
As you can see, there are many types of cryptocurrency scams that crypto cybercriminals use. They even use the reputation of legitimate businesses, such as KRX. Therefore, you should know and understand different fraud schemes so that you would not be deceived.
Here is the list:
1. Fake Exchanges
As seen from the example, it is easy to open an online exchange, promise bitcoins and disappear with your money. Some might use names of famous legitimate businesses, other provide “too-good-to-be-true” programs and crypto rates.
2. ICO frauds
Another common scam in the crypto world is for “businesses” to offer an awesome idea. They then take coins and disappear without a trace. These can be sophisticated, producing real dev teams, offices, events, and receiving rewards, only to be gone the next day.
3. Crypto Ponzi Schemes
Putting others up to promote your site and make money at the same time is quite an old trick. These schemes rely upon effective marketing. Investors that come in late have to pay everyone from the beginning if they wish to invest in the program.
4. Artificial Traffic/Wave Trading
Some trade platforms have been exposed to creating artificial orders on daily basis. You would see numerous bitcoin transactions that made by one person with a large set of bots. That way, the platform would trick you into thinking that it was popular. You would believe that its liquidity was deep and that it was a legitimate business.
5. Pump & Dump
This scheme was tested in stock markets. Namely, a leader creates a group, designs a plan, and makes everyone buy or sell crypto (usually a new one). The goal is to artificially drop and raise its price. The trouble is that the action takes very little time to complete, no more than a few seconds. The leader stands to benefit the most while everyone else loses funds the instant the price goes back to normal. No one has the time to react – except the creator of the scam, that is.
6. Mining Pool Scams
These came to life pretty much as soon as bitcoin did. Someone would create a pool, invite others with promises of large returns, hack their computer software and farm their hash power. In the end, the scammer would use the pool to gain block after block and keep all earnings. The rest would remain empty-handed.
Recognizing a Scam
Now that you know different scam types, it’s time for me to teach you how to recognize one on time. No matter what kind of fraud you are dealing with, you should take certain steps to be sure you get your money’s worth. However, you should also rely on intuition, because there is no guarantee even with covering all the basics.
Check who owns the platform
Review their biography, as well as previous experience and business address. Make sure that they’ve acquired all licenses necessary for the business they wish to commence. It helps that you can see a face in the court if things go down the drain.
Check online communities
Forums have a wonderful space where investors like you can express their experiences about a particular project. Wondering about a new platform that promises a lot of cool things? Check out forums, online guides, & social media. Their commentators can put forth the truth about a particular business and offer their own opinion.
Analyze the Business Model
Put yourself in platform/ICO’s shoes. Does it sound like the model has promotions and bonuses that do not make sense business-wise? Hearing mind-boggling promises often leads towards you losing both the bonus and your savings.
What activities is the business currently taking?
There have been a number of exit-scams in the industry. The platform, working without any issues, starts to withdraw from the market expressly. In many cases, you would lose all of your balance while they sacrifice a few employees to cover culprits’ tracks.
What kind of messages do promoters use?
It is quite common these days to see generic statuses on social media about a particular crypto business or ICO. In many cases, these bots and scammers provide fake information and spam the community to gain awareness. If the message does not feel genuine, that is quite a big red flag.
Check the license and governmental documents
Some firms might provide fake documentation as a proof of licensing. Check out government databases to locate the said document. If you cannot, it is practically an invitation to give that certain business free money.
Large investments accepted only
In many cases, ICO or crypto platform demanding large investments through fixed programs means they are looking for a quick way to gain money and disappear. There has to be a reasoning behind the price tag for each service they offer. Especially in ICO and cloud mining industries.
Given that crypto industry is still very young and unregulated, many scammers see that as an opportunity to earn quick money from other people’s gullibility. This article provides you with information on how to spot and stop cryptocurrency scams before it’s too late. It is always better to prevent than to treat, so it is better to lose a little time to look up the project than to lose a lot of money by investing blindly.
Some things are no-brainers, you can see it’s a scam from a mile away. Just look at this promotion of a “great” crypto project called Bitconnect:
Would you buy this coin? If your answer is YES then, please, read this article again.