Spot Cryptocurrency Scams. Con artists, hackers, and fraudsters have taken to the Bitcoin market in droves due to its decentralized structure and the influx of wealth into the business. If you put your money into a new project or trade coins on an exchange, you risk becoming a victim of one of the many scams around cryptocurrencies. This detailed guide will teach you how to spot and avoid the most common Bitcoin frauds.
Telltale Signs of Cryptocurrency Scams
It would be best to familiarize yourself with the commonalities shared by Spot Cryptocurrency Scams before it’s too late. But before we go into that, let’s classify cryptocurrency fraud into four broad groups:
ICO scams
In these types of cryptocurrency scams, the scammers utilize an initial coin offering (ICO) or token sale to generate funds for a project they do not plan to finish. The team members spend the money on themselves instead. In 2017, when investors were more open than ever to buying tokens, ICO frauds exploded in popularity.
Project scams
Some cryptocurrency scammers use token sales, or initial coin offerings (ICOs), to acquire funding for a project they truly intend to finish. But in the end, the group decides to scrap the project and spend the money on themselves while cutting ties with the investors.
Exchange scams
Regarding cryptocurrency, scams can involve more than just specific projects. For example, some exchanges steal from their users either a small amount every day or all of their funds at once. Some exchanges claim to have been hacked to cover up their actions.
Social media scams
The most basic cryptocurrency scam involves baiting social media users with promises of rewards in exchange for their cryptocurrency. The goal is to steal money from unsuspecting victims. One common tactic in social media fraud is to pose as a well-known person or organization.
Internet of Money (ICO) Traps
Anonymous team
One of the most telltale indicators that an initial coin offering (ICO) is a fraud is an anonymous team. Given the abundance of publicly accessible personal information, new project founders no longer need to conceal their identities online. One of them is being very careful not to leave any evidence that they took your money.
Token and fund distributions
Another way to tell if an initial coin offering (ICO) is fake is to examine the project’s token and how the funds will be distributed. One bad thing that could have happened was that the company might have kept a lot of tokens for themselves and only given out a tiny fraction to the ICO. Another bad thing would have been that they didn’t have a solid plan for how to spend the ICO money.
Unclear whitepaper
It may be a red flag that an initial coin offering (ICO) is a fraud if the whitepaper is overly technical and uses a lot of jargon without providing any concrete information about the project’s goals or the qualifications of the people working on it.
Project Scams
Anonymous team, poor token distribution, or unclear whitepaper
You may use the same red flags that we saw with initial coin offering scams to identify a fraudulent cryptocurrency project; the only difference is the duration of the scam.
Lack of activity/communication
Lack of action or contact with investors indicates that current Bitcoin initiatives are scams. Almost every project is highly active and communicative when it first starts. However, scam projects are easy to spot because they suddenly stop doing anything and communicating.
Exchange Scams
No registered company
It is often believed that cryptocurrency exchanges should be run under a recognized corporation in case the law gets involved, even though there is no clear legislation from the government regarding these platforms. In the worst instance, an exchange may intentionally try to defraud its users; in the best case, it may be careless. This is because a registered corporation is required for any legitimate business.
No licenses
In a similar vein, cryptocurrency exchanges in the majority of countries need a license from the government to legally trade cryptocurrencies. Again, an exchange’s lack of licenses could indicate that they are intentionally trying to defraud their users or are just careless.
Social Media Scams
Open promises
For social media scams, the adage goes, “If it seems too good to be true, it probably is.” Scammers use promises of great rewards to lure their victims in. Think twice if you hear of a free Bitcoin giveaway in honor of a specific event; it might be too good to be true.
Fake accounts
Social media scammers often use false accounts of prominent figures in the cryptocurrency community (like Vitalik Buterin, founder of Ethereum) or prominent cryptocurrency exchanges (like Binance) to make their freebies and prizes look more legitimate. When you click on their profiles, you can notice subtle clues that they aren’t who they claim to be.
How to Avoid Cryptocurrency Scams
The ability to Spot Cryptocurrency Scams is the first defense against falling victim to them. Once you’ve mastered that, you must avoid anything that could endanger you, including investing in a currency, trading on an exchange, or participating in a giveaway.
It would be hard to keep up with the ever-increasing online Bitcoin scams. When dealing with users, projects, and exchanges, it’s important to prioritize transparency and follow general norms like “If it’s too good to be true, it probably is” (particularly when dealing with huge monetary pledges).