Cryptocurrency is an emerging technology, and it hopes to replace traditional money. Its major appeal is decentralization, which means no bank or government oversees the virtual currency. The idea is that you have complete control over your own money. For example, two people anywhere in the world can directly send each other money without a bank involved. Blockchain, the technology that powers cryptocurrency, is a super-secure online database that is difficult to tamper with. Rather than a central database that is vulnerable to hackers, the blockchain database is widely distributed across various computer parts of the network. It is incredibly difficult to manipulate or takedown these circulating database copies. The valuation for cryptocurrency companies can be wildly high, which is why there is so much buzz surrounding it and making it a fertile ground for scammers. The government used to be the fairest judge in financial transactions until blockchain. Blockchain uses a system based on code to establish a trustless transaction between parties. But, even a system based on code has its vulnerabilities. A hack in 2020 affected multiple servers and saw many people lose millions of dollars in cryptocurrency to an unknown hacker’s address. They posted a tweet on the Twitter accounts of some popular figures like Kanye West, Elon Musk, Barack Obama, and a few others. https://twitter.com/TwitterSupport/status/1283591852982231040?s=20 Cryptocurrency, though growing rapidly, is a Wild West where many users who lack experience and knowledge can expose themselves to many manipulations and cons from bad actors. A report to the FTC’s Consumer Sentinel explains scammers are luring people into bogus investment opportunities in their droves.
The Most Popular Crypto Scams
Phishing happens when somebody receives a message (most likely an email) that falsely claims to be from a legitimate organization. Phishing aims to obtain vital information like your crypto wallet’s private keys they can use to gain access to your wallet’s fund. The phishing scam is one of the most popular ways scammers operate.
Bogus investment is another rampant way scammers devise their schemes. Pseudo investment schemes come around and tell you how you can double and triple funds invested, usually in a cryptocurrency, quickly. They mostly claim to invest these coins in the financial market like the cryptocurrency markets, stocks, and forex. Due to the rewarding nature of these markets, unsuspecting people are coaxed into parting with their money. Some of these schemes even offer returns on investment for a very short time to get more hapless people on board. While funds flow inwards, they end up dashing people’s hopes when individuals wake up one day only to see these sets of scammers have made away with their funds. Scammers prefer this model to the conventional method of scam investment because it is difficult or even impossible to trace invested funds back to them due to the anonymous nature of the blockchain.
Even since the 2017 DeFi season, DeFi rug pull has been another popular way bad actors operate in the cryptocurrency market. A rug pull happens anytime the developer of a token or a coin runs away with the investor’s funds. Given how new the world of decentralized finance is and how limited the SEC and other financial institutions are with this technology, the DeFi world is currently hardly regulated. This deregulation opens up many DeFi projects to rug pulls scams despite its advantage. Except if an investor is experienced in the world of Decentralized Finance, rug pulls are almost always unavoidable.
Initial Coin Offerings- ICO
ICO is launching a new coin by selling it to investors during the launch period. ICOs are great ways for solid projects in cryptocurrency to get funds to maintain different teams that allow for a successful project. Due to the success of top cryptocurrencies like Binance coin and Ethereum, many investors believe getting in early is a way to profit the most from a project/token before it goes to the moon and the price becomes expensive. Although this investment mode in cryptocurrency sounds profitable, this is not always the reality. Scammers create fake URLs to host their websites, and they go on a marketing campaign to win investors over and get them to deposit valuable tokens into a compromised wallet. After accumulating a lot of investors’ funds, they distribute worthless tokens and abandon the project leaving those that invested in heavy losses.
Non-Fungible Tokens are a technology that leverages the blockchain to create a transparent digital ledger that documents an asset’s actual digital ownership. NFTs, bring light to how traditional services and goods can establish their services, goods, and deliverables and give it a unique identity on the blockchain. It has gotten a lot of attention, both positive and negative. A lot of fake websites hawk fake NFTs to unsuspecting buyers. This niche is new, and people cannot fully understand buying and trading NFTs on reputable websites. Scammers capitalize on this to lure unsuspecting buyers who end up losing their money. Also, many new NFTs are created every day, and many of them won’t see the light of the day. It is very easy to create an NFT, although many metrics, including utility, are used to determine the values of these NFTs. Due to the seamless process of creating NFTs, NFT creators/ scammers make NFT without giving it proper utility. It turns out to be a scam after buying these NFTs at their peak value. Buyers of these NFTs cannot resell these tokens to the general market because their values have plummeted to zero. NFT scammers also can come to you on social media in the guise of making friends with you. After creating a kind of bond with you, they market different NFT scams that end up being a big hoax. Cryptocurrency, with its decentralization, comes with other cons that attract scammers to these markets. The Security Exchange Commission and other financial regulatory authorities are looking to regulate cryptocurrency and reduce crypto scams to the minimum. It is very important to constantly educate yourself on how these scams operate to avoid them in your day-to-day cryptocurrency transaction.