Because cryptocurrency is a decentralized market with no central authority, it is less regulated than other markets. This allows for nefarious individuals to take advantage of other people’s ignorance in the market. Because the market is new, there is no comprehensive list of scams because new ones emerge on a daily basis, but isn’t that true in any business? People want to make unusual profits, so they will go to great lengths to achieve it.
Here is a list of common cryptocurrency scams to avoid.
1. Pump and dump schemes
A “pump and dump” scheme is a price manipulation scheme that uses false recommendations to raise the price of a security. Scammers typically spread false information about a coin via various channels, most notably social media. When a large number of investors and traders buy the coin, the price begins to rise automatically, and when it reaches a certain level, the scammers behind the pump and dump schemes sell all of their coins, making a profit, before the price drops again.
The most obvious sign of a pump and dump is when an unknown coin rises significantly with no discernible reason for the increase. They cause dramatic price increases in the short term, followed by price decreases.
2. Rug pulls
Rug pull occurs when cryptocurrency developers abandon their projects and flee with their investors’ funds. Aside from purchasing currencies in cryptocurrency, you can also purchase tokens, which are similar to asset representations. A rug pull involves a developer creating a project and attracting investors to it. Once the investors have allocated sufficient capital to the project, the developer will abandon it and cash out. Rug pulls typically appear out of nowhere, implying that the project appeared overnight. These projects are typically accompanied by a great deal of hype. If something appears to be too good to be true, it most likely is.
The SQUID SCAM is one example of these scams. Following the success of the Netflix drama series “Squid Game,” the Squid token was released in late October. Many people assumed it was a token linked to their favorite Netflix show, so the token received the same amount of attention as the movie, and the coin’s market capitalization reached $2 trillion in one month. It is worth noting that bitcoin reached 3 million this year, twelve years after its inception. The speed at which the Squid coin peaked could have warned investors of its legality but they turned a blind eye and a month later, The SQUID developers removed all liquidity from decentralized exchanges, leaving token holders with tokens they couldn’t sell.
3. Traditional hacking and theft
You have control over your own assets when you use cryptocurrencies, but this also means you have control over their security. These hacking attacks can take the form of an attack on blockchains, cryptocurrency exchanges, and initial coin offerings (ICOs), the distribution of software or malware for hidden mining, or a direct attack on the user’s wallet. Hackers can create a bot that alerts users to problems with their cryptocurrency, requiring you to click a link to fix the problem, enter your private key, and then access your cryptocurrency wallet. Attackers can also create a copy of a trading app or website that you use. Their goal is to force you to enter the password or a secret key for the account.
4. Initial coin offering scams
ICO stands for Initial Coin Offering and is the crypto version of an IPO. Investors frequently see this as an opportunity to participate in new and emerging investment. One of the best ways to protect yourself against these scams is to thoroughly research the individual or team of developers.
How to avoid cryptocurrency scams
You have a better chance of avoiding illegitimate projects if you stick to centralized cryptocurrency exchanges. Conduct background checks on ICO developers to ensure they have a credible track record. Investigate their white paper. The white paper, like the business plan, is the foundational document for the project. A whitepaper should answer all of a potential investor’s questions about the project.
On mobile phones, be wary of fake apps. It is recommended that you download directly from the link provided by the verified company or exchange address like 1k daily profit.
According to experts, you should make sure that the cryptocurrency startup or company you want to invest in is powered by a blockchain network, as this allows you to track the detailed transactions of these investments.
