The Characteristics of a Crypto Scam: Possible Red Flags
- In 2021, over $7.7 billion was stolen from investors due to crypto scams.
- Cryptocurrency is becoming widely used, and since it’s used entirely online, there is a higher risk of being scammed.
- Follow the steps below to prevent yourself from being a victim of cryptocurrency scams.
Over the past couple of years, the hype around cryptocurrency has increased rapidly. Cryptocurrency is being viewed as the future of finance with the potential of revolutionizing the world’s daily operations. As a result, many people across the globe are beginning to invest in crypto in hopes of increasing their wealth over time.
However, as with anything else that receives a lot of attention and hype, there will be people trying to take advantage of novice crypto investors by offering them a deal that is too good to be true. Unfortunately, due to some of these investors not having previous investing experience, they partake in and become victims of cryptocurrency scams, which results in them losing their initial investment.
Why Are Crypto Scams Increasing?
As mentioned before, scammers prey on people who are relatively new to the cryptocurrency market. They try to take advantage of them by making them invest in cryptocurrencies with no value whatsoever. Sooner or later, others will realize said cryptocurrency is not what they presumed it to be, resulting in them selling their tokens or scammers taking all of the money.
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Regardless of the field, there will always be people looking for an opportunity to use and manipulate others for their personal gain. Thus, it is crucial to know recent crypto scams and the main indicators that a crypto scam is taking place to prevent yourself from becoming a victim.
Examples of Recent Crypto Scams
In 2021, over $7.7 billion was stolen due to crypto scams. Due to a large amount of stolen money, it is essential to be aware of past events, so you do not make the same mistakes as others once did.
The first memorable crypto scam was one involving the Squid Game token. Earlier this year, there was a global surge in the hype around the Korean-based TV show, which became the most-watched show in Netflix history. However, as mentioned before, scammers are looking to take advantage of novice investors.
Shortly after the Squid Game show aired and began receiving popularity, a token was created on many different crypto exchanges. A token was earned when participants paid an entry fee to play a series of games, similar to the plot of Squid Game. Once they completed the games, they would receive a crypto token.
However, even if they did earn this token, they could not sell it and receive money. Sometime later, the token had reached its peak price of $2,856, which is when the token’s creator did a rug pull, a term used for when the token’s creator intended to run away with all of the investor funds from the beginning.
The next major crypto scam that occurred this year was related to the Poly Network. Poly Network is a decentralized finance (DeFi) platform that allows users to exchange tokens with one another. The term decentralized finance means the platform itself does not rely on financial intermediaries such as brokerages or other third parties to conduct transactions.
In the case of Poly Network, there was a breach in their system that allowed a hacker to gain access to and transfer over $600 million from other people’s digital wallets into his own crypto wallet. This transfer could have been detrimental to the reputation and clients of Poly Network as a flaw in the security system caused it.
Fortunately, the hacker was a white hat hacker, meaning his actions had ethical reasoning behind them. His objective was to return the money to Poly Network once they had resolved the security issue.
Red Flags That May Indicate a Crypto Scam
Although there have been instances where people have become victims of crypto scams, being on the lookout for the following signs will lower your chances of being involved in one.
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Do not invest in anything that is promoted on social media
The first sign is straightforward as it follows the famous saying, “Do not believe everything you see and read on the Internet.” Most token creators pay social media influencers hundreds of thousands of dollars to promote their product, and most of the time, they are involved in a pump and dump.
A pump and dump is when there is a surge in demand for a good, causing the item’s price to increase. However, as the creators of this item know it does not hold any value, once the value rises, they then sell a large portion of their holdings, allowing them to walk away with a hefty profit.
For example, social media influencer Adin Ross admitted on stream that the paid promo for a crypto token was a scam. This indicates that some social media influencers do not care about what they are promoting, as long as they are getting paid enough to advertise it.
Therefore, do NOT invest in any crypto tokens promoted by social media influencers, as they may not have your best interests in mind.
Fake Endorsements/Sketchy or Poorly Designed Websites
Another common characteristic of a crypto scam is the poorly designed websites and the fake endorsements or news surrounding them. For example, the Squid Game token mentioned above had created fake endorsements from Elon Musk and posted them on their poorly designed website.
The fake endorsements are usually a red flag, as these scamming websites are preying on those who do not do their research and instead blindly put their money into these tokens. Sometimes, novice investors may be reluctant to do so, which is where the fake endorsements come in to help. These endorsements provide a false sense of security, leading the non-educated investor to believe the celebrity is endorsing this token.
Do not always follow the market hype
Although this one may not typically indicate whether or not there is a scam occurring, it is vital not to always go with the herd and invest in whatever is popular at the moment. As mentioned before, pump and dumps are standard in the scamming game, and it is mainly due to people not wanting to do their own research before investing.
Therefore, before investing in any form of commodity, whether stocks or crypto, it is essential to do your research to understand the market you are putting your money into.
Regardless of the investment, there is always a risk being taken on. However, there are certain precautions that one can take to minimize their risk and maximize their upside. In the world of crypto, there are more people with ill intentions due to the low regulations compared to the stock market. As a result, by following the steps above and being careful about where you are investing your money, you can minimize your chances of being a victim of a crypto scam.
What are some other ways you can protect yourself from crypto scams? Let us know in the comments below.
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