Whether or not you believe cryptocurrency to be a bubble, everyone agrees that investment frenzy results in unscrupulous players looking to prey on greed and naivety. Financial market authorities and central banks do not regulate the world of crypto assets so it is difficult for individuals to get accurate data on fraud. That lack of regulation also increases risk.
Scammers in the cryptocurrency world offer quick and easy profits to the investor. They steal identities to earn the confidence of an unwitting customer before ripping them off. A study by Satis Group, an ICO advisory company, reported that of every five initial coin offers, four are scams.
One uncovered fraud last year revealed that 700 victims lost 31 million Euros in crypto assets. Before you find yourself knee deep into the cesspool, here are five scams to watch out for in 2020:
Pump & Dump Groups
These Telegram groups are not new. With over 40 000 members, there is no chit-chat there. Instead, scammers use them to manipulate altcoin prices and target those with low market caps. People who act fast get the advantage and everyone else suffers loss. Organized trading groups conduct most cryptocurrency price manipulations.
Over the years, many fake android wallets have gone live on Play Store. It is not wise to pick a wallet randomly since there are chances that it may be fraudulent and you could lose money. These wallets promise you control of your funds. They end up taking the seed and ripping you off your Bitcoin.
Most scammers prefer to fabricate ICOs to create marketing hype and win people’s trust. Ethereum has become an incubator for fraudulent ICOs, but it is not responsible as it is open-source. These projects take advantage of the goodwill of ignorant newbie investors with grand dreams of 100x gains in weeks. They end up holding worthless ICO tokens.
One such example is KeniCoin. The Ethereum based blockchain promises in their whitepaper that ‘within the first 12 months of the ICO, the value of the coin will increase 30 fold, by 3000%.’ Other red flags include obscure founders and a lack of transparency regarding the monies collected in the ICO.
Shady exchanges spring up out of nowhere and sell themselves aggressively. Once enough people have deposited their coins, such exchanges close up or disappear. Other exchanges start well, but once they fail to scale, they run away with your investment. Some platforms reported by Bitcoin.com include Good-crypto, Btc-cap, Cryptavenir, and Gme-crypto.
There are hundreds of unregulated brokerage firms online that offer cryptocurrency trading products and cryptocurrencies. They work by making their offers too good with the promise of quick riches. After you deposit money, they charge you outrageous commissions and make it next to impossible to withdraw your money. Other players steal your money directly.
AWS mining is an excellent example of this scam. The company claims a desire to ‘use cryptocurrency to promote financial freedom’ by making mining accessible. The platform claims to remove the need to buy equipment for the user by providing a cloud mining experience. Investors get a 200% profit.
Investing in cryptocurrencies is highly speculative and risky. The assets are more volatile than bonds and stocks, and the industry evolves rapidly. A good rule of thumb is always to do due diligence. You can also use tools to compare before making any investment. Fraud is easy to spot if you know what to look for. Always remember that if it looks and smells rotten, it probably is rotten. Run.