Most people put their guard down and are less careful about their financial security over the holidays. This creates the perfect environment for fraudsters to pounce, taking advantage of the merry mood and the lax attitude people have about their finances. A worrying number of people who get involved in cryptocurrencies do not understand them well enough. It is, therefore, not surprising that a significant percentage of financial losses over the past two years have involved cryptocurrencies in some way. This article arms you with knowledge on how to avoid these scams.
Understand Anyone Can Fall For a Scam
If you have fallen for a crypto scam in the past, you might rack your mind trying to think about what you might have done differently. You might also blame yourself for not seeing the scam for what it was and for the losses incurred. You should understand that anyone can fall for these scams.
Scammers have been coming up with more elaborate and sophisticated scams that target as many people as possible indiscriminately. Data provided by the Australian government shows that every demographic is being targeted, with no difference in the backgrounds, genders, financial status, or any other metric in those targeted. They rely on the power of numbers in knowing that a significant enough percentage of those targeted will fall for the scam.
After understanding you might be targeted, what can you do to protect yourself?
Understand How Cryptocurrencies Work
Arming yourself with information about how cryptocurrencies and the products and services they enable work could help you spot a scam more easily. For example, someone might tell you to send them some cryptocurrency and they will double the amount they send you. If you understand that cryptocurrency is sent anonymously and there is no way to reverse the transaction, you will quickly understand you will not be getting anything back.
Do Your Homework
You should never buy any cryptocurrency without understanding it first. There is a lot of information online that will tell you everything you need to know about a specific cryptocurrency. For example, you need to know when a coin was created and how it has been performing over time.
For this, you can use the price index to check how long it has been on the market and how its value has changed over time. For example, you can use data provided by different sources to see that Ethereum is more than two years old and use Ethereum stock prices to see that it has been trading favorably since it became widely adopted.
This helps you avoid a type of scam known as the “rug pull” or “pump and dump” scam. This is where someone creates a coin and then markets it heavily to drive its price up. They then sell the coin quickly and leave investors holding a worthless coin. Enough historical data on a coin will show you whether a coin has been around for long enough to be legitimate, to keep an eye on, or avoid altogether.
If it Sounds Too Good To Be True
Most crypto scams involve getting you to send money somewhere or otherwise invest in something. In many cases, it appears like you are making a legitimate investment, but are instead “investing” in a shady scheme where you are likely to be left holding a worthless coin as discussed above or nothing.
Some of the investment scams that use this formula include:
- Investment funds – Someone tells you to invest in a cryptocurrency with very high returns
- Pump and dump scams as discussed above
- Romance scams – Someone reaches over on an online platform, earns your trust, and convinces you to invest in an “amazing opportunity”
- Phishing scams – An email sender convinces you to visit a website for a huge investment opportunity. When the website tells you to connect your crypto wallet to invest, it harvests your data, and a malicious actor takes all your digital assets
- Ponzi schemes – A scammer uses money from early investors to pay high interest to the first investors and attract new investors. Once they have enough people signed up, they disappear with the investments
Although the exact wording and execution will be different, all these scams have several things in common:
- They promise very high returns in a short time
- They involve secretive trading or other strategies that need to be kept secret
- They require that you send money and then wait for some time for your investment to “make enough returns” for the scammer to send your returns
Secure Your Cryptocurrency Wallet
Your cryptocurrency wallet is where you store your cryptocurrency. This can be on the exchange that you use to trade, a hot software wallet that runs on your computer, or a cold hardware wallet that you carry with you. Regardless of the wallet you own, you should ensure that it is always secure.
The two best things you can do to start is to ensure your wallet is protected by a strong password and that you never give your credentials, especially your private keys, to anyone. Next, ensure that your wallet is built by a reputable company and that it receives frequent updates to remove vulnerabilities. Never log into your wallet using a network connection you do not know to be secure.
Lastly, consider getting a multisig wallet. This puts multiple wallets in one pool so that every transaction needs to be signed off on each wallet before it goes through. It ensures that no one can do any transfers inside your wallet if they get access to it.
Watch What You Click
You should never click on any links inside your emails unless you know the sender. Instead, enter the URL as carefully as you can into your browser if you wish to open your wallet.
Additionally, confirm that you have entered the correct URL before hitting enter when opening a website. Check that the website used HTTPS and not HTTP before entering your credentials to ensure all communications between you and the crypto server are encrypted.
As scam activity picks up over the holidays, you should have the skills and knowledge you need to identify and avoid devastating crypto scams. Keep your investment safe using the tips discussed above.