Photo Credit To Block Inspect Via Flickr
The meteoric rise of crypto in the past few years has led to increased interest in crypto, especially Bitcoin. However, it has also attracted the interest of scammers. It might be the Wild West in the crypto space right now but it does not need to be like that. To avoid being scammed, it is important to be aware of the most common scams in the crypto sphere.
The Theft of Hardware Wallets
Hardware wallets are the most secure method to store crypto. These wallets are as small as a USB drive and they allow users to store crypto offline. However, some have vulnerabilities that could allow hackers to steal crypto. Some scammers will sell hardware wallets that contain a pre-configured seed phrase that creates a backdoor into the wallets. Thieves can use it to drain all the crypto holdings of a user from the wallet. It is thus important to buy hardware wallets from trusted vendors.
Being Scammed on Exchanges
Some of the exchanges in the crypto space are scams. They entice users with high prices and huge discounts. Once a user loads their crypto into the exchange, they never recover the funds. Some fake exchanges will also copy a real exchange and attempt to steal crypto from users. It is always important to check the URL of an exchange to ensure it is the genuine one. A good sign it is fake is if it does not start with HTTPS.
The crypto space is littered with fake ICOs that sell tokens and then disappear with funds from investors. Besides that, scammers will mirror a genuine ICO and ask users to deposit funds in a crypto wallet. Some fake ICOs go as far as using the images of real celebs to get users interested in the project. During a recent presentation at FiNext Conference 2019, a Blockchain consulting firm ( Welford Management ) shared some statistics on ICOs. According to Welford, "of 2,500 projects since 2017, only about 45% successfully raised money." Welford also stated that "only 15% of tokens issued in successful ICOs are currently trading at or above their original price. This simply means that a majority of ICO investors have lost money since inception.
Due to the SEC cracking down on initial coin offerings, Welford talked about the growing popularity in initial exchange offerings, which are offerings that are launched directly with one of the major cryptocurrency exchanges ( Binance ). The exchange essentially takes responsibility for previous ICO issues such as marketing, security and KYC/AML requirements. Welford helps consult companies that may be interested in ICO alternatives such as initial exchange offerings and security token offerings.
In a previous article published by VF, we also talked about why initial exchange offerings could be the future of fundraising in crypto.
Cloud Mining Scams
Mining is a great way to earn a passive income in the crypto space. Some mining firms will promise huge returns if users join the mining operation. However, some of these cloud mining operations are fake and they never pay users. Either that or they pay amounts that are too low to make economic sense. At some cloud-mining operations, the users offer their processing power but they are never paid. Other are pure Ponzi schemes that simply take funds from other miners to pay others. With time, the scheme collapses and they walk away with funds from investors.
Multi-level marketing has begun to creep into the crypto space. Users are usually tricked with the promises of growing sums of BTC. Most of these operations are pure scams that run as Ponzi schemes. Users are usually told to invest a small amount for the promise of huge returns in the future. To get users to invest even more amounts, some operations will even pay users a few times.
With the current buzz surrounding crypto, it is easy to be sucked into one of these scams. Try to be vigilant to avoid losing your hard-earned money.