With more currencies emerging and their popularity on the rise, the increase of public endorsement presents an opportunity for scammers who are seeking to execute their schemes in a robust marketplace. Protecting your data and your digital assets has never been more critical.
Although there are many precautions one can take, none are 100% fail-safe but can significantly reduce the risk of being scammed if you know what to look out for. Here are some of the common scams you should know and how to avoid them.
1. Cloud Mining Services
There are cloud mining scam websites which are set up to defraud mining community members and unprepared amateurs. If you prefer cloud mining to hardware mining, you need to be extremely vigilant here.
Scammers use several tricks, like hiding domains which are often not registered to a real user. Other tricks may involve the registration of the company in reputable locations- while all their directors are residents in other countries. There may be other reasons for this but some quick research into the company will help you to be able to stay ahead of such scams.
2. Multi-Level Marketing (MLM) Schemes
Multi-level marketing schemes use direct selling, a common aspect of the network market to exploit cryptocurrencies like Bitcoin to perpetuate their scam. They make exaggerated claims with ‘get rich quick’ schemes, giving the user the impression that they can make money easily and securely.
MLM schemes have one thing in common which make them easier to identify. There is no product or service being sold. Instead, users are invited to join a group made up of several levels which typically requires an entry fee. Ultimately, it’s just an empty, complex pyramid scheme.
3. Bitcoin Investment Packages (BIPs)
An increasingly popular scam in the Bitcoin sphere is Bitcoin investment packages. These investment schemes are similar to cloud mining scams but differ in the sense that they promise returns while paying out small daily returns until all payments stop and the scammers take off with the invested funds. In this regard, Bitcoin investment scams are very similar to Ponzi schemes.
Since these investments usually appear to be very profitable after the first payments come in, users experience a sense of false security and re-invest their earnings in the hope of gaining more profit. However, after a while, when users attempt to withdraw their earnings, problems arise and the invested money disappears.
When planning to invest in a digital currency service, ensure that the firm offering the service is incorporated and is run by reputable professionals in the industry. Also, they should clearly outline a coherent investment strategy and not vague claims. While nothing is entirely certain in the investment world, stay clear of companies that cannot demonstrate returns.
4. Identifying Fake ICOs
Scammers are becoming more and more sophisticated, making it harder to spot fake ICOs. Initial Coin Offerings appear to sell coins, on their websites you will find detailed information and white papers that look authentic. However, there are some clues that give away the fraudsters.
A reputable and established company will typically be bound by the laws and regulations of their country which makes it harder for them to scam you. In addition to this, if you look at their senior management team and they don’t have a strong social media presence or reputable reviews, it’s best to avoid that company.
5. Pump-and-Dump Schemes
These scams are relatively straightforward. Pump and dump schemes involve conning someone by spreading fake information in order to raise interest in a less popular coin to “pump” it.
The people who carry out this scheme are called “pumpers,” and are experts at elevating a token, usually an unpopular, less demanded cryptocurrency. The players purchase a large amount of these coins and try to pump them up across different social media platforms and online places. Once the value of the token rises artificially, they dump the token to unsuspecting investors and vanish.
To prevent this from happening, take a look at the market caps of coins. If the market cap of a coin is low, but the price of the coin is high and witnessing a sudden random surge, there is a likelihood that this value is being artificially doctored by scammers.
When it comes to cryptocurrency scams and knowing how to avoid them, the most important things to are to always do your research and apply common sense. When armed with the necessary information, it’s easier to be vigilant. Be curious and uncover more about the company and products you are investing in, take a real interest. After all, you have much to gain from increasing your understanding and this can help reduce your chances of being scammed.
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