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Cryptocurrency Scams: How To Spot Scammers And Stay Safe

Last Updated May 19th 2020

Unfortunately, cryptocurrency scams are everywhere. As with all new industries, there are always dodgy individuals trying to scam people out of their hard-earned money in the beginning.

According to Business Insider, in 2019, cryptocurrency scammers managed to defraud people out of $4.26 billion.

Cryptocurrency scams can take many forms, from individuals who claim to be able to trade for you, ICOs and even cryptocurrencies themselves.

One of the keys to success in trading cryptocurrency is not to fall victim to scammers and lose your money.

In this article, we’ll explore the dark and murky underworld of cryptocurrency scams and how you can keep yourself safe from them.

Want to learn how to trade cryptocurrencies like a pro? Take our cryptocurrency course

Why are there so many cryptocurrency scams?

cryptocurrency scams

For two reasons.

Firstly, many people don’t know that much about how cryptocurrency works and can’t spot the scams from real cryptocurrency projects.

They likely don’t understand what blockchain technology is as well as the basics of banking transactions.

Secondly, regulation is very, very slowly catching up with cryptocurrency around the world.

Many politicians are unsure how cryptocurrency works as well and are unsure how to regulate it because it is such a complex financial instrument.

This has led some countries to completely ban cryptocurrency to protect their citizens from such scams.

While others, such as China, have banned ICOs because of their potentially fraudulent nature.

Beware of pump and dump cryptocurrency scams

A pump and dump scam is where the creators of a cryptocurrency own a large portion of it and are looking to attract more people to get involved.

What happens is that when the cryptocurrency is released (typically after an ICO) it rises in price as more and more people start buying it.

Then the creators sell off their large stake after the increase in price, disappear and the price plummets.

The people that invested in the coin are left with a useless coin that is worth next to nothing. Some people refer to these coins as ‘scamcoins’.

Pump and dump scams have been around before cryptocurrency and largely took place in the stocks market.

OneCoin the biggest on-going cryptocurrency scam to date

onecoin scam

The OneCoin scam is the biggest scam that has ever taken place and is still active even to this day.

Since 2014, OneCoin has managed to amass over €4 billion from around the world despite their founder disappearing and three other members being detained by the FBI.

What can we learn about the OneCoin cryptocurrency scam?

The biggest clue that OneCoin was a scam was that it never had a blockchain. In reality, it uses a centralised database to facilitate transactions.

Why is this a big deal?

Because if it doesn’t use blockchain technology to facilitate transactions, not only is it not a real cryptocurrency, it will not have a transparent publicly distributed ledger.

According to Kaspersky, experts advise that individuals that are interested in investing in cryptocurrency should confirm that the entity they are interested in is blockchain-powered.

This means that transactions are not openly displayed and can be manipulated. Scammers can potentially censor individuals, change transactions and even steal from you.

Cryptocurrencies that use blockchain technology rely on nodes that operate the system. They are located all around the world, not in one central point.

By doing this it makes them harder to attack and for scammers to manipulate.

Some cryptocurrency scams look real

The problem with OneCoin is that for many novices in cryptocurrency, it looked very genuine. They really try to look like a real company.

But when you look closer at how they present themselves, there were plenty of tell-tale signs that pointed out that they were a humongous scam.

The biggest give away was the wording they used. When you come across any cryptocurrency project you are not sure about, look at the wording. 

What do they claim to achieve? Is it very similar to other cryptocurrencies? What makes them stand out? 

If you can’t find out what makes them unique, this can be cause for concern. 

Disregard claims of being faster or better than leading cryptocurrencies. Instead, look at how they claim to accomplish this.

The company’s technology should be open source. If they are not open source, they may have something to hide.

They should be completely open about how their technology works and discuss it in detail.

Shortcuts to success don’t work

A rule we follow at Trading Education is that shortcuts to success will usually lose you money.

No one is going to give you the answer to making millions. What reason do they have? Why would they charge for this service? These people cannot be trusted.

Typically, these services come in the form of flashy advertisements that make big promises on returns.

Many of the biggest cryptocurrencies don’t promote returns. Instead, they are more focused on the good their cryptocurrency can do for the world.

Their motive tends not to be profit, but to improve something about how our financial system works.

If you are interested in buying into a cryptocurrency, but not sure if it is genuine, then it may simply be the wisest decision not to get involved.

Avoid scamcoins by trading cryptocurrency CFDs

If you want to mitigate the danger of actually owning cryptocurrency, then it might be a good idea to trade cryptocurrency as a CFD.

Renowned brokers will not list unknown coins on their platform.

How to spot a cryptocurrency scam

crypto scams

Before you undertake any endeavour related to cryptocurrency, you should do a lot of research to confirm they are not scammers.

The best way to avoid cryptocurrency scams is by having a good education and using your instincts.

Important things to check include:

  • Who is behind the company? If the people who run the company are willing to reveal themselves, this is a good sign. If you find it hard or even impossible to find out who is running the company, this should be a red flag.
  • If looking at services, test their customer support. Call them or send them an email. How do they respond? Do they answer all your questions? Do they dodge some? You should also assess their attitude. Is it polite or rude? Are they very pushy?
  • Look for the small lock symbol near the web address. Further to that, you should also be cautious if there is no ‘https’ in the address as well.
  • Check out their road map. How are they planning to advance over the years? Does it make sense? Typically, scams look to make money in the short-term, not the long-term.
  • Always use well-known and trusted brokers and exchanges. Especially avoid brokers with a reputation for withholding withdrawals.
  • Read the fine print. You never know what could be lurking there waiting to jump out at you.
  • Avoid companies that claim there is little or no risk. This is an obvious lie. There is always risk in financial trading. Similarly, don’t trust anyone offering overnight success.
  • Don’t hand over money or personal information unless you are completely sure it is not a scam. You should not have any concerns about the company. All the above mentioned should be checked first.

Other kinds of scams

common cryptocurrency scams

Cryptocurrency scams can come in many different forms and will not always be people offering you trading-related services online.

Some of the most common scams include the following:

  • Fake mobile apps. In regards to cryptocurrency, these will usually take the form of virtual wallets or exchanges. You should approach with extra caution because scammers have managed to become very popular on Apple’s App Store and Google Play.
  • Random number generators for wallet keys. It is best to just avoid these as it has been revealed that some of these suppliers do not actually give out random numbers and hackers take advantage of this.
  • Email scams asking for Bitcoin or another cryptocurrency. These are still very common and are getting harder to detect. Always check the email address thoroughly and look for any typos or mistakes that can give scammers away.
  • Signals services can also be scams. There are plenty of signals services that give off fake signals. Again, thoroughly check reviews before you decide to sign up.
  • Avoid trading systems/robots (EAs). Not many of these automated services work very well even if they are not scammers. Leave these to the professional and technically minded traders.

Exchange hacks

Last, but not least, while this may not technically be considered a scam, you should still be careful of exchange hacks.

Don’t leave your money in an exchange! This is perhaps the biggest rule in cryptocurrency trading.

Many people had to learn this the hard way back in 2014 when Mt. Gox was hacked and approximately 650,000 Bitcoins were stolen.

A great way to keep your cryptocurrency safe is to put it in cold storage.

While exchanges are getting better at dealing with hacks, they still happen. In 2018, hackers managed to steal approximately $500 million worth of NEM tokens from Coincheck.

And even in 2019, Binance, the world’s largest cryptocurrency exchange, was hacked for approximately $40 million in Bitcoin.

Key points

If you remember anything from this article, make it these key points.

  • By being better educated on cryptocurrency, you can avoid cryptocurrency scams. You will be able to spot them when they lack key things cryptocurrency should offer.
  • Cryptocurrency scams can take many different forms. Cryptocurrency scams can manifest themselves in anything related to cryptocurrency.
  • Some cryptocurrency scams can be hard to detect. Scammers borrow words and phrases to try and trick you into thinking they are genuine.
  • Always research companies before parting ways with your money. Never give away money or information to companies you have any concerns about.

Learn to avoid cryptocurrency scams with our cryptocurrency trading course

Want to learn more about other cryptocurrencies and how to trade them? Then sign up to our cryptocurrency trading course

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