What are the best ways to avoid crypto scams?

With over 2000+ cryptocurrencies listed on the exchanges and limited means to verify if they are legit or not, one needs to be very aware of all these crypto scams that have been doing the rounds of the crypto globe. 

It is extremely important to be aware of the exchanges that are based on the centralized medium and carry the crypto keys. Many fraudulent scammers like OneCoin have made sure that people invest their lifetime savings, eventually ending up in sadness and despair when hundreds of bitcoins are lost at the same time. 

In order to avoid such a nuisance, it is always advised to purchase the cryptocurrencies via an exchange that has been recognized by the government. Prominent ones include Bittrex, Bitfinex and Coinbase, to name a few. After the trading session, when you have successfully profited from the trade, it is advisable to move the coins to a local crypto e-wallet, mostly known as cold storage. An even safer way is to purchase a hardware wallet such as KeepKay or Ledger Nano S. These hardware wallets can hold a limited number of coins, however, with the rapid growth of technology, their storage spaces are also increasing in number. The upside of using a hardware wallet is the prevention of any malicious way of stealing them.

In spite of such precautions, many new traders often fall victim to such crypto scams. The most popular cryptocurrency is the BitCoin to date, however, it’s mining is still a tedious procedure producing 3-15 million tons of global carbon emissions on a yearly basis. In order to bypass such effects, other cryptocurrencies were invented which were called altcoins. Today, there are thousands of altcoins in the market, Ethereum and Litecoin being the most popular ones. 

However, since altcoin being the future of cryptocurrencies, many have taken advantage of the situation to create new types of scams in the financial market.

Although the majority belonging to the same kind that has been there before, some of the most common ones are listed below. 

Pump and Dump

Being one of the most classy investment schemes among cryptocurrency brokers, the scheme is made to create a false sense of urgency by providing investors with false misleading information regarding the price of a crypto stock. Then, the crypto fraud merchants, make the price fall by dumping similar shares into the market at an inflated price. Mostly, due to the naivete of these traders, most fall for the scam due to the greed of insane returns but end up with huge losses.

These crypto whales convince the traders about letting out the secret to purchase whatever they can with their limited trading knowledge. This drives up the price of a crypto asset. Since these cryptos don’t have a large hold over the market, it is easy to fluctuate their prices and manipulate them whenever they want. When the trading volume is low, a small bit of buying power is enough to pull the price beyond reasonable levels. After the stock is sold, these crypto whales stop spreading the rumors but the damage has been done. Investors end up in complete shock and agony due to their illiteracy.

Beginners are convinced about the fear of missing out and ending up failing their emotional discipline just to fall for this get rich quick scheme. This fear is one of the reasons as to why the pump and dump is one of the most prominent investment scams to stay away from.

Pyramid and Ponzi schemes

A pyramid scheme operates on a networking basis where new or existing traders are offered rewards based on the number of new joiners that they can bring forward towards the scheme. The more the number of enrollments, the more will be the commission. 

Often traders are given a chance to purchase distributorship rights to a company for a certain fee and their earnings in the form of commissions are earned with the recruitment of every additional member. The burden of new distributorships, which was initially on one trader has now been passed onto many traders using pyramid technology. Imagining a pyramid made out of bricks where the top has only one brick, then follows 2, then follows 4, the pyramid mechanism of cryptocurrency scams  works in the same manner. 

Pyramid schemes work on a 50/50 commission split mechanism, where the commission is earned solely on each sale. Often these sales belong to Multi-National Companies who are on the verge of bankruptcy and are on the brink of collapse. Usually done for hiding the underlying fraudulent activities and winning the trust of people, the pyramid scheme has been quite successful in duping traders across all experience levels.

Now comes the Ponzi Schemes. Named after the famous fraudster Charles Ponzi, an Italian who duped thousands of Americans using his fake money-making system, Mr. Ponzi used to pay off older investors with the money collected from newer investors. The scheme flopped when the investors realized that the backend commission would not be paid at all.

Working on similar levels to that of the Pyramid scheme, the older investors took money from the new investors and paid the promised returns during the initial stages and then came the twist when the new investors were told that in order to receive a further commission, one needed to reinvest and invite more people to the table. This goes on and on until the scam is reported and the scammer is either caught or flees with all the money.

Though both Pyramid and Ponzi are quite similar at certain levels, they have certain major differences as well.

While Ponzi schemes are presented as investment management services, the pyramid schemes are based on network marketing and which require new members from the very beginning itself. While in a Ponzi scheme, the imposter robs one to pay the other, in a pyramid scheme, each participant takes the commission before transferring the money to the top of the pyramid, it seems.

Fraudulent ICO’s

If IPO’s are for stocks, ICO’s are for cryptocurrencies. 

Being a rave currently in the world of cryptocurrencies, these ICO’s enable one crypto idea to be directly crowdfunded with minimal paperwork instead of going through a long and complicated process to qualify for venture capital investments and bank loans. The only difference is that instead of shares, you get cryptocurrencies. Now, whether the coin is legitimate or not, that is up to you to decide. 

A lot of investors are scammed like this with new ICO’s coming up every single day since these are not subjected to a lot of fraud prevention checks by the regulatory authorities unlike IPO’s. Warning signs of such frauds include the lack of an identity verification service or a digital KYC procedure. 

Other warning signs of a fraudulent ICO are there as well. If an ICO is legit, it is supposed to be open-sourced. If the blockchain technology doesn’t have a source code, is not available on Github or on an open repository, there is a high sign of it being a scam. 

These fraudsters offer the ICO’s owing to the less strict norms and after raking in all the investments, disappear without leaving a trace. 

The easiest way to recognize a scam is to go through its white paper. 

A white paper is an official document usually issued by new blockchain projects before the commencement of an ICO informing the investor about the new technology, methodology, and service that is being launched.

The white paper should not be powered by a financial institution. GBCGoldCoin was one that was powered and ended up being a scam. Independent financial institutions are however exempted from this. Also, when the description of the ICOs are vague and ambiguous, it is better to stay away from the offering. The company must have hired an unskilled writer to write the description clearly signaling a scam that is about to follow.

If the white paper fabricates the ICO recommendations based on professional advice, it is better to stay away from them as the majority of the highly qualified professionals offer neutral advice to a new ICO launch. Also, if the cryptocurrency is trustworthy, it won’t be offering freebies in the form of additional coins. Crypto mining takes time and patience and a lot of power. One would not be eligible to give everything for free at once.  

The white paper often boasts of non-existent names of founders who are nowhere to be found. Also, often, a lot of ICO’s announces its listing before it is confirmed which is clearly forbidden as per government rules. These matters need to be clearly dealt with by the regulatory authorities. 

Protecting yourself

There are various ways of protecting yourselves from such scams, a skeptical attitude being the forefront of such a thing. To date, there has been no legit investment opportunity that is supposed to be a get rich quick scheme. Get Rich Quick is a hoax and the faster a trader realizes it, the better it is for him. 

Unsolicited advice is something you should never acknowledge. Never trust anyone when it comes to such advice. It is a red flag designed to dupe new investors. Instead, one must verify all the details of the brokerage company, including its registration and office address details. Whenever in doubt, it is better to investigate the seller at regular intervals as a reputed company would be registered under a proper legal governing body.

Also, you should never invest your money unless you have a thorough understanding of the trade. One should make full use of the resources and be very cautious while making new investment decisions.

Finally, whenever you see something that seems fishy, you need to report it immediately to the appropriate authorities. This will help reduce the number of people who would have fallen victim to the same scam. 

You need to remember that there is no point in panicking in the digital currency market. Just like all the remaining trading markets, here also the price fluctuations happen in a similar manner and proper knowledge is required to profit from your trades. In the end, one needs to trust his instincts and do what his guts tell him to do. 

About First Option Recovery

FIRST OPTION RECOVERY has the best team of attorneys and legal advisors who are dealing with all kinds of cryptocurrency scams on a daily basis. They have been achieving milestones after milestones when it comes to crypto scam recoveries, owing to their team and never give up approach. With over 2300+ happy clients, they always look deep into their clients' cases, irrespective of the nature of scam and perform all actions with finesse and perfection.