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Common Cryptocurrency Scams and How to Avoid Them by Cassie Steele
With the rising value of cryptocurrencies such as Bitcoin, more and more people are choosing to invest in digital currencies. As the market attracts investors, however, it has also captured the interest of online scammers looking to turn a quick profit. Cybercriminals intercept funds by hacking into the underlying infrastructure of a cryptocurrency marketplace, such as an online exchange or a digital wallet, or they target individuals directly. Once a thief has stolen your coins, there is little that you can do to get your money back. Most cryptocurrency losses aren’t protected by the FDIC. By being aware of the most commonly seen scams, however, you can take steps to protect yourself from being a victim of fraud.
Fake Digital Wallets
Most investors store their cryptocurrency units in a digital wallet. Before transferring funds, though, it’s important to do your research and make sure that a service is legitimate. Some scammers steal coins by creating fake digital wallets to trick investors into handing over their funds. When choosing a wallet, you should look for one that has a verifiable history of good service.
Hardware Wallet Theft
Some users are switching from digital wallets to a physical USB device that stores their coins. While this offers more security than most online wallets, it’s not invulnerable to cybercriminals. Some of these devices are sold with built-in vulnerabilities that give scammers access to a “backdoor” in your wallet. This bug allows them to deplete funds once the wallet is activated. It’s critical that you only buy hardware wallets from reputable companies.
Multi-level marketing has long been used by scammers to prey on uninformed consumers and investors. The cryptocurrency market is no different, with criminals using Ponzi and pyramid schemes to steal coins. These scams promise to double or triple returns on cryptocurrency investments, but instead, investors are duped into losing money. Asking for an initial payment is a huge red flag pointing to a pyramid scheme.
New cryptocurrency ventures often use an Initial Coin Offering, or ICO, to raise funds for their start-up. Investors give them Bitcoins or other established currencies in exchange for financial returns later on. While this can be a lucrative investment strategy, it’s also a risky one. Scammers can create a fake ICO, pocket investors’ cash, and disappear. Before giving money to any ICO, you should research the company to make sure it’s legitimate.
Cloud Mining Schemes
You can earn Bitcoins, or extract them, using a process called mining. While this might seem like free money, mining coins takes a lot of processing power and electricity. For this reason, most people who mine Bitcoins do so through companies that allow individuals to rent server space. Together, these investors mine coins and split the profits. Some companies defraud investors by lying about true costs or diminishing returns, while others operate as Ponzi schemes. You should avoid mining services that make impossible promises about high returns, or those that aren’t transparent about operating costs.
As the value of cryptocurrencies continues to rise, so too does the number of scammers preying on investors. To prevent a catastrophic financial loss, it’s important to be smart about your investment strategy. Be on the lookout for common cryptocurrency scams to avoid being a cybercriminal’s next victim.