Cryptocurrency has gained both attention and popularity in recent times. It has proved itself as a lucrative market with people reporting stories of turning hundreds into millions through investment alone. Users now may even make simple online purchases for cryptocurrencies. For example, with the simple use of a credit card, you can purchase Bitcoin now on using cryptocurrency exchange.
However, not all transactions are as secure as they should be. There are a number of scams out there trying to make bank on the same trends that are benefiting those who are investing in cryptocurrency. In this article, we will take a look at 10 ways to avoid cryptocurrency scams as you start your own investment.
1. Listen to Your Instincts
First and foremost, follow your gut when you are looking at buying cryptocurrencies. Just like traditional investments and financing, if it sounds too good to be true, it probably is. For example, if you are promised strong returns or the cryptocurrency seems to rise without any sort of drop, your suspicion is probably valid.
Even in traditional financing and stocks, you are advised to be wary of anything that offers a high reward and low risk. You aren’t going to earn something out of anything so, look for something that offers a more reasonable situation but don’t give up your chance for reward altogether.
Before we tell you how to avoid ICOs, let’s briefly go over what they are. ICO stands for “Initial Coin Offering”. It is when you sell a cryptocurrency – such as BitCoin or Ethereum – for a new, startup cryptocurrency. They are basically the cryptocurrency equivalent of an IPO. But, why should you be wary of this?
Well, an ICO isn’t inherently bad. However, there are many out there that are scams that you should be wary of. If you see the following traits, you might want to turn the other way when offered an ICO.
- If there is little to no information about the company, you should probably avoid the company.
- Look around for news stories and media coverage that might question the accuracy of the information that the company has released.
- If questionable trading practices are taking place within the company such as insider trading or market manipulation.
3. Nonexistent Coin
In August of 2017, there was a case in London in which a man was running a false cryptocurrency business. He was cold-calling victims of the scam and convincing them to buy cryptocurrency. However, these cryptocurrencies were fake and eventually, nine victims came forward to U.K.’s Action Fraud. The combined losses equaled out to over £150,000 at the end of the affair.
This can be avoided, though. Remember, legitimate investors won’t cold call you like that – that goes for cryptocurrencies and traditional investments. When you receive one of these calls, pay attention to the name of the caller and what they say – such as the company name and other business information – and report them to the SEC as a fraud.
4. Ponzi Schemes
Another common problem in the cryptocurrency world is Ponzi schemes. One of the initial signs of a Ponzi scheme is – again – a promise of high profits with a very low risk to you. There usually isn’t such a thing as a “risk-free” product and if you are offered one you should probably be wary.
You should also be wary of any system in which you have a problem withdrawing currency that you have earned. You should have your money readily available to you when you try to withdraw it. If you can’t then there’s probably something questionable going on.
5. Don’t Mistake Popularity For Trustworthiness
Usually, scams and schemes fall apart rather early on in a company’s career. They don’t reach popularity before they are found out. However, this isn’t always the case. Don’t trust a company just based on its popularity. No matter what company you use, don’t skip researching it. You shouldn’t entrust your time and resources into a company that you know nothing about no matter how many other people have invested in them.
6. Don’t Keep Your Assets Online
You have a lot of different options to store your cryptocurrency. However, the safest way is to use cold storage. This means keeping your portfolio offline. Storing your cryptocurrency wallet in offline storage helps to prevent leaks and helps to protect from hackers.
Examples of cold storage include Paper Wallet, Sound Wallets, Hardware wallets, and USB devices. Pulling coins out of cold storage can be a pain, so most people tend to keep some coins outside of cold storage to use and spend regularly.
7. Malware Downloads
No matter what you do on the Internet, you have to worry about malware and viruses. When it comes to cryptocurrency, there’s a certain level of anonymity that aids scammers as well as the digital nature of cryptocurrency.
To avoid malware, you should follow many of the same steps as you do on a daily basis. For example, don’t click on suspicious links you get emailed. Another example that is common is social media bait that promises you plenty of cryptocurrency for downloading an app or piece of software. Be wary of these promises as they are often trapped.
8. Fake Wallets
There are plenty of safe ways to store your cryptocurrencies. However, as with anything, there are false alarms out there. There are certain things that you should do to avoid fake and imitation wallets and keep yourself safe.
- Don’t take a risk on new technology. Wait until it’s tried and true before you jump on the bandwagon.
- Use the technology that is familiar and has a lot of available information about it.
- Research what you should expect from a wallet so you can see if something is fishy.
- Double check the URL before you use a site – beware of fake and imitation sites.
- Two-factor authentication is your friend – you will never run into the problem of being too secure.
9. Verification Sites
Check this site when you are looking to verify a new cryptocurrency site that you haven’t used yet. This site is used to keep track of sites that are fraudulent or outright scams. It keeps track of these by using information from other users. Another similar service is @thatsascam on Twitter.
10. Know the Technology
This point cannot be stressed enough: don’t invest in what you don’t know. Make sure to research not only cryptocurrency itself but the technology you will be using to make transactions and store cryptocurrency. You need to be aware of what you are doing at all times – just like with traditional investing. It’s your job to keep up with new technologies as they come out and stay on top of news and new opportunities.