It may seem as though it’s the wild west for investors, but it doesn't have to be. While there are certainly risks in the market, the opportunities may be irresistible for some. However, being cautious is always a must, and there are clear signs of scams that investors can look for. By avoiding these traps, users can better their chances for success and protect their investments. These are some of the most common scams, and how they can be avoided.
Hardware Wallet Theft
For users who are concerned with security and privacy, a hardware
wallet – a physical device that stores their private keys – is an
increasingly popular option. Usually, as small as key-chain USB drives,
these wallets offer an offline way to help crypto investors protect
their bitcoin even further. However, there have been reports that some
of them have built-in vulnerabilities that open them to hackers that could easily steal all a user’s holdings.
This is far from the only issue, however. According to Ofir Beigel, owner of 99Bitcoins.com, “one scam entails selling hardware wallets to users with a ‘pre-configured’ seed phrase hidden under a scratch card. The new user is told that he should scratch the card ... and set up the wallet with the compromised seed.” This creates a backdoor that allows hackers to simply drain funds once a wallet is activated. These scams are becoming more common, but they can easily be avoided by only accepting wallets from trusted sources.
Exchange Scams
Despite their decentralized nature, most cryptocurrencies are still
bought and sold at exchanges. While this makes it easier to find the
coins investors desire, there is still no regulatory body overseeing
these exchanges in many countries. Thus, many investors have been left
penniless when the exchanges they signed up for turn out to be traps. In
December, several South Korean exchanges were exposed, leading to
promises of stiffer regulations by the country’s authorities.
These scams are not hard to spot but can be costly if not avoided. One of the biggest red flags is the promise of unrealistic prices. Exchanges that promise heavy discounts on bitcoin use this strategy to lure in unsuspecting victims. Additionally, users can check exchanges’ URLs. Web addresses should always begin with HTTPS, a sign that traffic is encrypted. Visiting unsecured websites is a bad idea, but alert investors can avoid losing thousands by looking for the right signs.
There are several ways scammers can separate investors from their bitcoin. One popular method involves creating fake websites that resemble ICOs’ and instructing users to deposit coins into a compromised wallet. Other times, it’s the ICOs themselves at fault. Centra Tech, for example, a blockchain venture backed by several celebrities, has been sued in the US. The company stands accused of portraying fake team members, misleading investors, and lying about their products. The best way to avoid these scams is close research that involves picking apart the white paper, reviewing the team behind the venture, and key board members or investors. Before making any investment, it’s vital to learn as much about the company as possible to avoid any unpleasant surprises.
Some companies offer "lifetime contracts" that keep costs the same and supposedly offer outstanding returns. However, as the difficulty of mining increases, the same investment will return smaller amounts each time. Moreover, some companies make bold claims regarding their returns without being transparent about the true costs and diminishing returns. Others simply operate Ponzi schemes that can lead to massive losses. It’s vital to look into opportunities and understand the risks and costs associated with mining before investing.
These scams are not hard to spot but can be costly if not avoided. One of the biggest red flags is the promise of unrealistic prices. Exchanges that promise heavy discounts on bitcoin use this strategy to lure in unsuspecting victims. Additionally, users can check exchanges’ URLs. Web addresses should always begin with HTTPS, a sign that traffic is encrypted. Visiting unsecured websites is a bad idea, but alert investors can avoid losing thousands by looking for the right signs.
Fake ICOs
One of the best results of the cryptocurrency boom has been the rise
of the initial coin offering as a way for companies to raise capital.
With thousands of new blockchain-based companies entering the market
with unique ideas and exciting projects, users can now back their
favorite businesses easily. However, this massive explosion of ICO
opportunities has inevitably raised the specter of fraud.
There are several ways scammers can separate investors from their bitcoin. One popular method involves creating fake websites that resemble ICOs’ and instructing users to deposit coins into a compromised wallet. Other times, it’s the ICOs themselves at fault. Centra Tech, for example, a blockchain venture backed by several celebrities, has been sued in the US. The company stands accused of portraying fake team members, misleading investors, and lying about their products. The best way to avoid these scams is close research that involves picking apart the white paper, reviewing the team behind the venture, and key board members or investors. Before making any investment, it’s vital to learn as much about the company as possible to avoid any unpleasant surprises.
Cloud Mining Schemes
Mining is the only way to extract new bitcoins without buying or
exchanging them, but it has become an incredibly resource-intensive
activity. Due to the unique way new coins are mined, it takes massive
amounts of processing power and electricity, and thus money, to mine a
coin. However, many companies now offer regular users the ability to rent some server space to mine coins for a set rate.
Some companies offer "lifetime contracts" that keep costs the same and supposedly offer outstanding returns. However, as the difficulty of mining increases, the same investment will return smaller amounts each time. Moreover, some companies make bold claims regarding their returns without being transparent about the true costs and diminishing returns. Others simply operate Ponzi schemes that can lead to massive losses. It’s vital to look into opportunities and understand the risks and costs associated with mining before investing.
Multi-Level Marketing
Even in the digital spheres, many multi-level marketing schemes have
emerged that offer naïve investors excellent ‘opportunities’ for
progressively larger sums of bitcoin. MLMs, as they’re known, are
predicated on offering quick returns, but actually involve taking more
money for the promise of even higher profits.
One major company that has been repeatedly outed is OneCoin, whose owners were implicated in several other shady operations. The company offered investors massive earnings, and even luxury goods and perks for paying more. However, there is little information on the company outside of their own site, and users have left scathing reviews online. It’s important to always pay attention to a company’s fine print and ensure that their claims are feasible and real. Avoiding these scams early can protect investors’ wallets.
With the current craze, being vigilant and doing one’s due diligence are a must before investing in bitcoin. The market is also showing signs of maturing, leading to better transparency and clearer rules. Regardless, any smart investor’s first step should always be careful research to ensure their investments are always winners.
One major company that has been repeatedly outed is OneCoin, whose owners were implicated in several other shady operations. The company offered investors massive earnings, and even luxury goods and perks for paying more. However, there is little information on the company outside of their own site, and users have left scathing reviews online. It’s important to always pay attention to a company’s fine print and ensure that their claims are feasible and real. Avoiding these scams early can protect investors’ wallets.
With the current craze, being vigilant and doing one’s due diligence are a must before investing in bitcoin. The market is also showing signs of maturing, leading to better transparency and clearer rules. Regardless, any smart investor’s first step should always be careful research to ensure their investments are always winners.
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