Headline: How Do You keep yourself from being scammed?
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Bad actors and fraudsters are always on the prowl for new ways to separate you from your money, and the massive growth of cryptocurrencies has to have them salivating. According to a study done by Chainalysis, fraudsters stole $14 Billion in 2021 alone. So, I offer the following to you in an effort to educate, and hopefully make you a harder target.
Fake websites
Fake websites are one really good opportunity for a fraudster, especially something like a fake cryptocurrency exchange site. If they are able to setup a really good-looking site, they have the opportunity for both short and long-term cons:
Short term, they could take all of the personal information you put in to open an account at the alleged exchange. They can then use this information to gain access to your banking information, credit cards, anything.
Longer term, if they have the wherewithal to give you a short-term win, they can encourage you to stick around and invest even more money. Then, one day, they turn the lights out, and swipe all of the money that you put into that cryptocurrency wallet.
Phishing scams
Often used in conjunction with a fake website, a phishing attempt often starts as an alarming e-mail. You might get an e-mail with the headline, “YOU MIGHT HAVE BEEN HACKED TOO.” When you click on the link, it brings you to the fake website where they have you “verify” your private key and other information.
Pump and dump schemes
Everything old is new again. In the past, people have purchased thousands of shares in a loser company, then hire dozens of college dropouts to call people to cajole them into buying thousands of shares in this loser company. Then, the leader of this organization sells off their shares for a much higher price (due to the artificially created demand) and the new investors are left holding the bag. Nowadays, this is being done with some cryptocurrencies. And in this way, the scammers don’t even have to find a boiler room anymore; Anywhere in the world with an Internet connection will do.
All of these schemes and more have caused many crashes and pileups on the information superhighway. But, they seem to have a common thread of getting something for nothing. Keep this in mind.
What are some of the red flags to be looking for?
So, how to spot a crypto scam? Warning signs to look out for include:
Promises of guaranteed returns: No financial investment can guarantee future returns because investments can go down as well as up. Any crypto offering that promises you will definitely make money is a red flag.
A poor or non-existent whitepaper: Every time a new cryptocurrency is launched, there should be a whitepaper behind it. This document will explain how the currency is valued, and the reason that the cryptocurrency was launched. The management team should be named. The founders should definitely be named. If there are lots of grammatical mistakes, it might be a sign of a rushed scheming scallywag. Be careful.
An ounce of Prevention…
Ben Franklin could probably not have imagined the Internet, but, he was right on with his statement. There are things you can do to protect yourself and your digital assets.
- Protect your wallet. Perhaps it might be a good idea to only put a small amount of cryptocurrency into your Coinbase wallet online, and keep the bulk of it in a cold wallet that is not often hooked to your computer.
- Only invest in things you understand. Per Frank Drucker, you shouldn’t invest in a group unless you can draw their business model using a crayon. This means that the logic of their business should be inescapable, and there should be no hand-waving.
- Take your time to do your own research. If it’s a Great deal now, it should still be a great deal in 2 weeks’ time.
- When reading the whitepaper (You ARE reading the whitepaper, aren’t you?), the project that they are trying to fund should be very plainly stated, and it should be possible.
Sometimes, a pound of cure is needed.
What if you are taken by a crypto scam. There are some definite steps you can take:
- File a police report
- File a report with the CFTC at 866-366-2382. Or file a report online with the CFTC.
- File a report with the SEC and the FTC.
Remember, fraudsters depend upon the shame felt when one falls for such a scheme. They rely upon this stigma to ensure that people don’t report.
The Verdict
There is a lot that can be done to ensure that we don’t fall victim to a crypto scam, and if we do, there are steps to take to minimize the hit we will take. The general rule seems to be that the faster we respond to a vulnerability or intrusion, the less damage will be done to us. Certainly, we didn’t hit all the problems out there (we can’t) but, we did hit some of the biggest pitfalls. Human beings are pre-disposed to want to not show up weak in front of other people, and this is so important in dealing with these crypto-schemes. Perhaps Shakespeare was right, so many centuries ago,
Whether ’tis nobler in the mind to suffer The slings and arrows of outrageous fortune, Or to take arms against a sea of troubles, And, by opposing, end them?
If you even suspect that you might be the victim of a crypto-scheme, I implore you to take up arms against your sea of troubles.
REFERENCES
https://www.kaspersky.com/resource-center/definitions/cryptocurrency-scams
https://consumer.ftc.gov/articles/what-know-about-cryptocurrency-and-scams
https://www.investopedia.com/tech/how-identify-cryptocurrency-and-ico-scams/
https://www.aarp.org/money/scams-fraud/info-2019/cryptocurrency.html
Editor’s Note: Please note that the information contained herein is meant only for general education: This should not be construed as Tax Advice. Personal attributes could make a material difference in the advice given, so, before taking action, please consult your tax advisor or CPA.