4 Cryptocurrency Scams to Watch Out For

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Cryptocurrency has been making waves in financial news over the last year. From some perspectives, “crypto” can look like the money of the future. After all, several financial institutions are embracing it. But does that mean investment in cryptocurrency is also the way of the future?

Considering the record amount of crypto stolen by hackers in 2022, you may wonder whether crypto investments are secure enough. The devastation left by the collapse of the cryptocurrency exchange FTX shows that the potential risks are serious, and it’s easy to be deceived.

If you’re interested in but inexperienced with cryptocurrency, learning how to spot a scam can help you protect yourself as you get to know the investment landscape.

Here are some things to keep an eye on.

What is Cryptocurrency?

The better you understand crypto, the less likely you are to be misled by a scammer. Briefly, cryptocurrency is digital currency. It can be stored in a virtual wallet and transferred over a dedicated network. Various cryptocurrency exchange platforms facilitate buying, selling and trading using familiar currencies like the US dollar. A few common crypto “coins” you may have heard of include Bitcoin and Etherium.

How To Avoid Crypto Scams

Since cryptocurrency is not regulated by traditional financial institutions or governments, you might not recognize crypto scams right away. Approach investment opportunities with caution, making sure to ask questions, seek professional financial advice, and do your own research to confirm what you hear.

If an offer for investment seems too good to be true, or if it requires a lot of personal information up front, check the US government’s database of known scams and frauds. When an investment offer seems suspicious, it’s best to seek safer ways to invest your money.

So, what is crypto scamming? Here are some examples.

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Bitcoin Investment Scams

Unfortunately, not everyone claiming to be a crypto expert has the qualifications to give financial advice. Are crypto scams like this illegal? Yes, but since cryptocurrency isn’t regulated the same way as regular financial services, you have fewer protections in the event that a false advisor misleads you. Someone may appear to know what they’re talking about, or claim to have made a lot of money, but you should be wary if they oversell their success.

  • Red flag: Asking you to pay a fee in advance of a verifiable exchange. Fraudsters often accept advance payment and then disappear.

Social Media Scams

If you spend a lot of time on social platforms like Facebook, Twitter, and Instagram, you may come across contests or giveaways claiming you could win cryptocurrency prizes, such as Bitcoin.

  • Red flag: Asking you to share payment or bank account information, or your crypto wallet ID, to enter. Requiring sensitive information up front is suspicious.

Crypto Ponzi Schemes

You may be familiar with Ponzi schemes. This method of scamming exists in crypto as well. Essentially, the organizers will entice investors with promises of low-risk investments and high returns—in this case, by investing in a cryptocurrency they developed. However, in a Ponzi scheme, the money isn’t invested. Instead, it is taken for personal use or to pay out other investors. In the end, many participants lose their investment.

  • Red flag: Pitching a “get rich quick” scheme. It’s important to get to know the currency you intend to invest in, including its structure and use case, to identify flaws.

Fake Celebrity Scams

Celebrities can influence how people make decisions, including about how to invest their money. Some celebrities have even been accused of manipulating the volatile cryptocurrency markets with their endorsements—popularizing a coin to spike its value up so large investors can dump their holdings and make a quick profit. What’s more, scammers may also impersonate celebrities to attract investors, creating fake online content that depicts the celebrity’s involvement in the crypto project.

  • Red flag: Pushing celebrity endorsements. While they may have financial opinions, they can’t be trusted as financial advisors.