Cryptocurrency may or may not ultimately prove to be a viable global currency, but there’s no denying that it carries immense value. Bitcoin alone has a market cap of over $730 billion, and anytime there’s that much money floating around, sharks are sure to be attracted.
Coupled with the “Wild West” atmosphere surrounding decentralized finance, in some ways it can be even easier for scammers to steal crypto than U.S. dollars. Here are some of the most common types of crypto scams you should be aware of if you have any money at all invested.
Pump and Dump
Pump-and-dump scammers aren’t exclusive to the crypto world, as this scam has long been a part of the history of the stock market. But since there’s often a fever pitch surrounding a crypto that’s making big gains, the pump and dump scam works particularly well there.
Essentially, a pump and dump scheme involves excessive marketing, inflated promises and skillful promotion to get investors to pile into a particularly cryptocurrency. As the price of the crypto skyrockets, investors are even more enticed to pile into it. Ultimately, once the crypto has risen dramatically, all of the original marketers sell out of it at once, driving the price down rapidly before average investors are able to jump out.
Typically, cryptos involved in a pump and dump scheme never have any value and are unlikely to have future utility. Scammers are simply interested in creating excitement around a crypto, drawing in as many hapless investors as possible, then jumping out and collecting their big gains.
Hot Wallet Hacking
It’s true that some crypto wallets are nearly impossible to hack. So-called “cold wallets” have no connection to the internet and can only be accessed by a key known only to the holder. Hot wallets, however, are connected to the internet and thus can be accessed by skilled hackers just like any other connected asset.
Crypto holders use hot wallets because they are so much easier to access for purchases or investments. However, this same ease of access for transactions makes them easier for hackers to tap into as well. If you choose to use a hot wallet, industry experts suggest you change your passkey frequently and avoid keeping your entire crypto holdings in a single location.
Fake Initial Coin Offerings
Similar to a pump-and-dump scheme, fake initial coin offerings rely on greedy investors piling into cryptos that are being manipulated by professional scammers. Typically, scammers create a crypto out of thin air and generate publicity indicating that this new coin could be “the next big thing.”
As investors are always looking to gain an edge, it’s relatively easy to manipulate some of them into jumping into a new coin in the hopes that it could eventually become a leading crypto. Once enough investors pile into the new coin offering, the creators simply shut it down, take all of the investor money and disappear.
Unlike a pump-and-dump scheme, which requires investors to drive up the price of a crypto, a fake initial coin offering simply needs enough investors to sign up for the new coin. Once their coffers are full, the scammers issuing the “new coin” take the money and run.
Traditional Phishing Scams
Just because cryptocurrency is a relatively new type of investment doesn’t mean it’s not susceptible to old-school scams. A large number of crypto holders lose their currency through age-old phishing tactics.
A phishing scam is a request for your personal identifying information through a link or website that looks like it came from a legitimate source. For example, if you hold your crypto assets at Robinhood, you might get an email from what looks like customer service at Robinhood asking for your login information due to a recent security breach or some other type of urgent matter. Since these requests can look entirely legitimate, it can be easy to click on a link or respond to these types of requests with information like your username, password or even Social Security number.
If you’re ever confronted with this type of request, never click on a link you receive in an email unless you’re absolutely, 100% sure that it’s coming from a legitimate source. Never provide banking information or your Social Security number via an email either. The best way to avoid these types of attacks is always to call your financial institution directly to verify any requests they may be making.
Romance scams are another age-old tactic used to separate victims from their money, and the decentralized nature of cryptocurrency makes it even harder to get that money back once it’s been stolen.
According to the FTC, a whopping 20% of the money lost through romance scams has been in the form of cryptocurrency. If you’ve met someone online, whether via a dating site or some other type of social app, be wary if they ask you for money, particularly in the form of cryptocurrency. Scammers target vulnerable populations, and if you are looking for love it can sometimes blind you to the true nature of someone’s motives.
Use the same care you would if you were dealing with any type of stranger until you truly get to know someone, especially when it comes to financial matters.
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