Cryptocurrency scams can seem complicated, but if you know what to look out for you’ll be better equipped to protect yourself from being caught up in them. This guide will explain the most common crypto scams and how they work, so you can avoid falling victim to them and losing your hard-earned money and valuable data.
Mining Scam
The most obvious—and dangerous—scam to be aware of is a so-called mining scam. You see these advertised on pretty much every cryptocurrency website, promising huge returns from your investment. The way it works is that you pay some money upfront to purchase a machine (or perhaps even download software) that will mine crypto on your behalf. Unfortunately, all of these types of crypto-mining machines are little more than scams and will never generate any return for you; they simply don’t work as promised.
ICO Scam
An ICO scam is one of many crypto scams, but it’s certainly one of a kind. An ICO scam takes place when an individual or group sells investors an opportunity to invest in a company that doesn’t actually exist yet. In other words, you’re essentially purchasing crypto tokens that represent part ownership in a startup.
HYIP scams
The proliferation of HYIP (high-yield investment program) scams has spurred regulators to crack down on virtual currencies like Bitcoin. The problem with Ponzi schemes is that they often collapse under their own weight, and when a HYIP disappears, it leaves investors in shambles. One big reason: Many investors can’t distinguish between legitimate investments and scam operations that are designed to part them from their money.
Ponzi schemes
A Ponzi scheme is a scam involving a fake business that lures people in with promises of abnormally high returns on their investments. To make money, Ponzi schemes need to keep bringing in new investors with newer and bigger promises. Eventually, inevitably, those promises catch up with them—and so do their debts.
How to avoid being scammed.
There are a few things to watch out for when it comes to cryptocurrency scams. Most of them are fairly obvious, but if you’re new to digital currency, these red flags can be difficult to spot. It doesn’t take long to figure out which apps and websites are real, trustworthy sources of information—but finding them can be difficult if you’re brand new. The best way to avoid scams is simply by doing your research before clicking anything or handing over any money. If an app or website looks too good to be true, it probably is! Here are some guidelines on what type of language and information should set off alarm bells. Be wary of claims that seem too good to be true: If you see that someone has made a bunch of money in just a short amount of time with no risk involved, they’re likely trying to scam you. Even if they don’t explicitly say invest now and get rich quick! they might still be trying to deceive you into thinking there is little risk involved in their offer. In reality, every investment involves some level of risk—and every investment also offers potential rewards. Never invest more than you can afford to lose (or more than you’re willing to risk losing). And remember: just because someone else has made money with something doesn’t mean that it will work for everyone else as well.