Crypto has garnered a lot of attention since its inception. It is also considered an attractive investment option but is also susceptible to fraud and scams. With the growing popularity, many scammers and hackers have stolen approx $1 billion, according to a report by the Federal Trade Commission (FTC).
Crypto scams can be done in various ways, and they can range from pump-and-dump to pig butchering. (Later on this!) Since the technology behind Cryptos, the Blockchain technology, is not controlled by any centralized authority like a bank, it’s easy for malicious actors to break in and take advantage of the investors and their hard-earned money.
Before moving forward to know the tips to avoid Crypto scams, let’s have a quick overview of these common scams.
Pump-and-dump is an investment fraud that is immensely prominent in the traditional finance sphere. However, this scam is also spreading its wings into the crypto sector. In a pump-and-dump scam, a crypto coin is “pumped up,” using false or misleading information on social media and other publicity channels to get additional investors to purchase it. The price rises as a result. The early investors sell off or “dump” the crypto at a premium once its value has peaked. Other investors get influenced by the fear in the market and rush to liquidate their holdings, hence suffering losses.
Therefore, research is essential before picking up a piece of news about any asset from social media and acting on it. Investors should not make decisions based on social media posts coming from unknown and unreliable sources.
- Pig butchering
Pig butchering is a scam where the scammer builds trust with their targetted victims before convincing them to make massive Crypto deposits into fraudulent digital wallets or websites.
The name “pig butchering” is provided for this scam because the scammer fake promises their victims a lot of riches and romance over social media platforms or dating apps before ghosting them and taking all their money. It’s like feeding a pig lot of food before butchering it for your sake.
The scammers usually send a text over Whatsapp, text, or some dating apps like Tinder and pretend to be someone else, along with having an eye-catching display picture – luring the people to get to talk to them and build an instant connection.
So, these were a few scams and frauds that you can be aware of before making any investments. To know more about the do’s and dont’s of such scams, click here.
Let’s get on to knowing the tips to avoid such Crypto scams.
Tips to avoid cryptocurrency scams
#1 Do your own research
Before investing in any crypto, it is crucial to educate yourself about the technology, the team behind it, and any risks associated with the investment. This can include reading whitepapers, following the project’s development, and checking for any negative news or reports. This will give you a proper understanding of the potential of the investment and help you make a more informed decision.
#2 Check the source
Be wary of unsolicited offers or advertisements for cryptos, especially those that promise guaranteed high returns. Scammers often use high-pressure tactics or unrealistic promises to entice people to invest in their schemes. Always verify the information source and do your research to determine the legitimacy of the investment opportunity.
#3 Verify the website
When purchasing crypto, make sure the website you use is legitimate and has a secure connection (HTTPS). This will help ensure that your personal and financial information is protected. Also, avoid using sites that have a history of security breaches or are not well-established.
#4 Use a reputable exchange
Choose a well-established crypto exchange that is known for its security and reliability. Reputable exchanges will have robust security measures in place, such as two-factor authentication, to protect your funds. They will also have a transparent process for handling disputes and resolving issues.
#5 Keep your private keys safe
Your private keys give you access to your crypto, so it is important to store them in a secure place. Avoid keeping them online or in an unencrypted file, as this makes them vulnerable to theft or hacking. Instead, consider using a hardware wallet, which is a type of physical device that stores your private keys offline.
#6 Don’t fall for giveaways
Be wary of giveaways that promise free crypto for completing simple tasks, such as sending a small amount of crypto to a specific address. These are often scams designed to take away your crypto. Avoid participating in any giveaway you did not initiate or are not associated with a reputable source.
Always remember, if something seems too good to be true, it probably is. So be careful and always do your due diligence before investing in crypto. By following these tips, you can reduce your risk of becoming a victim of a crypto scam and make more informed investment decisions.Disclaimer: Cryptocurrency is not a legal tender and is currently unregulated. Kindly ensure that you undertake sufficient risk assessment when trading cryptocurrencies as they are often subject to high price volatility. The information provided in this section doesn't represent any investment advice or WazirX's official position. WazirX reserves the right in its sole discretion to amend or change this blog post at any time and for any reasons without prior notice.