As the world becomes an increasingly virtual place, online scams become prevalent. In 2021, cryptocurrency scams generated a revenue of almost $7.7 billion. This makes it important for anyone using cryptocurrency to understand how these scams work and how we can protect ourselves from them.
With the last few years bringing a flood of new retail investors into the market (mostly thanks to the ease of access), there was a similar rise in scams committed. Retail investors tend to be inexperienced and become prime targets.
Cryptocurrency Scams and their Place in the Modern World
The digital world has become populated with investors and scammers. In most platforms, almost anyone can create a cryptocurrency.
In 2020 and 2021, there was a rise in these scams. Many of these were increasingly advanced and varied in nature.
A few types of scams included
- Romance Scams
- Phishing
- False identities
- Fake games
- False investments
- Fake websites and apps
Why are Cryptocurrency Holders Targeted
Scammers may target cryptocurrency because of the lack of security and Know Your Client (KYC) protocols on blockchains. Therefore, giving scammers a new form of invisibility. This causes an increase in fake identities making it easier for scammers to disappear after committing the crime.
In 2021, scammers used blockchains to create fake games. Thus, convincing new holders to spend their cryptocurrency on coins. A good example of this is the Squid Game scam.
Some scammers may also try to prey on new investors through other online platforms. They may do this through advertising fake currencies and promotions.
Best ways to protect yourself
A few ways to protect yourself from a cryptocurrency scam include:
- If you hold a lot of crypto (a lot = more than 5% of your investments), spread it apart across trading platforms to minimise risks. As trivial as this may sound, this is a very new space and there aren’t many laws to protect you if things go wrong. Keep this information private.
- Do not fall for false promises. Scammers often make fake claims of instant profit, free money or guaranteed returns. These are ways in which they lure in new victims.
- Do not put money in virtual currency if you do not understand the way it works. Scams mostly target new investors who are unaware about the nature of these crimes.
- Do your research. Successful investors research thoroughly on the cryptocurrency they want to invest in. Find out more about the safest websites and apps before you make a decision to invest.
- Do not share any personal information such as security codes and passwords.
- Use a cryptocurrency wallet for an added layer of security. Depending on your circumstances, a hot or cold wallet.
Supplementary: In the event of falling victim to a scam, you can find out about your rights (in the eyes of the regulators) here.
