There is no doubt that one of the most common reasons why people start using cryptocurrencies is because of the independence it offers from the slightly outdated financial system.
With that independence, however, comes extra responsibilities that could be compared to the job a bank does to keep your assets safe. It is being unaware of these responsibilities that dig the pit for newbies to lose large amounts of cryptocurrency or cash to fraudsters.
Sadly, the lack of public awareness about cryptocurrencies doesn’t help matters and only makes the fraud job a little too easy for the bad eggs.
The good news though, is that you could beat them by simply being aware of these common ways that newbies lose cryptocurrency.
The total amount of investor funds lost to fake Initial Coin Offerings (ICOs) in 2018 alone was nearly $100 million, pointing to the fact that it is one of the easiest ways to lose cryptocurrency or even huge volumes of cash.
Originally, ICOs were designed to serve as a way for projects to raise money from investors around the globe, to create their intended product or service.
This innovative but straightforward fundraising tool was turned into a fraud pool with thousands of projects that have no real product or service conducting ICOs, raising funds from investors and disappearing either immediately or after a while.
Here are some ways to identify a fake ICO:
A Shallow Whitepaper — Most fake ICOs only hire a blockchain or crypto writer to write their whitepaper because they do not have any real product or service to offer
A closer look at these whitepapers could reveal typos, unclear project ideas, and a few other red flags to help you identify that it is fake.
Extensive Focus on ROI — Most fake ICOs dedicate a large chunk of their whitepaper pages to the massive return on investment that you could gain at the end of the day.
On the other hand, real projects understand that it is challenging to raise a multi-billion dollar company without real products. For this reason, their whitepaper tends to educate you about their potential product and achievements.
Quick Deadline — While ICOs generally have a timeline for organizing token sales, most fake ICOs count on Investors Fear of Missing Out (FOMO) to set tight deadlines for investing. Any ICO that has this loophole is likely a scam!
The downline is to do thorough research before sending your Bitcoin or Ethereum in exchange for the altcoin offered by an ICO. If you're not ready to research, then you probably shouldn't be investing in any ICO.
2.Unreal Fund Managers
Have you come across a seemingly touching story about how a marriage or life was at a make or break point until the storyteller met a sure fund manager that helped them grow their cryptocurrencies and solve their problems?
Well, these stories that usually appear on crypto-related Facebook groups, are unreal and usually ends with a call-to-action asking you to send a message to the fund manager.
Do not fall for them and do well to remove the scammer from your list since in most cases, the poster is the same as the fake fund manager they asked you to send a message.
3.Earn Bitcoin By Mining
Similar to the last tactic we considered, some fraudsters are posing on social media as owners of crypto mining farms.
I fell for this scheme in my early crypto days where they ask you to send a certain amount of Bitcoin and get paid nearly 3x that amount at the end of the day's mining activity.
Well, I never got my Bitcoins back, and I'm confident you won't get yours if you ever fall for them.
Funnily, they sent me only non-spendable Bitcoins and promised to unfreeze it if I let them have more Bitcoin. That was a scam at the highest order, and I was irked.
Although legitimate projects indeed give out cryptocurrencies as a way to encourage adoption of their tokens, fraudsters also use this medium to steal cryptocurrency from newbies.
In most cases, they use social media accounts that impersonate popular organizations or entities. They require you to send a crypto wallet address to receive the free cryptocurrencies as well as your private keys or login info.
Note that these are attempts to steal your crypto funds, and you should never fall for it.
Send 0.5 BTC and gets 1BTC in less than 24 hours.
As excited as that may make you feel, it is one of the most common ways newbies lose cryptocurrency.
Consider the 20,000 fake ETH giveaway that fraudsters designed as though it were from major cryptocurrency exchange Binance. Users were asked to send Ether tokens to a specific wallet address and receive 10x of whatever they donated in a different wallet they provided while gifting.
Those cryptocurrencies never came back to victims, and now you know that you should really stay away from crypto doublers!
6. Ponzi Schemes and High ROI Programs
Any Ponzi is a bad investment, and the use of cryptocurrencies to conceal these fraudulent schemes is not new.
The most popular crypto Ponzi scheme was the BitConnect platform, which paid investors over 20% for each referral and granted significant returns over a short period. When the system was hunted down by authorities in early 2018, investors lost billions of dollars with the price of BitConnect coin tumbling in just a few days.
There are also similar charges facing the OneCoin cryptocurrency.
In a nutshell, stay clear of any cryptocurrencies or projects that promise you massive returns either on signing up new users or on your capital. Remember the simple rule of investing — If the returns sound too good to be true, then it is likely a fraudulent opportunity.
7. Fake Customer Service
While even crypto experts could fall for this strategy, you must take note of it as a newbie.
Stmarket.co recently reported that U.S authorities indicted two individuals who posed as a customer service agent for a major cryptocurrency exchange, and stole $233,220 from their victim.
The alleged criminals used a Twitter account with a handle similar to that used by the exchange and promised to help the victim resolve an issue on their account. In the process, the victim revealed login details, allowing the fraudsters to access and withdraw his Bitcoins.
It is essential to understand even in worst-case scenarios, no crypto exchange customer service will ask for your login details.
Also, anyone requesting such information even though under the guise of an agent on any social media platform is a fraudster. Never disclose your login details to anyone!
No one loves losing money, and it hurts even more when newbies lose their cryptocurrency. In most cases, it leads them off from the crypto industry and creates a bad legacy for the community.
If you're a newbie, however, then you've got most of what you need to avoid falling prey by reading this article. Stay safe, and you'll enjoy the crypto ride.