How to Avoid Cryptocurrency Scams

Cryptocurrency investment seems like a free-for-all, but using a little caution can go a long way. Let’s review some of the most common crypto scams, as well as the steps you can take to avoid them.

Fake ICOs ICOs, or Initial Coin Offerings, have allowed companies to raise capital without taking VC money, which also generally comes with loss of autonomy. This take on crowd-sourcing is becoming increasingly prevalent, but scammers have also taken advantage of this popular system to separate investors from their holdings through fake websites and hacked wallets. It is vital to research the companies you are considering investing in – review the whitepaper with a fine tooth comb, and perform due diligence on the board of directors and other investors to determine a company’s validity.

Exchange Fraud Like stocks, cryptocurrencies are traded at exchanges. Unlike the stock market, however, regulatory oversight is relatively minimal right now with virtual coins. This landscape is changing, but as authorities play catch-up, it is important for investors to pay attention to some basics. Discounted coins, offered as incentives to join and trade on an exchange, are a major warning sign – deals that seem too good to be true probably are just that. Non-encrypted exchange websites, denoted by ‘http://’ instead of ‘https://’, should also be avoided to maximize asset security.

Pyramid or MLM Schemes Pyramid schemes (also called multi-level marketing schemes), which offer not only quick returns but also increasingly-extravagant perks in exchange for larger investments, are becoming more prominent in cryptocurrency. Assurances of too-good-to-be-true earnings usually are too-good-to-be-true. Stay away from companies promising the moon, even if you might get a few free coins out of the deal. Read the websites thoroughly, but also look for outside sources that independently validate a company’s claims.

Coin Mining Scams Bitcoin mining requires significant effort and resource investment, creating a high barrier to entry for the average person. Companies are offering users a chance to mine coins for a set rate, essentially renting existing mining infrastructure for personal use. But users should beware companies guaranteeing blanket returns on investment; coins become progressively more difficult to obtain as more are mined, leading to decreasing returns. Do your homework on each mining company – look for detailed information about operations, measure the level of transparency surrounding the company, and beware of ‘promises’.

Solid research, coupled with a healthy dose of skepticism and an immersion in details, will help minimize mistakes and avoid fraud as you embark on your journey in cryptocurrency investment. Trust your gut, vet your options, and keep both feet firmly planted in reality – the more you do so, the better your chance of maximizing your earnings.