Cryptocurrencies have gone mainstream. With increased investor participation, cryptocurrency platforms have also become a favourite for fraudsters looking to make easy money by exploiting individuals.
Frauds are common in the entire financial industry, from banking to insurance and investments. Scams are typical examples of how attackers, scammers and fraudsters play with people who are less aware and give in to FOMO (fear of missing out). “Do extensive research before investing and avoid rumours. Invest in only those coins which have a well-established track record. Look at the total supply of a coin which has unlimited or trillions of supply. Look for people and their past history before jumping onto a new project,” says Nischal Shetty, CEO of WazirX.
Know the red flags that you should watch out for.
Sudden Spurt In Prices
Coins without any track record suddenly showing significant price increase can be a warning signal. For instance, the Squid token, which was inspired by popular south Korean Netflix series Squid Game, lost almost all of its value as it was revealed to be an apparent scam. In a certain week, Squid was trading at just one cent. And in less than a week, its price soared to over $2,856.
Unrealistic Promises
Fancy promises of high investment return with negligible risk are a clear red flag when it comes to cryptocurrency investments. Fraudsters may try to lure naïve investors with advertisements of high returns. While there are some cryptocurrencies that have given a high return in the past, their volatile nature ensures that there is no guarantee of returns. Cryptocurrencies are only for those who can stomach the risk.
Validation Requests Through Coins
Scammers sometimes promise cryptocurrency giveaways where they ask investors to send them a few coins for validation of address or to avail an offer. Even if you are being asked for a small amount of cryptocurrency, you should not go for it, however promising the offer may be. Scammers usually use the trick with multiple users and in the end up with a decent collection of coins.
Dubious Activity On Social Media Handles
Fraudsters sometimes hack social media handles of celebrities, politicians, or well-known personalities to attract investments. Beware of such fake testimonials because there could be an imposter behind such accounts. Always check background of the sellers.
In fact, the US SEC’s Office of Investor Education and Advocacy (OIEA) and Division of Enforcement’s Retail Strategy Task Force (RSTF) also suggested investors to verify that the individuals and firms offering an investment in securities are licensed/registered.
Aggressive YouTube or Telegram Accounts
YouTube and Telegram accounts aggressively promoting a new coin are often fake. This is a tactic fraudsters use to entice investors with the prospect of great wealth.
“If something is sounding too good to be true, it probably is. Research on the founders and the project thoroughly. Users should do their own research before investing in cryptocurrencies. Avoid investment decisions based on market rumours. Don’t fall in the trap of YouTube/ Telegram based accounts promising high returns,” says Shashi Jha, head of legal and compliance, WazirX, a bitcoin and cryptocurrency exchange.
Being aware about how blockchain and crypto systems operate can help you identify red flags and avoid being a victim of possible scams.
