Cryptocurrency has been gaining popularity in recent years, and it has been sought after for the benefits that it has to offer. Many have experienced the potential of investing in cryptocurrencies. Although the crypto market has good potential, only a few have been discovered since it is a relatively new financial asset, about a decade old.
The first crypto, Bitcoin, was created to solve the problems associated with fiat currency. It was created to answer the following challenges:
Decentralization: One of the main reasons for its creation was to give users complete financial control in the form of Bitcoin. All cryptos are based on decentralized digital currency that is beyond the government’s control. For this sole reason, many have flocked to and adopted cryptocurrencies. Since decentralized, peer-to-peer transactions are conducted in the absence of intermediaries, these transactions are faster, cheaper, and more secure compared to traditional financial transactions. Such decentralization provides users with more control over their money and reduces the risk of government or financial institution intervention.
Anonymity: Another reason why cryptos are in such high demand is that they offer a high degree of anonymity that allows a crypto user to carry out transactions without revealing their personal information. As a result, a high level of privacy is maintained without disclosing personal information, compared to traditional financial transactions, where the safety of data is questionable while completing a financial transaction.
Security: Of all the reasons to create Bitcoin, the most important ways to make it secure. A strong emphasis was placed on the security of Bitcoin. The innovative use of blockchain technology, where transactions are recorded in the form of a decentralized ledger, makes it impossible to hack or change the entry of a transaction. Thus, no entry in the decentralized ledger can be manipulated or distorted. Such a high level of security is particularly important for people who are concerned about their financial information being stolen or compromised.
Transparency: Cryptocurrencies are known for their transparency. Each transaction can be viewed on a public ledger that can be accessed by anyone. It has the advantage that every crypto user when carrying out a transaction, can be viewed by other crypto users too. Such a high degree of transparency ensures that the records on the ledger cannot be tampered with. Such a high level of transparency is welcomed by those who are concerned about scams or corruption in the traditional financial system.
Investment Potential: Cryptocurrencies are highly volatile financial assets. Due to this, there are ample opportunities for crypto users to make huge profits by trading in the crypto market. As per the historical data, cryptos are known to appreciate over time. Such advantages make it ideal for crypto users to participate in the crypto market.
Inflation Protection: There is a potential for inflation when dealing with traditional or fiat currencies. The creator of Bitcoin had an idea about it and ensured that there would be a fixed supply of 21 million bitcoins. They anticipated that this move would ensure protection against inflation while providing a stable currency that could be used for transactions.
Innovation: The creators of Bitcoin have revolutionized the way we carry out transactions; they have created digital currency, something valuable that has revolutionized the traditional financial industry. It initiated the several types of cryptography that we see today.
Community Support: Cryptocurrency communities are quite active and supportive of each other. Such openness and willingness to help fellow crypto users who believe in the potential of cryptocurrency to revolutionize the financial system are quite passionate about it. Several crypto developers are also a part of such communities. They help by suggesting which cryptocurrencies have the potential to become big. As a newbie, it is quite relaxing to understand that they do not invest in any bogus cryptocurrencies.
Although a cryptocurrency still has all its potential, there are scammers out there trying to rip individuals off with their financial assets. It is challenging to gauge the exact number of victims who have fallen prey to cryptocurrency scams since many go unreported. However, in recent years, as the crypto adoption rate has increased, so have the scams associated with it.
As per the Federal Trade Commission (FTC) in the United States, more than $80 million was lost between October 2020 and March 2021 to cryptocurrency scams within six months. Compared to the previous year, the data reveals that there has been an increase of $14 million. Under the guise of high returns on investment and technical support, scammers ripped off their victims through these crypto scams.
Common Cryptocurrency Scams
Scams have been in existence ever since the monetary system came into existence. These scams have evolved to take advantage of market conditions. As technology advanced, so did the scams perpetrated by scammers. Victims of a scam suffer not only monetary hardship but also mental trauma. We will mention a few tricks that are quite common in today’s digital age and elaborate on potential threats that a victim might undergo.
Financial Loss
Scammers trick their innocent victims into sending their money to them. Scammers will mesmerize their victims by giving them a fake promise of high returns on investment with minimal risk involved. They might even claim to sell highly valuable digital assets; however, these victims hand over their valuable digital assets to these scammers, who will disappear with the financial assets, never to be heard from again.
Ponzi Schemes:
Ponzi schemes are one of the most common types of scams pulled off by scammers. In a Ponzi scheme, the victims are told that their digital assets will multiply after a fixed period. During the initial stages, these victims get paid, start trusting the scammer, and start handing down more crypto as an investment. A time comes when the system collapses and the scammers run away with a lot of cryptos. The reason for Ponzi schemes is that the old investors are paid through the money collected from new investors. The moment there are no new investors available, the scheme fails.
ICOs:
As a new company approaches the stock market for the first time, its stocks are sold under First Public Offerings or FPOs. Similarly, when a developer creates a new digital currency or cryptocurrency, they are called “initial coin offerings,” or ICOs.
Not all ICOs are legitimate; some scammers will create fake ICOs with a false promise that the crypto in development will truly revolutionize the way cryptocurrencies are traded. The FOMO, or fear of missing out, sets into their victims so much that they start investing in those cryptos. After a while, the scammers disappear with a ton of money.
Rug-Pull:
Another threat that crypto users fall for is rug-pull scams. Such scams are generally pulled by social media influencers. These influencers will suggest their followers invest in certain cryptos that are tied to the moon. When the price of that particular crypto appreciates, these influencers will secretly sell off those cryptos for a profit, leaving their fans with worthless cryptos.
Identity Theft:
Scammers trick their victims by sharing sensitive data like their bank accounts, email addresses, Social Security numbers, and so forth. The information is then used to attack the finances of their victims.
Phishing:
One of the most popular methods of stealing information from their victims is phishing. Scammers will generally send fraudulent emails, texts, or messages to their victims. There is a link in it where the victim is prompted to open it. Once the link is opened, a web page appears where the victim is prompted to fill in the sensitive details. These details are directly sent to the scammers, who will then use the information against their victims.
Fake crypto wallet or exchange:
When it comes to choosing a crypto exchange or a wallet, you should always go for a reputed one. Many scammers open up fake exchanges or offer fake online wallets. The victim thinks they are buying cryptos from the exchange, but in reality, the scammer is just collecting money while exchanging fake cryptos. When the victim tries to withdraw their holdings, the exchange denies them. Thus, the victims pour in their money on a fake exchange only to realize that the scammer was just collecting their money.
Holding hostage:
Scammers sometimes use a direct method by swindling money from their victims. They either send phishing messages or wait for their victims to land on their fake exchanges. Either way, their victims are prompted to download an app that will manage their crypto holdings. After downloading these fake apps, the electronic device freezes. The scammers then contact their victims and ask them to pay a ransom through cryptocurrency if they wish to use their device again. The victim pays off the scammer, thinking that their electronic device is safe. Unknown to the victims, the scammers have all the details and can strike again soon.
Conclusion:
Although cryptocurrency has many advantages, you as a crypto user must be aware of such scams. There are times when you would think that you wouldn’t fall victim to such a scam, but there are many who still fall. One of the best ways to arm yourself is by educating yourself about the latest scams that are rampant in the crypto world. Only through awareness will you save yourself from financial and mental trauma.