The crypto economy is exciting, new, and still seeing incredible growth and recognition; however, the emerging market also has some important risk factors investors should be aware of. Often still referred to as the “Wild West,” the crypto markets remain largely unregulated and free from government restrictions. While many see this as an important aspect of the growing cryptocurrency movement, lack of regulation and oversight leaves many investors—especially newcomers—vulnerable to fraudulent behavior, scammers, and phishing attacks. With the right precaution, investors new and old can secure their investments and drastically reduce the risk of losing their crypto to those up to no good. Let’s take a look at some of the ways we can prevent loss.
‘Hot Wallets’ and Online Storage
If you’re an investor holding large amounts of any number of cryptocurrencies, it’s always recommended to keep your assets stored offline. There are a number of options available for those interested in safeguarding their investments, but the best way to avoid trouble from the beginning is by not using online wallets. The issue with online wallets rests in the vulnerability of your computer and network and relying on a third party. If you have a security compromise on your end, you’re left vulnerable to possible attacks. If you’re storing all of your assets on an online wallet, then you’re left having to place an enormous amount of trust in a third party and their ability to protect against hackers looking to get in. In fact, with an online wallet, the company has created a large target on their back since they’re holding so many assets from a number of clients. The best option to look into, if you don’t already have one, is a hardware wallet like a Trezor or Ledger Nano S for long term storage.
This next one on the list can often be overlooked by many, but there’s a reason sites like Binance and KuCoin specifically tell visitors to check their URL and make sure it matches perfectly with the site. Scammers looking to gain access to your crypto assets often create websites almost identical to popular exchanges and online wallets but with minute differences in the URL. For example, someone looking to login to Coinbase.com might stumble upon a site called “Coinbase.io” or “Coinbase.online” or “Coinibase.com” and proceed to follow the instructions on the site asking for your login credentials. After you’ve entered them in on the fake site, phishers immediately have your email address and password and you’ll have little to no time to login to your account and change your credentials before they can. The best way to avoid this common scheme is to always double-check the URL of the site you’re on, and bookmark the official page once you’ve verified where you are. After that, always use the bookmark to access the official site instead of searching for it.
Impersonators Active on Social Media
Along with the precautions necessary to avoid fraud when visiting websites, there are a lot of impersonators online in the social media space as well. If you ever run into someone claiming to be support with a popular exchange, never give out personal information or login credentials to them. Binance, Bittrex, KuCoin, Kraken, etc. support will never ask for your login information in order to “access your account” or to check on holds.
Additionally, there are a lot of impersonators on social media pretending to be big names in the crypto world. All the names you’re likely familiar with: Vitalik Buterin, Roger Ver, Andreas Antonopoulos, and Erik Voorhees almost all have imposters posing with very similar names (maybe one or two characters off) claiming to be running “giveaways” if you send a certain Ether wallet .01 ETH. These are all scams. On platforms like Twitter, the verification check is always your friend.
Falling Victim to Ponzi and Pyramid Schemes
Another key factor when it comes to losing assets that many think is obvious: Ponzi schemes. While we all know not to make investments in projects that are based on earning money by bringing in new investors, it can be difficult not to get caught up in the hype at the time. Investors can take a significant hit over their original choices and see their portfolio value drop quickly in volatile markets so what does that emotional investor do? He or she hears about a “great new project” that “guarantees” a specified return “each and every day!” That (emotional) investor then sees a way for them to recover from their losses, so what do they do? They pull out their coins, exchange for ETH or BTC and buy-in on a platform like BitConnect! And I think we all know how that one ended.
The important thing to remember when investing is to avoid almost any project that sounds “too good to be true,” because it probably is. Do your proper due diligence before making an initial investment and ignore the hype around fraudulent lending platforms with “secret trading algorithms.”
This last example is fairly similar to the Ponzi and Pyramid schemes, though even more detrimental for investors. For Ponzi schemes, users generally start to see the decline of the platform and recognize that the company can’t continue to bring in new money indefinitely. Because users can sometimes see the structure begin to crumble before them, they may (or may not) have the opportunity to escape before complete implosion. Either way: don’t risk it.
On the other hand, you have exit scams. Perhaps the most nefarious action in the crypto community, exit scams are essentially fake initial coin offerings (ICO’s) that draw in investors looking to profit from the launch of the coin or token. However, after gaining enough attention and raising funds for their so-called “pre-ICO sale” (usually requiring BTC or ETH payments from investors) the “team” disappears without a word. The “official” site is taken down, their social media presence swiped clean, and your money gone. Bummer.
While this is certainly the worst case scenario for investors, it’s also a relatively easy problem to prevent. The most effective way to avoid being caught in an exit scam is to do an appropriate amount of due diligence before handing over any BTC, ETH, or USD to an up-and-coming project. A lot of this risk can be mitigated by standard practice measures for evaluating a company or team. Watch out for aggressive marketing tactics, lack of a developed roadmap or plan,and lack of a presence from individual team members on professional platforms like LinkedIn. If the project is being run by someone with a major reputation in the FinTech industry, the chances of them exit scamming to make a few thousand dollars are rather slim. Use your common sense on this one and do your research!
It should be mentioned that while there are plenty bad actors in the market, they are not representative of the crypto community as a whole. As with any emerging sector of the economy, there will always be those looking to take advantage of a new shift in attention. By following the industry’s best practices on security, and a little common sense, investors can confidently enter the markets with the knowledge on their side.
The above article is entirely the opinion of the author and should not be taken as advice. Before you invest in anything, especially crypto, you should seek legal and professional advice. The company, site or author is not responsible for any losses or decisions made as a result of this article.