How To Spot A Crypto Scam?

The crypto realm is attracting more and more people with each passing day. The convenience, flexibility, and ever-growing use make cryptocurrencies a worthy alternative to conventional means of payment. To meet the high demand, crypto projects provide a diversity of solutions from exchanging coins to crypto loans. Alas, scams have become a frequent occurrence among a great variety of offers. It is vital to learn how to tell apart a legit service from a fraudulent one. Close analysis of a project’s reviews, like the one of ChangeNOW, is a good way to get assured you pick a reliable and trusted provider. Here we provide some tips on how to spot a scam.

Is the Scam Problem Really Serious?

While some users are only exploring the crypto market, an army of scammers has already found numerous ways to profit off someone’s gullibility. According to the US Federal Trade Commission, about 46,000 crypto users lost over $1 billion from January 2021 through March 2022, which accounts to about one fourth of all reported losses. Hold on, there are some more jaw-dropping stats: the number of crypto crimes in 2021-22 skyrocketed almost sixty times compared to 2018.

That’s a warning tendency indeed, and the projections are no better. The buzz around crypto is unlikely to cease in the foreseeable future, so fraudsters will be finding new ways to fool around trusting users. Admittedly, the crypto community does its best to deal with scam outbursts, raising a red flag to any kind of malicious practices. Many decent projects have accepted corporate responsibility to keep the cryptosphere safe and comfortable.

When Should Red Flags Be Raised?

Scammers spare no effort in inventing new methods of stealing digital money. Most scam websites look legitimate at first glance, with positive reviews of customers, inducing promises, and a catchy design. Still, there are certain warning signs to watch out for:

• Someone is asking for your seed phrase

A seed phrase of your crypto wallet is like a CVC code of your bank card – it should be disclosed to nobody under no pretext. If someone under the disguise of an official representative is trying to fish out your seed phrase, just stop any communication with that person right away.

• Someone is offering you to get rich quickly

It’s an old truth that there is no such thing as a free lunch. If you are being offered easy money with minimal effort, you are most probably dealing with scammers who will just collect cash and drive off into the sunset. In most cases, they promise high returns on investments or ask you to pay fees in order to withdraw “huge profits.”

• Someone is charging you an unreasonably high fee

Most crypto platforms allow clients to register and use their services for free or charge some reasonable fees. If every action such as registration or money withdrawal costs a pretty penny, it is a warning sign that a platform is just trying to make money out of thin air. All fees and charges should be disclosed, as transparency is the key feature of legit platforms.

• Someone is claiming they have launched a new bitcoin

Counting cryptocurrencies is like counting the stars — there are a gazillion of them on the market. Unfortunately, some of them turn out to be fake tokens. Appealing to FOMO, scammers induce investors into putting their money in hype-upped coins. Subsequently, they just cash out and the crypto crashes to zero levels. Before investing in any crypto, do your own research to make sure it is a reliable asset.

• Someone is tempting you into buying a cheap but very promising crypto

“Once upon a time, bitcoin’s price was a fraction of a penny, and see where it is now,” this is a typical start to a fairy tale told by enterprising ICO launchers whose real intentions may be to set up a pump-and-dump scheme. The compelling argument dumpers often use is that it’s better to buy a promising cryptocurrency for a tuppence before it skyrockets. An artificially boosted rise in prices is a strong indication of a possible pump-and-dump scenario.

Ask for Advice to Clear Any Doubts

Before starting any relationship with a crypto project, it never hurts reaching out for a piece of advice from a neutral party. Unless you have some crypto-savvy friend by your side, you can scan through popular forums or ask the people there to share their opinion on the project in question. For example, Bitcointalk has a dedicated thread devoted to crypto scams. Members of this forum often warn each other about dodgy projects they come across:

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Beware of Fraudulent Twin Websites

This trick is as old as the hills, but it works. Crypto users fall victim to fraudsters who use the good name of reputable crypto projects for their shady dealings. To create a legitimate image and win users’ confidence, scammers give their projects names sounding alike some high-profile companies. There is also typosquatting which is intentional misspelling of domains targeted at those who incorrectly type a URL. Being pretty sure they deal with a trusted and reliable exchange, users lose their crypto assets on such websites.

Here is one of the recent examples. A Coindeskminers domain name had a fishy resemblance to CoinDesk.com, a popular provider of crypto news and analysis. The said website promised easy and fast returns. Users just needed to deposit any amount and multiply their investments almost instantly, but nobody warned them they would not get their money back. Put it mildly, CoinDesk was quite surprised by such resemblance:

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Think Twice Before Engaging with Custodial Platforms

You’ve probably heard about custodial and non-custodial platforms. What’s the difference? Custodial exchanges require users to deposit their crypto assets to the exchange’s wallet, so all transactions take place within this exchange. To get their money back, users need to withdraw it from the exchange. And here comes a counterparty risk, that is, if an exchange is attacked, it won’t be able to return users’ money. By no means we are implying that all custodial exchanges are a scam, but one should be especially careful when trusting their assets to some intermediary.

Alternatively, non-custodial platforms, such as ChangeNOW or ChangeHero, don’t store customers’ funds, enabling them to have full control of their digital assets. Coins are transferred on a blockchain: you just send the coins you are exchanging to a generated address and get the needed cryptocurrency to your wallet. It eliminates a counterparty risk. Even if an exchange gets compromised, users’ funds will stay safe on their wallets.

Bottom Line 

The crypto space is a breeding ground for scammers and fraudsters. Remember: all crypto transactions are non-reversible. Once your money is gone, it never comes back. The best way to protect your funds is to stay alert and do research before investing in any crypto or depositing money to any project. The research may include:

• scanning crypto forums and news feed for any negative reference
• surveying the presence of the project in social networks and its media presence
• double-checking the correctness of a domain name
• reading reviews on the project/crypto

These simple steps may help you keep not only money but also the confidence in the reliability of crypto.