Cryptocurrency has become a popular investment option in recent years, but it’s also become a prime target for scams. In fact, crypto scams are on the rise all over the country, and Coloradans are are seeing massive financial losses from them.
In 2021, Coloradans reported losing about $25 million to investment scams. To avoid becoming one of these victims, it’s important to educate yourself on how to spot and avoid cryptocurrency scams.
At Boxelder Consulting, we’ve been helping hundreds of clients navigate the choppy waters of bitcoin and cryptocurrency taxes for years, and we want to ensure we provide the education needed to stay financially secure. With that in mind, here are a few different types of crypto scams that you should keep an eye out for when investing.
Common Types of Cryptocurrency Scams
Fake Websites or Apps
Creating a fake cryptocurrency trading platform or fake versions of official crypto wallets is often how scammers trick their victims. They will often have similar, though slightly different, domain names from legitimate sites that they are trying to mimic. Fake crypto platforms are typically one of two types:
- Phishing Pages: The site will prompt you to enter sensitive information, such as your crypto wallets password, recovery phrase, and other financial information. They will then take your information and use it for nefarious purposes.
- Straightforward theft: Initially, the site will allow you to withdraw some money so that you will perceive it as legitimate. However, at some point, the site will shut down or decline your request to withdraw more of your funds.
Pump & Dump Scams
This type of scam involves artificially inflating the price of a cryptocurrency through false or misleading statements in order to sell it off at a higher price. Scammers will often create fake social media accounts or participate in online forums to promote a particular cryptocurrency, in an attempt to drive up the price.
Fraudulent Initial Coin Offerings (ICOs)
An initial coin offering is a way for start-up crypto companies to raise capital. Typically, customers are promised a discount on the new cryptocurrency in exchange for sending established currencies, such as Bitcoin. In much the same way, scammers will create a fraudulent ICO with a promise of high returns. However, in many cases, the ICO is simply a way for the scammer to raise funds, and the cryptocurrency is never actually developed or delivered.
Cloud Mining Scams
Cloud mining scams involve offering to mine cryptocurrency on behalf of an investor in exchange for a fee. In many cases, the operator of the scam will simply keep the fees without actually providing the promised mining services.
How To Protect Yourself From Cryptocurrency Scams
Though crypto scammers are more cunning and convincing than ever, there are still ways to protect yourself from becoming one of their victims.
Secure Your Crypto Wallet
In order to invest in cryptocurrencies, you’ll need a “wallet” with private keys. If anyone asks you to share your keys in order to invest, it is highly likely to be a scam.
Do Your Research
Not understanding how a particular cryptocurrency works makes you a much easier target. Make sure to do your research before making any investments. See if there is a whitepaper you can read, find out who runs it and how it operates, and look for genuine reviews.
Ignore Cold Calls
Whether it’s over a phone call, text message, or social media message, someone contacting you out of the blue with a money-making opportunity is more than likely to be a crypto scam. Never disclose any personal information or transfer money to someone who cold contacts you.
Take Your Time & Sleep On It
Scammers will often pressure you into investing quickly, potentially by offering bonuses for giving them your money immediately. Taking your time may make the scammers assume you’re a lost cause and leave you alone.
Keep Your Money Safe From Crypto Scams – Schedule A Tax Consultation With Boxelder Today!
At Boxelder, we’ve helped thousands of people and businesses manage their finances, including their cryptocurrency investments. If you want a cryptocurrency expert in your corner, reach out to a Boxelder accountant today.