The cryptocurrency space has been awash with several incidents of scam since Bitcoin’s rather phenomenal rise to fame in late 2017. Since then, the market has witnessed a proliferation of digital assets, as well as a rise in the number of scam cases. This is largely due to the fact that the space is loosely regulated and still enjoys a high level of anonymity.

At Masternode Buzz, we are committed to keeping the cryptocurrency space (particularly the masternode space) safe. In this article, I explore some of the most common scams in the crypto space and how to avoid them.

Phishing

Phishing scams target your account information – username, password, and private key. In these types of attacks, scammers send unsolicited emails pretending to be from your crypto exchange or wallet provider.

These emails typically contain a link to the login page of your wallet or exchange. While you may feel that you are on the official page of your crypto exchange, you may actually be on a scam site that looks just the same. And the moment you enter your account details, you would have unknowingly given the scammers all the details they need to log into your real account and steal your funds.

A phishing email can come in several forms and you must be vigilant. For example, a scammer decided to catch the attention of potential victims through a Binance giveaway.

To avoid getting scammed from phishing attacks, always double-check the URL you are visiting. As a rule of thumb, do not click on any suspicious links emailed to you or disclose your private key to anyone. Also, it is a healthy practice to visit a site from the URL already saved on your PC or mobile device instead of via a link.

Fake Exchanges and Wallets

Like I stated earlier, the cryptocurrency space is loosely regulated and as such has witnessed a number of high-profile hacks and exit scams. To avoid losing your hard-earned money, you should be wary of fake cryptocurrency exchanges and wallets.

Whilst I wouldn’t want to tag any exchange or wallet a scam or a potential flight risk, it is important that you do your due diligence before depositing funds or downloading a wallet app. To be on the safe side, stick with well-known exchanges. And where that is not possible, be sure to Google the platform to see what other users are saying.

Impersonation Scams

The most recent example of crypto impersonation scams was Twitter’s hack. Unscrupulous individuals somehow managed to hack 130 Twitter accounts on July 17. Several high-profile accounts including the accounts of Bill Gates, Elon Musk, Barack Obama, Kanye West, and Jeff Bezos were all compromised. The attackers then sent out tweets from these accounts offering to send $2,000 worth of Bitcoin for every $1,000 that is sent to an anonymous Bitcoin address. Sadly, a number of Bitcoin enthusiasts (probably noobs in the industry) fell for the scam.

It’s a no-brainer. Celebrities or tech moguls don’t do cryptocurrency giveaways on social media. If it sounds too good to be true, then it most likely isn’t too. Secondly, although there are ways to get free cryptocurrencies and projects sometimes do giveaways, it shouldn’t involve you sending money first.

Ponzi and HYIP Schemes

Ponzi and high-yield interest programs (HYIPs) have been around for a very long time, even outside the cryptocurrency space. This simple but alarmingly effective scam capitalizes on people’s greed. They lure in new investors with a promise of unusually high returns.

Such programs have no product to market. Even when they do, the high ROI makes the business model unsustainable. The program may survive for a while but eventually comes crashing down when new investors stop entering the system.

As a litmus test, if the offer of a scheme is significantly higher than what traditional markets are offering, then there is the likelihood that it is a scam. Another red flag to watch out for is if the project is hinged on recruiting new members to enjoy bigger profits.

When it comes to Ponzi schemes, you need to look beyond the initial reviews. You will always see people who promote the platform, especially if it is still new. By the time the negative reviews start rolling in; it might already be too late for you.

Online Mining Scams

I have been a victim of online mining scams twice. The first instance was with the now-defunct HashFlare and the second was through a contact who claimed to have a mining farm. In both instances, I lost my investments.

While there are several legitimate cloud mining services out there, there are also mining scams as well. Recently, I’ve been seeing people promote Ethereum mining contracts; whatever that means. From experience, I know these schemes are bound to fail.

In general, avoid all cloud-mining services. If you are interested in investing in a particular digital asset, it is best you just buy and hold, as opposed to investing in a mining scheme. There are so many things that could go wrong in a cloud mining contract.

Bonus List

In addition to the crypto scams discussed above, here’s an extra list of some other common crypto scams you should look out for.

  1. Individuals who sell cryptocurrencies or gift cards for less than the market value. Always use verified platforms and never send crypto to people you can't verify.
  2. DMs from the admins of crypto channels on Telegram/Discord asking for your private key. This is another form of impersonation scam. Do not share your private key with anyone. All communication should be through official channels. Admins don’t also ask for money.
  3. Wallet update scam. Do not update your wallet from unofficial sources. If the new wallet release is not on the project’s website, check their official Github page. Unofficial updates may be malware intended to steal your coins. A lot of fake update scams can be found on Discord, where bots contact you about a fake update.
  4. KYC traps. Before you deposit a huge amount of money on an exchange, try depositing and withdrawing a small amount to test if it works. Some exchanges lure users with impressive offers and then turn around to demand KYC verification (that is never approved) once it is time to withdraw.

The Scam Checklist

To wrap up this article, here’s a general checklist to help you avoid getting scammed in the cryptocurrency space.

  1. Think about it. If the offer seems too good to be true, avoid it. If you have any doubts please avoid it.
  2. Research. Do some background checks on the project before investing; who is behind the project, what are their qualifications, how recent are their social media profiles?
  3. Ask questions. Your first point of call should be to message support. How quickly did the project’s support respond? Asking about the project on forums like Reddit and Bitcointalk is also a wise thing to do.
  4. Consider the risks. Investing in cryptocurrencies is a risk. Only invest what you can afford to lose.
  5. Take your time. The fear of missing out (FOMO) has made many investors victims. Whilst it is appropriate to act on time, it is inappropriate to rush in without considering your options.