Types of Crypto Scams and How to Avoid Them
Cryptocurrencies are now a major asset class that has attracted many corporate investors. After only about one and a half decade, the market capitalization has grown to over $1 trillion dollars. As the market grows, scams have grown with it also.
These scams come in different forms, and many investors fall for many of them at one point or another. Whether you’re an experienced investor or a crypto newbie, it is important to pay attention to these scams so that you’ll can avoid them. Here’s a list of the most common ones.
As the name suggests, non-fungible token (NFT) scams are scams involving NFTs. NFTs are becoming increasingly popular among people entering the crypto industry for the first time. Many of them first came in contact with NFTs and not regular cryptocurrencies.
Scammers have therefore leveraged NFTs and their popularity to defraud investors. Both experienced and new investors can fall for NFT scams though, since they are not easy to tell. NFT scams come mostly as counterfeits or fakes of authentic collectibles such as pieces of art, music, or any other NFTs.
What scammers do is to clone or mimic the original of a rising NFT collection and sell it at a much lower price. So how do you identify if it’s a scam? If the price of the NFT you wish to buy is much lower than the official market price, say on NFTpricefloor.com, it’s probably a fake.
Social Media Scams
Social media scams are on the increase, since social media is becoming more popular. Scammers have also taken advantage of the popularity of social media to scam users of such platforms. They achieve this mainly by hacking social media accounts.
Early this year, there were series of Ripple/XRP scams that were propagated using the accounts of prominent people. For example, they hacked the account of a state governor in India to promote one. Others have even come from a fake Brad Garlinghouse accounts.
The idea is to use an account with a large following that the target crypto community trusts. They then send out fake promos or giveaways, hoping that the followers will fall for it. To avoid this kind of scams, always suspect any promos from a prominent figure and check that it is the correct handle before accepting it as true.
Rug Pulls are a kind of scam associated with decentralized crypto exchanges (DEX). Decentralized exchanges rely on liquidity pools to survive. You cannot trade on such exchanges without the exchange having assets in liquidity pulls, and this is what scammers exploit to scam you.
For example if you wish to buy a new token – which is what you usually do on a DEX, you’ll need to use a known crypto asset like ETH or BNB to do that. You then get the token in exchange for your crypto. Eventually, the price of the token is expected to grow, and you would want to sell it for BNB or ETH.
However, the team behind the DEX can decide to be fraudulent and just withdraw all the BNB or ETH and abandon the exchange. This means that when you want to sell the token you bought, there will be no liquidity to facilitate that trade, because the team has withdrawn the ETH or BNB and left you with their token which doesn’t have any value.
It is hard to tell which DEX is fake and which is real, but you can reduce the loss by never investing more than you can afford to lose.
Also, try to use only known platforms such as Uniswap, Pancakeswap, and the rest. Before investing in any new token, take the time to find out if it’s a genuine project to avoid buying tokens of scam projects.
There are other scams, but these are the most common ones, and hopefully this guide will help you to avoid them. The primary thing is to avoid FOMOing into projects and also resist the tendency to be greedy.
The scam offers only attract greedy investors, but if you’ll just take some time to do some research, you can avoid falling for most of them.
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