Although the belief that many lose their financial assets to crypto scams is true, many lose them by investing in worthless cryptos too. What triggers many to invest in such an endeavor where loss is guaranteed can be traced to the fact that many believe that these coins will reach the moon, similar to Bitcoin.
Many have witnessed the rise of Bitcoin in 2021, and it will again break its all-time high record of $64,000 in 2024. They are gripped with FOMO, or fear of missing out, as there was a time when each Bitcoin was trending for a few cents.
FOMO is so engraved in the minds of these investors that they end up investing in a lot of worthless altcoins. Scammers take advantage of such facts and rip off their unsuspecting victims.
If you are a crypto user or wish to enter the crypto market, then this article will guide you through the necessary steps to avoid falling for cryptocurrency scams.
Do your homework
You must take time out to do thorough research before investing in a crypto project or a token. Initially, it would be painful, but it is for the right cause. Instead of relying on word of mouth, you should search for the interested crypto project, coin, or token online.
Although there is no perfect checklist available, if you follow these steps, you can be assured that you will be investing in crypto that will be worth your while.
Analyzing the crypto
You need to first read the white paper, a technical paper that describes the intention behind the cessation of crypto. You do not need to be a software developer to understand it. Always join some online crypto community; most communities have software and crypto experts available as members or admins.
You can always ask for their help translating the white paper in question. You can also ask how the intended technology of the specified crypto will work and revolutionize the crypto world.
Also, do a background check on the listed developers or founders before you go ahead and invest in their cryptos. They could be involved in some other crypto-related activities or be notorious for failed projects.
Check out the smart contract
Almost all crypto-based projects are known to work on smart contracts, a set of codes that are programmed to run on a set of instructions on the blockchain.
These can be very technical since computer codes are involved. As mentioned earlier, you need to understand the people behind the project. You can also ask the crypto community that you have joined about these smart contracts.
If the code is weak, then the probability of the project failing is high. Since the entire crypto is based on a bunch of codes, any mistake in them can be dreadful. You can also gauge if the said crypto is not just a bounce of codes written by a scammer to collect money for a worthless coin through crowdfunding.
There is also a possibility that any hacker can exploit the weakness within the smart contract. One of the best examples is that of Polygon, which witnessed the biggest hack by a hacker, stealing 800,000 MATIC tokens. Although these stolen tokens were returned, they showed shortcomings within the coding of Polygon, which were later rectified.
Reputation risk assessment
Any crypto project without a good reputation is bound to fail. Developers or founders with a shady past can indicate that it is worth letting go of the project and save your precious money.
Although several crypto developers may have delivered the best projects, they chose to remain anonymous. Thus, it is important to understand the people behind the project. Most cryptocurrency scams are perpetrated even by crypto developers with ill intentions.
Many crypto developers also engage in pump-and-dump and rug-pull schemes where they abandon their projects and run away with the money of the crypto investors without delivering the promised cryptos.
For example, a popular South Korean series aired on Netflix called “Squid Game,” where the anonymous developer created a “Squid” token and the price of it surged due to the hype. After sufficiently reaching an all-time high, the developer ran away with the money, leaving many with worthless coins.
Many social media influencers also jump on the bandwagon of hyping certain cryptos for their nefarious purposes. Some might even rip off their victims by promising a crypto project and running away with the money without delivering it.
For example, Logan Paul, a popular social media influencer, fooled his audience twice. First, he failed to deliver on his promised “Dink Doink,” a cryptocurrency. The second time he failed to deliver a crypto-based online game, “Crypto Zoo,” In both instances, his followers invested a huge amount of money, but he simply chose to run away with the money without delivering on his promise.
Keeping your crypto wallet safe
You must keep your private keys safe, as they are used to transfer your crypto holdings. These private keys, which are made up of strings of alphanumeric characters, should be preserved with caution.
With the current market conditions where crypto exchanges are going bankrupt due to poor management of funds and their security policies, it is advisable for you as a crypto user to invest in cold wallets or hardware wallets. You can always open a new account with a reputed and regulated crypto exchange, but you cannot recover your lost crypto holdings.
When you wish to trade, these offline wallets ensure that they can only be accessed by you. Thus, these offer you the best protection against cyber threats.
Although there are several hardware wallets or cold wallets available online, you should research the ones that serve your best interests. Having two-factor authentication will further secure your wallet from any cyber threats.
You should avoid buying a second-hand cold crypto wallet, as it could be rigged by a hacker to send all your crypto holdings once you try to sell them off. And it is for the same reason that you should avoid buying a cold crypto wallet from a third party.
Final thought
You should make it a habit and get yourself familiarized with both crypto and non-crypto-related scams since many scams were pulled off by similar scammers. The traditional fiat currencies involved in scams are now replaced by cryptocurrencies.
You should also make a habit of differentiating between proof-of-work and proof-of-stake, as you may get a rough idea of what the intended crypto project, coin, or token will do in the future.
Read More: How to Buy and Sell Cryptocurrency Online
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