Crypto is finally reaching the mainstream environment, and it is ever closer to the idea of contributing to society.
But as the good things rise and enlarge in number, so do the bad things.
The crypto-space has always been a favorite place for malicious people, but now more than ever they’re trying to increase the efficiency of their activity.
Scams are evolving incredibly well, and it is crucial to defend ourselves by gaining knowledge:
Scammers rely on the inexperience of traders and investors that end up learning the lesson too late.
In this article, we will analyze how scammers develop their weapons and what types of scams are circulating to this day.
The Root Of All Scams
There is a specific idea that drives the efficacy of all scams: making money fast and without effort. This concept is as old as money itself, yet still valid, and with much probability, it will always be.
People fall into this trap because everyone likes free pleasure, but this attitude can be regarded as one of the most powerful human weaknesses since free pleasure does not exist.
To every action, there is a reaction, and there is no such thing as something for nothing.
Whatever thing that you can do that gives you pleasure without asking anything in return such as commitment, effort, labor, demonstration of care, or sacrifice, is going to bring you a consequence/reaction which is equal and opposite.
In the case of scams, falling into the trap of free money is itself the pleasure, and the consequence is the reaction to that foolish belief.
As there is a central idea behind scams, there is an equally powerful concept as the positive counterpart, a statement that is incredibly helpful when it comes to defending oneself from these traps: IF IT IS TOO GOOD TO BE TRUE, IT IS FALSE.
Identify scams in the first place. Stick this sentence in your head as a supporting pillar of your trading and investing attitude, and you’re going to naturally question everything that promises you free gains and temptations.
Scam-coins
These are the most powerful of all crypto scams because they are built to come out as valid investments.
Of almost 14,000 crypto assets, very few are legitimate projects, created to last in the environment and bring innovation to it. This means that more than 95% of coins are mere scams.
A scam-coin is an asset originally conceived to fail after a cash-out event operated by the developers and collaborators to the detriment of investors.
What differentiates scam-coins is the time it takes to reach the final goal. Some of them last days, others last an entire BTC bull run. The more time it takes, in the sense of which impact the coin is supposed to have, the more the scam is decorated and credible.
It is very important to learn how to spot these malicious coins and avoid investing in them.
Characteristics of scam-coins
These scams often share a list of attributes that define their malicious activity, even if they are not immediately recognizable. Building experience in evaluating them will help the trader in protecting his capital.
Spamming activity
Scam-coins are often spammed through social media to reach as many people as possible and get them into the trap.
Scammers utilize social media hacks as fake comments, likes, upvotes, and posts to indirectly boost the credibility of the coin. Lately, they have also discovered how to transform unaware influencers into advertising machines: they pay these personalities to sponsor the scam project and attract large audiences into it.
These methods are very cheap; buying thousands of fake comments spamming a hashtag of the coin can cost 10 dollars or so.
To protect yourself from this mechanism, always consider: never rely on what people say about an asset, do your research. Do not trust the herd.
Fake trading volume
Trading volume is often considered to decide whether to trade an asset and to determine it as a safe environment. Unfortunately, it cannot be counted as a guarantee in many cases.
Scammers can fake the volume of their coins by repeatedly buying and selling the same coins between their own wallets. They can do this because they possess the vast majority of the supply, and every movement contributes substantially to the trading volume of the coin.
A big scam-coin may have a very large volume, let’s suppose 500MM: in reality, it is all performed by the same wallets exchanging the same coins over and over.
This phenomenon is called wash trading and it is illegal manipulation, meant to falsify the real activity of the asset in the market.
To protect yourself from this, always exclude any volume calculation which comprehends zero-fees transactions and “incentivized” trading activity.
Unlisted in major exchanges
A lot of scam-coins cannot be traded into relevant exchanges, resulting in a trading activity operated through swapping platforms.
Major exchanges are very selective about which crypto-assets enlist into their environment: being potentially subjected to regulation, it’s in their interest to avoid everything that could be legally harmful to their business.
To be enlisted into these majors, a coin must first pass a series of evaluations that include technology properties, team reliability, commitment, history of the project, intrinsic value, etc.
If the asset is verified to be legitimate, it may obtain the enlisting. A scam-coin will never pass the test unless developers are incredibly good at making it seem valid crypto.
BUT:
Be aware that this does not guarantee that all the crypto-assets enlisted into these exchanges are worthy of your money.
If a coin is not listed in any relevant exchange, but can only be traded through swapping platforms, it most likely is a scam-coin.
In general, avoid any investment over swappable-only crypto assets.
Bait-based names
Coins named after memes or popular terms, or even after an influent personality, are 100% sure scams. These assets have zero value other than bringing a word that represents the trend of the moment or a key crypto-term.
Developers of such scams only rely on those undisciplined traders that try to speculate into these risky environments, or they simply want to attract people who don’t know how to trade and they just throw money at the most appealing thing they see in terms of gains.
The successful trader does not believe in these assets and he is not interested in them unless he sees speculative opportunities, which he knows how to deal with, being knowledgeable and experienced. He never considers these as long-term investments.
To protect yourself from these “moneybait” coins, never be influenced by the social trends and memes into the environment, never evaluate an asset by how it is named.
Ponzi Schemes
Another kind of big scam is a Ponzi-based scam. The very first mover here is the same as always: usurious rates of return.
Ponzi schemes in crypto function through the recycling of the capital between earlier and new investors. In simple words, the capital of new investors is utilized to pay the earlier investors, giving the illusion that the investment has brought legitimate profits.
These fraudulent activities ultimately collapse when the capital provided by new investors is not enough to arrange “profits” for earlier investors. Usually, the Ponzi schemes reach their final stage when people start suspecting, or consequently to a market crisis.
There is a huge amount of Crypto-Ponzies that have been incredibly successful in scamming people; the most popular surely is Onecoin, which lasted for 5 years and defrauded almost 6 billion dollars.
Ponzi schemes in crypto can be spotted through aspects such as difficulty in withdrawing the invested capital, illogical promises of consistent returns with low risk, unclarity about the dynamics behind the profits.
Whenever you’re being offered an investment that has such effects, avoid it completely and do not get involved in it.
Useful tip:
to become skillful in spotting Ponzi schemes, analyze how scammers used to talk or act when they were in the process of defrauding people. The main attribute of a schemer is his reputation, and he/she would do anything to enlarge it. An example: Onecoin famous conference.
Giveaway Scams
This type of fraud is pretty recent, and it has been revealed to be very efficient. To this day, social media have become filled with it and a lot of money has been stolen, especially from gullible newcomers.
Have you ever seen a live stream announcing a “SEND 1, RECEIVE 2 BACK” giveaway? That’s a scam, and it should be pretty obvious. Let’s repeat this one more time:
WHEN IT IS TOO GOOD TO BE TRUE, IT IS FALSE.
The crooks behind this increase the credibility of their activity by attaching to it the presence of an influent personality involved in crypto-assets. They make up fake tweets where VIPs announce giveaways, or even utilize past interviews or videos and sell them as live streams. In addition, they manage to find thousands of viewer-bots, likes, and comments. Generally, the elusive reason is to incentivize the coin.
In some advanced cases, you can also find a “customer service”, where you can talk to an agent that helps you in the process.
All of these things are fake or malicious, and they are only meant to steal money from traders and investors.
If the giveaway requires you to give away something, you’re not the one who receives the prize. Reject everything that asks you for money first, or else require personal/secret information.
Pump & Dump Scams
Many people wonder why there are coins that gain thousands of % in a couple of hours, even minutes, only to dump soon after. These episodes are caused by Pump & Dump scams around the crypto environment.
Pump&Dumps can be both long-term developed or relatively instantaneous.
Long-term P&Ds develop through large periods and for so they are difficult to distinguish. They often represent entire assets, and the victims essentially come from everywhere in the market.
Instantaneous P&Ds are performed within very small timeframes and it is easier to spot them because they leave an abnormal footprint over the charts, such as very big green candles instantly followed by equally big red ones. These episodes are organized through social media into P&D groups; The victims are majorly the members, while the winners are the group managers that bought the targeted coin just before their announcement and sold them to the buying participants.
As always, being knowledgeable and disciplined protects you against such malicious dynamics and offers. A solid understanding of price and its dynamics gives a clear image of who is really going to profit from these scams, i.e organizers.
Fake Conversations
These are surely the most annoying ones for content creators and influencers, but also for people who like to scroll through real comments.
Fake gurus and crooks came up with the idea of staging fake conversations between bots in the comment section of a video or a post. At first sight, they seem legitimate people, complimenting the creator/influencer and expressing a personal opinion or analysis; then a bunch of fake likes and replies take place, which eventually bring the reader to a mentor’s phone number or email.
In the case the unfortunate user falls into the trap, he gets scammed by the alleged mentor who asks him for money.
These situations are spammed everywhere, and they can easily mislead ingenuous people who are looking for true mentors and teachers.
To protect yourself from these scammers, learn to distinguish bots from real people and never contact individuals whose private contacts are widespread randomly on the internet.
A true mentor would never permit his contacts to be freely given away.
In conclusion
The crypto asset class is relatively newborn, and because of this, it is really easy for scammers to take advantage of the environment and attract people into their fraudulent business.
Scammers always say everything and nothing at the same time. They pack up their words very nicely, but there’s nothing substantial into them, no solid content: just fried air.
The best protective shield is knowledge, which comes from experience, learning capability, and discipline.
For all those things that are not yet experienced, skepticism comes in our aid: always maintain a healthy dose of doubtfulness. If you want to hear more about this, it has been deepened into 10 Signs Of A Good Trading Mindset (hyperlink).
By paying attention to all the little details that show signs of malicious intentions, the good trader can efficiently preserve his capital and his efforts against fraudulent activities.
Everything described in this article has the sole purpose of being informative and providing general information. The author has no intention of providing any financial advice, legal advice, or tax advice. Do not rely on this article to make investment decisions. Seek professional help before making any such decision. The author does not take any responsibility for loss or damage of any nature. The use you make of the information contained in this article is your sole responsibility.