Ready to make an investment but not sure if the coin you’re looking at is legit? Here are our tips on how to check for signs if a particular crypto could be a scam. Cryptocurrency is becoming more and more popular today. However, the volatile markets and the lack of related regulation in most countries make it a risky investment, albeit one that can pay off if done right.
The unregulated nature of cryptocurrency is a big reason why a lot of bad actors carry out a crypto scam. As research shows, people fall for such scams all over the world, and in 2021, they lost over $14bn to crypto scammers. Since this market is so unregulated, it’s next to impossible for them to get their money back. Even with the involvement of law enforcement, it’s rare that they can help return everything that you’ve lost.
What can you do to check and verify a particular cryptocurrency?
So, the only way to prevent losing your money is for you to be cautious when making decisions to invest and learn to recognize a cryptocurrency scam. When taking such a decision, you should make sure that the currency on offer is legitimate and that the company that offers it is a real provider rather than a scammer.
Crypto scam? Currency verification!
Given the lack of regulation, it’s hard to verify whether a cryptocurrency unit is a legitimate one. So, if you’re offered to invest in a specific coin, take your time to research it. Ask yourself these questions:
- Who’s the team behind it? Are they well-known thought leaders like Vitalik Buterin (more on influencers later)? Do they have active social media (LinkedIn, Twitter) presence?
- Is there a whitepaper? Any legit cryptocurrency project that’s not a scam should have a whitepaper behind it. It specifies the purpose and technology behind the currency, as well as its historical performance. You can check this database of whitepapers to see whether the currency on offer to you has one. If not, that’s a red flag. If there is a whitepaper, make sure to read it through, highlight what’s unclear to you and do further research.
- What’s the reaction of people behind the coin when I ask them more questions? Are they being cagey and evasive when I try to get more details? If yes, ask them directly whether this is a scam and watch their reaction – it’ll be telling.
Hosting provider and website verification
Sometimes, scammers would use fake company websites with domains closely resembling real ones like Coinbase. Such sites would request your crypto wallet’s password and financial information or unexpectedly shut down when you try to withdraw.
So, before deciding to use a website of a specific company, make sure to:
- Research the name exactly as it’s spelled in your browser – best to copy the name from the URL and run it through Google (e.g., if the website is http://www.coiinbase.com, search for Coiinbase and if it gives you Coinbase as results instead, press “search instead for coiinbase.”
- Run the domain name through Whois – if you know for a fact that a legit cryptocurrency provider is registered in country A, chances are that if a similar-looking domain is registered elsewhere, it’s a fake.
- Don’t click on suspicious links on the website, and check for grammar and spelling errors.
- Run the images on the website through reverse image search – if they show up as stock photos rather than legitimate pictures of the company’s management and screenshots, something’s not right.
- Check the terms and conditions – any website that wouldn’t have any is suspicious. Cryptocurrency may be unregulated, but you’re still entering a contract with a platform, and that contract requires Ts&Cs.
- If a company name/number is mentioned in the terms and conditions of the website, check the company in the local registry of the country of origin (you can use this list of overseas registries). These registries would usually confirm whether the company really exists, the key managers and shareholders, the economic activities, and other information. Google the names of shareholders/CEO – if they’ve previously been implicated in scams or something else, it’ll likely show in your search results.
- If there’s a “promise of guaranteed return” or “no risks,” the site is likely a scam – no investment can guarantee a return, and every investment, however secure, carries a doze of risk with it.
Even when a website does turn out to be a genuine crypto trading platform, make sure that any decisions you make are thought through. Don’t invest until you understand exactly what’s going on – look up any terms you don’t understand and, ideally, get professional advice. Also, make sure you read the agreement/Ts&Cs with the platform. If they don’t accept responsibility in cases of your money being stolen, think twice.
Here are some more tell-tale signs and examples of scams.
Fake celebrity endorsements for a crypto scam
There are influencers like Elon Musk that promote cryptocurrency. And if you’ve gotten into crypto thanks to his Dogecoin endorsement and it paid off for you, that’s excellent.
One word: Doge
— Elon Musk (@elonmusk) December 20, 2020
However, the success of influencers, including celebrities with a large social media presence, means that scammers can also capitalize on it.
For instance, if you’re a fan of Elon Musk who tweets about him and suddenly get a direct message from someone claiming to be him, be skeptical and don’t engage. Here’s how you can tell that it’s a scam:
- The username is misspelled (e.g., @ElonMask or @EllonMusk).
- The request contains some sort of payment ordination request, e.g., their favorite charity, with a link or a request for a wire transfer.
- There’s no blue checkmark signifying a verified account.
- When you Google the username, nothing comes up, or you see news stories about scams.
That’s not to say, however, that there isn’t room for being inspired by celebrities’ enthusiasm for crypto investments. However, it’s important to be cautious and remember that celebrities are people too and might not be investment experts. Basically, treat any crypto-related advice from celebrities and influencers the same way you treat any other product’s endorsement by them – trust, but verify.
Marketing emails and social media ads for cryptocurrencies
The clickbait emails and ads with titles like “BITCOIN GIVEAWAY!” or “X celebrity selling off crypto assets NOW!” are designed to make people anxious and excited. However, they often sound too good to be true – and that’s the principle you should follow. If an ad, an email, or a Telegram message sound too good to be true, they probably are. Here’s what you can do to protect yourself in these cases:
- If a message with a “too good to be true” cryptocurrency investment offer claims to come from someone you know, try to speak to your acquaintance in person to verify what they’re up to – chances are it’s an impostor or your friend’s been hacked.
- If you did click on a link or an ad, don’t leave any personal details if prompted, and exit the site ASAP. But try your best not to click to avoid such ads popping up in the future.
Dating sites and social media platforms
Investments and dating just don’t mix. Despite some people acting to the contrary, there are reasons why LinkedIn isn’t used for hooking up, and VCs don’t discuss pre-seed investments on Tinder.
Exclusive: A romance fraudster posing as Hollywood star Nicolas Cage conned a woman out of thousands of pounds – as reports of online dating scams soar during the pandemic https://t.co/3HY0ani6ml
— David Mercer (@DavidMercerSky) January 20, 2022
So, if someone on a dating site offers to discuss “a huge investment opportunity” or a way to get rich quickly or asks you to download an app that looks suspicious – a phenomenon known as CryptoRom – you’re likely being catfished. Block this person immediately.
This type of catfishing isn’t restricted to dating sites, of course – if you’ve met someone like on social media, they’re probably scouring it for that very purpose. These people are very good at social engineering, whatever platform they’re using, and sometimes the scheme looks very legitimate, including real “customer support” people. In the first few months of 2021, the FBI fielded over 1,500 CryptoRom scams reports – so be careful in your online relationships.
A crypto scam can also be done differently to make it look legit on social media. You should pay attention to shills, who are paid social media users who simply try to hype a particular coin with fake profit updates even if they never invested themselves. Beyond that, be wary of things like “airdrops.” Nothing is free in life, and you should be careful about any such offerings. Why would anyone give away money, even if it’s in a trendy currency?
Generally, the best ways to tell that a cryptocurrency investment offer is a scam are:
- Someone’s being very pushy and rushing you to invest today.
- Their messages or websites are riddled with spelling errors.
- They’re requesting your personal information.
- They promise high guaranteed returns and no risks.
- They’re claiming to be a celebrity from “secret accounts” and are asking for money.
- They’re claiming to be someone you know and are asking for money. In these cases, it’s always best to verify in person.
If you’re interested in even more info about how to verify if any particular new cryptocurrency or coin is legit or might be a crypto scam, you can also watch the featured video below by Game Thinking TV with Amy Jo Kim, Amy Wu, Holly Liu, Beryl Li, and Libby Schultz. Stay safe and make good investment decisions always!
YouTube: How do you know if a crypto project is legit or a crypto scam?
Photo credit: The feature image has been taken by Shotprime Studio. The photo showing the man on a couch was prepared by Bullrun. The screenshot of the Google search results was taken by the author for TechAcute.
Source: Chainalysis / John Biggs (Coindesk) / Kevin Peachey (BBC) / Wikipedia / NDTV Business Desk / Sophie Alexander, Misyrlena Egkolfopoulou (Bloomberg) / Alexander Martin (Sky News) / Coinbase / Katie Fiore (FastCompany) / Jagadeesh Chandraiah (SophosLabs) / Jeremy B. Merrill, Steven Zeitchik (The Washington Post) / Jazmin Goodwin (CNN Business) / AARP
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