As cryptocurrency becomes more popular, more and more scammers come out of the woodwork.
Scams often revolve around ICOs (new coins that offer a chance to buy in early at a discount). However, there are other types of scams to watch out for.
In a very general sense one should watch out for:
Anything that isn’t buying crypto directly: If there is an opportunity to give money to someone to invest for you… its probably a bad move. If you don’t hold your private keys directly, or if you don’t otherwise use a trusted source like Coinbase (a hybrid wallet-broker), you are playing with fire. Not saying there isn’t opportunities like crypto hedge funds or the GBTC trust on the stock market, but in general the idea that you’ll give someone a bunch of money and they will turn it into more money and give it back to you is shady.
Ponzi schemes: Any coin or coin-like gambit where getting other people to buy in results in you moving up a tier and getting more coins. The more complicated the structure, the more likely it is that it is a scam. Not everything that works this way is a scam… but if something says “this isn’t a pyramid scheme,” as a rule of thumb, RUN. If a coin isn’t listed on major exchanges, RUN.
NOTE: OneCoin, Bitpetite, and REcoin have all been essentially been shown to be scams. Bitconnect is the latest odd cryptocurrency gambit in question (the verdict is still out on that one). These are just some examples of things that are Ponzi-like and in cases don’t involve investing in crypto directly.
“Fake ICOs”: The SEC recently warned against scam ICOs. This was a wise warning. Speaking in loose terms, let’s say that for every 10 ICOs 1 will be a scam, 8 won’t be successful, and 1 will do well. If you were a venture capitalist, you might invest in 10 companies with the hopes that one does well. This is reasonable with ICOs too, but you need to vet the ICO. If you are unsure, wait until the coin is released on the open market to buy. ICOs can get hyped hard online, and it can be easy to get overly excited.
Odd Forks: Bitcoin Cash ended up being an excellent investment, Bitcoin Gold was a little shady (who knows what the result will be?). Segwit2x has a lot of controversy around it and isn’t supported by Bitcoin Core. Not every hard fork is created equally. In general one shouldn’t chase “free coins” created by hard forks. If they do, they have to be ready for anything after the fork. With Bitcoin Gold, if you bought Bitcoin right before the fork, then got out after (when Bitcoin was down), all for the hope of getting Bitcoin Gold, this likely worked out poorly for you given Bitcoin and Bitcoin Gold’s current values. Sure, Bitcoin recovered after the Gold fork, but will this be true for Segwit2x? We don’t know. It has happened yet, but there are possible cases where forks do more harm than good.
“Fake News” or “Real FUD”: Sometimes the talking point of the day revolves around how exciting it is that Bitcoin is doing so well. Sometimes its about how neat ICOs are. Sometimes its about this giant tulip bubble where everyone is going to lose their shirts. Sometimes its about state-level bans. Sometimes its about states embracing crypto. Good news and bad news can come at you like a ton of bricks and distort the markets. When that news is fake, it can be really frustrating. Watch the news. Not only does it have an organic effect, but it also offers up a reason for manipulators to push the price up or down.
“Fake Prices”… That is, Bots and Whales Manipulating Prices: Some people say, “there are some whales (people with many coins and fiats) manipulating the crypto market.” Like, say, someone with crazy capital using spoofing bots to push up BTC and suppress alts during the months of Sept – Nov (exaggerating the trends in those months). Or, like, a group of investors with deep pockets coordinating a pump and dump of your favorite rando alt at the expense of the inevitable bag holder (person who holds past the dump). When people don’t know a ton about crypto, or when they have a case of the crypto-mania, they look at Bitcoin’s price and exclaim “**bullish**.” That is reasonable. However, if you discount manipulators and think all action is organic action, you could be in for some pain when the next correction comes. If a whale is propping up weak knees, or if a whale is suppressing organic growth, or if a whale is creating artificial growth, what looks one way today, could really be another in reality. $5k Bitcoins seem reasonable when we are there, but I mean, why then was China panic selling $3.2k bitcoins in September? What I am dancing around here is this concept: “be aware of your environment and protect your internet money from robo-whales?” The future is awesome, but it can also be a little like a bizarro version of the Wild Wild West filled with robots (see: that Will Smith movie with robots).
“Fake Wallets”: There are fake wallets out there that steal your coins. When a coin forks or a new coin comes out and people are confused, it isn’t uncommon to see fake wallets pop up. Make sure to use wallets officially endorsed by the entity or community behind the coin. If you are unsure, do more research. Following random online instructions can be a really bad move.
Those are just some, not all, of the scams out there. Not everything we noted above is equally scammy, but they are all things to watch out for.