Steemit Crypto Academy |Season 3 week 6 - Crypto Scams and how to avoid them

Happy new month to all crypto Academy students/Lecturers and welcome to week 6 of season 3. Thanks @yohan2on for this timely lectures.

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Introduction

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The number of cryptocurrency projects been introduced into the markets on a daily basis is quite alarming, it becomes difficult to even identify which is a good project and bad one. It is on this note the serious research must be conducted before investing into any of it. Looking back in time, we could observe that security wasn't so much of an issue when bitcoin was initially created but the adoption of other altcoins gave rise to the rate of crime experienced today.

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To this end measures are being put in place to cub this security problems but scammers are not always sleeping as they devise new means of stealing from investors. It is therefore necessary that everyone investing in cryptocurrency must also be abreast of ways and measures to prevent and avoid assets from being stolen by scammers.

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What is Cryto Scam

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Cryptocurrency operates on a peer to peer system which is decentralized and is not necessarily controlled by any third party but investor deal directly with the cryptocurrency owner via an exchange medium. For this reason, fraudster has decided to use this medium to steal from investors. Crypto scams is a fraudulent and deceptive act of stealing cryptocurrency from investors. This can be achieved in several ways we would discuss in the home work today.

Hackers are getting wiser by the day as they devise new means to steal token either by Hacking wallet of even creating a fake token for investors to buy and after that it dumps.

How cryptocurrency scams can be achieved.....

  • Hacking

This is the ability of a scammer to break in bulk of the systems connected in chains. Cryptocurrency is successful by virtue of where it is built, the blockchain. The blockchain cannot be hacked, but routes which leads to the blockchain can. This has posed serious concerns to even miners who are instrumental in cryptocurrency transaction verification, etc. Hackers have been able to find their way severally into exchanges where they steal huge amount of investor's funds.

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An example of this can be seen in the hack attack on a Tokyo based cryptocurrency exchange, Coincheck, it was reported that over 500 million dollar of users funds a have been taken away, though they acknowledged that the cyber-attack was carried out not by an insider. Source

  • Fake crypto token investments

Many see cryptocurrency as a quick get rich scheme and they often fall into this form of scam. In this form of the scam attack the scammers creates a sites where you can mine a particular tokens and even n invest your money in them. This investment sites promise very catchy returns and many have very high APYs and they lure many into falling for this projects and tokens. They shill the project through social media platforms, getting more persons on boards and once they reach their required target, you can never trace them, infact the site won't even open after that.

In the long run Some of these tokens created experience massive pumps but no liquidity for investors to withdraw their funds. Most of this scammers even link up with exchanges claiming they are in Patnerships but only to find out latter that it was all a scam. We are faced with such scammers every day, it is therefore necessary we become intentional about sites we visit.

Finally why people fall mostly into this form of scam is greed, seeking to get rich almost immediately. We must be careful as investors.

  • ICO fraud

Most project happens to launch their tokens through an Initial Coin Offering (ICO), in this way investors haven read through their website are able to investe and tokens are distributed. This is also a way to market the token and also raise funds for the project involved.

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Most ICO are quite risky while others are fradualent, risky because you don't necessarily know how well the token will turn out and fradualent because most people do it to steal from investors. There are many reports of ICO scams and at some point some ICO was canceled just like the one Plex-coin, a 15 million dollar ICO shut down by SEC. source. There are also cases where a coin is to be launched through ICO and scammers move ahead to create duplicate tokens maybe at cheaper rates which would attract people.

  • Wallet scams

The discussion and deliberations on Crypto scams can not be complete without talking about wallet scams. Recently most scammers upload fake wallets on the internet, sell to the public, investors not knowing start transferring funds to wallet and before you realize funds are gone.

Wallets are necessary to store our crypto assests just like we store money in our conventional backs, since most wallet are soft and have connection to the web it makes it quite easy for this scammers. Wallets can also be provided by centralized exchanges which usually are prone to attack, many have been serious victims to this.

A cold wallet is usually advised in this regard as the best Wallet to have and store your cryptocurrencies. They have no connection to the internet so hacking becomes almost impossible. It also advised that we protect and keep our seed phrase and other wallets codes in secure locations far from hackers to ensure maximum safety.

  • Crypto Giveaway

Cryptocurrency is a very interesting platform as you experience a new form of marketing, its usually called Airdrops. Most projects introduce the aspect of giveaways to promote their coin and create awareness to the public and in a long run increase the overall holders of the token. They are many examples of this.

Scammers have become wiser as they now create token called airdrops, giving a link you can use to connect to the airdrop site. They would ask you to claim the airdrop with some gas fee. This is the new trends in airdrop or giveaway scams. Some request you send 0 bnb, but we know that transactions aren't free. It is true that there are still genuine crypto giveaways but the market is flooded with fake giveaways.

  • Crypto Pumps and Dumps

This form is very rampant in the crypto market today. Nearly 10 or more tokens are created every hour of the day, these creators makes use of social media platforms such as telegram, etc to market such tokens. Once the holders are much they pump to a considerable price, the early birds make profit while others loss their investments to the creators.

Example of Cryptocurrency scams

Cryptocurrency exchanges have always been a prime target when it comes to Cryptocurrency hack and scam, an example is the attack on Coincheck in 2018 where almost 500 million USD and some NEM coins was taken away. It was described to be the biggest lots in history, the exchange refused to say how the scam occurred but they were sure it wasn't an inside job. Coincheck stored customers assest on their soft wallets which is usually connected to external internet networks, for this reasons exchanges now store majority of their cryptocurrency in cold wallet since they are better facilities.

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Coincheck representatives looked numb when they faced journalists.

NEM then decided to track the funds which were gone, but the fact is that the system is decentralized and no one owns the wallets but stricter security was then put in place such as multi-signature, etc but then investor's funds were gone.source.

Though they were able to track them but were labeled as stolen funds and should be given access. This is the biggest cryptocurrency theft ever witnessed according to the bbc news

  • Another example is that of the Petro ICO scam, this is the biggest fraud in history mopping out about 5.9 billion USD and source said it happened in Venezuela, an oil backed cryptocurrency planned by the Venezuela president even though it was denied. The currency was created to tie up Venezular oil reserves and create value for the Venezuelans, 100 Million Petro was then emitted. This is the biggest ICO fraud. source
    The said scam led to serious protest and people of Venezuela are still having economic problems up till now due to this massive ICO scam.

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To what extent have Crypto scams affected the Crypto space?

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Investing in cryptocurrency is ideal and perfect but then you could just loss this monies in few minutes, this has affected cryptocurrency as well as investors in some many ways;

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  • Irrecoverable Losses on investors
    The more easier it is to make more on Crypto, the more easier it is for investors to loss their funds. Scams have been a torn on the cryptocurrency market and billions of dollars have been lost to scammers from both newbies and even older crypto investors. Just 3 days ago in BBC News, a family lost their life savings to crypto scammers, the investor lost more than 250,000 pounds which cannot be recovered. See story

  • Lose of Credibility/Market Panic

Crypto scams are both to cause Alot of panic in the system as there are increasing rates of scams today. Imagine an investor who could be panicked by just a social media tweet, how much more when people are losing their funds to scammers.

Cryptocurrency technology is still very young and growing, the rate of scam could raise questions of how credible this system can be. If it must be the future of finance, then I had to be safe, secure and credible. It has to be trusted by investors. Market panic can lead to serious price fluctuations, investions are seeking a system which has less swings and more stable values unlike cryptocurrency that is controlled by supply, demand, sentiments, etc. source. Imagine that am to pay my staff 5 BTC every month and the value keeps changing (up or down) from months to months because of market fluctuations, it sounds more like a bad system, loss and sometimes gains in value.

  • Loss of lives of investors

This could be funny but very true, imagine someone who invested all he/she has in cryptocurrency and is eventually visited by crypto fraudsters, I think I won't be nice. A lesson could be drawn from my example above, the investor was hospitalized, he could have lost his life in the process, remember it was his life saving that was stolen.

  • Adoption
    Cryptocurrency adoption is a battle still been fought today, however scams will definitely be an hindrance to this movement. A source informs that Americans the rate of crypto scams has increase from 80% of 2019 to 1000% in 2021. source

Cryptocurrency and bitcoin are researched and discovered to help fight fraud and corruption, adoption entails accepting cryptocurrency as a legal tender, most countries such as China has banned cryptocurrency from its citizens though the market is filled with sentiments but then if the scams continues to sky rocket there may be a real hindrance to adopting this system of finance.

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Will regulations in Crypto add value to the Crypto space

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The spontaneous growth in the crypto space has given regulators some sort of concerns coupled with the recent increase in crimes rate, there are however plans put in a place to regulate this industry. The regulators are still in doubt as to what the effect of regulations would be on cryptocurrecies , while some believe trading activities might cross borders to becoming a less regulated system, other believe it will stimulate the market and provide a clearer view of what the crypto space really is about.

From my point of view, The fight to regulate cryptocurrency has been on for a while now, most countries are still trying to regulate cryptocurrency activities but then cryptocurrency is a unique technology, it decentralized and not controlled by anyone, nobody owns it, and transactions are stored up in blocks. Cryptocurrency is still in its adoption stage and there has been tremendous growth, however regulations will be perfect if it must survive the test of time but the sole aim of decentralization will be bridged. Presently, countries such as South Africa and many others are setting up regulations that will govern cryptocurrency since the rate of crimes and scams increases on a daily basis.

Though regulations may be able to control the market and to some extent fight against this security concerns but that may not be the entire solution to the theft problems. Now, most scams are caused by greed from investors who wants to get rich quick and then end up being scammed.

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Conclusion

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Cryptocurrency is a digital currency, decentralized and therefore all trading are done online without necessarily knowing who you are trading with, investors should be careful haven known how the scammers perpetuate their business. Crypto scams are on the rise, mostly targeting the newbies who don't know much about the system. However, we should also remember that cryptocurrency isn't a quick get rich platform and as such put away greed, this has made many investors loss their life earning and become bankrupt.

Finally, investors need to be given some kind of lectures in order to know what is obtainable in the world of crypto, because alot of people jump into it without really knowing what it entails. Furthermore, cryptocurrency regulations are a good way to fight scammers but then it cannot have 100% results. The investors have so much role to play in safeguarding their assets from scammers such as protecting their wallet seed phrase etc.

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THANK YOU

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