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According to the Federal Trade Commission, more than 46,000 people reported becoming involved in cryptocurrency scams just in 2021 alone. These scams led to a collective $1 billion in financial loss.
Sadly, the crypto industry is rife with scammers and thieves because the industry is largely unregulated and because so many people are interested in investing in virtual coins.
The good news is, you don't have to give up on your plans to diversify your portfolio into cryptocurrencies just to avoid scams. Following these tips can help you protect your finances while still giving you exposure to this exciting new asset class.
1. Do your homework
The single best thing you can do to avoid falling victim to a crypto scam is to be an informed consumer. Do not buy any cryptocurrencies unless you've researched these factors:
- When the coins were created
- Who created them and why
- What technology is behind them
- How they are distinct from other coin offerings
- How many coins are being produced
- What value they provide that other coins don't
By making sure you know the ins-and-outs of any crypto you are thinking about buying, you can avoid purchasing currencies that were created solely to make their founders rich.
You should also do your research into what websites you use to buy cryptocurrencies to make sure they are secure and have a solid reputation for protecting their customers.
2. Be careful who you trust
There is a lot of bad crypto advice out there, and you don't want to listen to someone you shouldn't and be led into a scam. Do not take advice from celebrities, people on social media or internet forums, or anyone else who you don't know very well and who doesn't have solid financial credentials.
3. Make sure your crypto wallet is secure
If you are buying virtual currencies and storing them in a crypto wallet, you'll want to make absolutely certain your digital wallet was developed by a reputable company with a solid track record.
You don't want to give your wallet credentials to anyone, and should avoid logging into it on public wifi. Signing up for two-factor authentication is also a must, as is password protecting your devices so if someone gets your phone or laptop they cannot access your wallet.
It can also be a good idea to use multiple wallets and even cold storage devices that are not connected to the internet. This way, if there is a breach, you won't lose everything.
4. Take advantage of multi-factor authentication
Multi-factor authentication ensures that even if a hacker is able to obtain your login credentials, they still won't be able to get into your wallet or crypto trading account. That's because before they are allowed access, a code would need to be sent to your phone or email. They won't have that. And receiving a code you didn't ask for will serve as a red flag that an attempt has been made to breach your account.
5. Keep a close eye on website URLs
You don't want to fall victim to a spoofed website, or enter your information into any website that is not secure. So be sure to look carefully to confirm the web address is legitimate and that it starts with https (not http) before attempting to log in.
6. Consider gaining crypto exposure through more traditional investments
Finally, if you want to make sure you don't fall victim to a crypto scam, consider investing in ETFs that give you exposure to the crypto industry or buying stocks in companies that tend to be impacted by crypto performance (such as tech companies). There's much less potential for scams with these more traditional, regulated investments.
By following these six tips, hopefully you can keep your money safe even during a time when fraud is rampant in the crypto world.
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