Anyone who’s made good money through cryptocurrency can become an evangelist for others to hop on board the crypto train. While it is certainly possible to make money through legitimate cryptocurrencies, it’s just as easy to become the victim of a crypto scam.
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While you shouldn’t let fear put you off the chance to invest legitimately, you should educate yourself on the signs of a crypto scam so you don’t end up losing money. Many scam payments are irreversible.
Assume the Worst
The safest way to spot a scam is to expect them, according to Al Alof, CEO of the crypto and currency exchange ChicksX. “Many crypto coins are created intentionally to scam those who purchase them,” he said. Be on the lookout. Some new coins may be made with relatively good intentions but end up crashing, so stay vigilant when investing.
“With the emergence of smart contract tokens, it is easier now than ever to create crypto tokens, and little programming or cryptocurrency knowledge is needed,” Alof explained. Decentralized Exchanges (DEXs) also make it possible for anyone to list their coin for sale with no prior approval by a trusted third party.
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It’s New and Not Established
You’ve probably heard of Bitcoin, Ethereum or Solana because they’ve established themselves as legitimate types of crypto. You should be wary of newer ones until they find their legs, Alof said.
“Only invest in established cryptocurrencies that have many years of trading and market activity behind them. A high market cap is another strong indicator of a coin’s trustworthiness, but methods including ‘pumping and dumping’ can manipulate this, so they should be considered alongside the age of the coin.”
It helps to keep up to date on crypto news from sources such as CoinDesk and BeInCrypto, Alof said, “to stay in the loop about potential concerns or risks with these more popular coins.”
You Can’t Find Any News About It
Another sign of a scam could be that when you search for information about it on Google and news, you can’t find anything.
“While many scam coins are only revealed to be an obvious scam after they have tanked in value, it’s essential to read a variety of opinions and analyses before making your investment decision,” Alof said.
It Has a Large ‘Pre-Mine Value’
Another indicator of a potential scam is if a coin has a large “pre-mine value,” Alof said. “This means the creator of the coin has the potential to tank the coin’s value by quickly selling it off.”
He recommended becoming a student of “tokenomics,” with a particular focus on how coins and tokens are developed.
A Massive Trade Volume
Most DEXs let you see the trade activity of a token, Alof said, so if you notice a massive increase in trade volume then it’s worth doing more research on a token.
“Another potential warning sign is a lot of trade activity but from few addresses, as this can indicate some form of market manipulation.”
You’re Contacted Out of the Blue
One of the most deceptive schemes is the terribly named “pig butchering,” according to Brittany Allen, senior trust and safety architect at Sift.com, which she called “a crypto-infused twist on the classic romance scam.”
Here, fraudsters lure victims through dating apps or social media, posing as cryptocurrency experts “who promise high returns on investments in what appears to be a legitimate crypto exchange,” she explained.
The scammer will first build trust with the victim and encourage them to invest small amounts through a digital wallet, and then show you fake profits to encourage a greater investment, she explained. “Once the victim invests enough money, the fraudster disappears — taking the funds with them.”
Unfortunately, recovering funds from fake investment platforms or wire transfers is incredibly difficult, Allen said, as many scammers operate internationally and crypto transactions are specifically designed to be irreversible.
Someone Insists on Switching Messaging Platforms
One of the ways pig butchering happens is that the fraudster will ask you to switch from a trusted or known messaging platform to another. To avoid being lured this way, be wary if someone you’ve just started messaging with insists on continuing the conversation on a different messaging platform, Allen said. “Do not invest with or send money to people you’ve only met online.
“Before investing, always research the platform, verify credentials, and be suspicious of high-return promises that seem too good to be true.”
It Seems Too Good To Be True
The cliché of “if it’s too good to be true, it probably is” remains good advice, Allen said. Anyone who promises big investment opportunities, free goods or services, or a luxurious lifestyle is probably after your wallet.
As a general rule of thumb, invest in coins that have utility, Alof said. The latest meme coins can offer huge gains, but without any greater purpose behind them, they are unlikely to sustain these gains and may crash without any chance of recovery.
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This article originally appeared on GOBankingRates.com: Crypto Experts: 8 Warning Signs a Crypto Coin Is a Scam
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
