If you’ve been investing in cryptocurrencies long enough, you have probably come across promising projects that ended up being complete flops. And if that’s not the case, you have most likely been contacted by people pretending to be trading experts or investing guides. In both cases, the most likely scenario is that you have fallen victim to scams.
Since the knowledge barrier needed to buy Bitcoin is quite high, especially with younger generations, this issue comes up more often than not. However, the good thing is that you have a choice – no one can steal your coins unless you knowingly (or unknowingly) given them consent to do so. And in this article, we will explain the things you need to watch for in order to avoid finding yourself in such situations.
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Do your own research – The golden rule
In 2017, the boom of the crypto markets started and ended with initial coin offerings (ICOs). The concept was simple – buy into a new cryptocurrency project and receive the coins at a reduced rate. This would give you a headstart as soon as the projects were listed on an exchange after going public.
While the concept worked for fundamentally strong projects like Ethereum, many people saw this as an opportunity to drain retail investors from their crypto. They created fancy whitepapers, promising roadmaps, and a very basic website, and raised millions of dollars before disappearing from the market. A flop; a scam; you name it! We saw it all.
And while the ICO craze died off during the following years, the opportunity for quick profits has arrived once again through DeFi projects. These new cryptocurrencies are very risky as they are made by anonymous developers that can “pull the rug” any moment, but the rewards are usually massive (10-50x in a matter of days). Therefore, they can present a great opportunity for those that know how to do fundamental research into the project’s goals and team. When it comes to altcoin investing, knowing how to “DYOR” is the beginning and the end of your journey in the markets.
Never enter your keys in a website
A popular “phishing” scam has become a lot more popular over the past years, especially after the data leakage of Ledger in 2020. The concept is simple. You receive an email claiming to be posted by the support team of Ledger, letting you know that your funds are compromised. They request you to follow a particular link and enter your seed phrase on a website to retrieve your funds.
Here’s the thing – When it comes to hardware wallets (which most likely hold lots of funds) NEVER enter your backup phrase on a computer screen. These words should only be selected from within your USB-like device, so no one else can see them but you.
By making this mistake you risk losing all your money, and will most likely never be able to retrieve it. Therefore make sure you familiarize yourself with security practices related to your wallet and only choose reliable storage options, like non-custodial wallets that store your coins in cold storage (offline).
Do not trust people you don’t know
It goes without saying that anyone randomly reaching out to you through a social media channel or even a phone text should not be trusted with money. Scammers often browse through cryptocurrency trading/investing groups until they find clueless individuals that are easy to manipulate. They then present themselves as expert traders, offering to invest your money for you, only to later run away with it.
This naturally has made many retail investors lose their funds, and no longer trust the future or price of cryptocurrencies. As such, it is important to find reliable information sources that can help you make better investment decisions. The primary source of information for all new investors should be the Twitter crowd that educates the public about cryptocurrencies, a.k.a. Crypto Twitter. There are many lists of trustworthy individuals you can follow to get high-quality information.
P2P trading for cash is very risky
Finally, keep in mind that one of the most dangerous and risky practices is trading cryptocurrency for cash. To this day, there are a lot of individuals that try to take advantage of such trades by offering fake cash to people that are new to the concept and scared of the consequences in case they choose to back out.
Due to this, it is best to keep all your trades funneled through reliable exchange platforms, and preferably within decentralized exchanges, which keep your identity private. That said, centralized exchange platforms can also be a great alternative, especially if they do not store your newly bought coins on exchange-based wallets. It is best to conduct your own research to discover reliable parties to interact with.