The Benefits of Blockchain
Cryptocurrency is the digital world’s first decentralized digital currency, meaning that there are no governments or banks that control the money or how it is spent. Cryptocurrency transactions are recorded on a distributed, decentralized blockchain called a blockchain. Because there are no intermediaries between you and the person making a transaction, crypto companies are able to send money without you even having to send your private information to them.
What Makes Cryptocurrencies Different from Traditional Money
Cryptocurrencies, like bitcoin, are non-cash items, so there are no coins to count or carry around with you. Cryptocurrencies exist in software that is stored on your computer or smartphone.
Scams in Crypto
If the entrepreneur doesn’t disclose which cryptocurrencies he’s planning on investing in, you may run the risk of losing your money. To protect yourself, always consider the risk of loss when choosing which cryptocurrency to invest in. “You should do your research, and it is better to spread your investments across a number of different cryptocurrency teams instead of just one,” said Scott Lucas, a partner at British cryptocurrency startup Cryptlabs. “If one is vulnerable, others may be, too.”
Additionally, invest only in companies that have stable values and companies that conduct regular security audits. You can learn more about ensuring a solid investment opportunity by checking the SEC website.
What Is a Scam?
In recent years, there have been many stories of crypto scams. Whether or not a company actually delivers on its promises remains unclear to some, but scams are rare, according to a study. Scammers hide behind companies that sound legit, though many are self-proclaimed blockchain technology companies that haven’t produced anything or even kept their promises.
If you suspect a scam, contact the SEC, Attorney General, Department of Justice, and Federal Trade Commission. Contact other blockchain technology companies too if you’ve been scammed, and alert them to the scam and what you think the scammer is doing.
How to Spot a Scam
Scams usually come in two varieties: fake startups and fake coin offerings (ICOs). Companies that are founded with the sole purpose of receiving their company off the ground often request early-bird investor credits at very low prices (like $100 or $500), promising their investors a stake in a soon-to-be thriving company. This makes the claims seem more plausible and justifies the high price (if you think this way, it might seem like a good deal, after all).
Cryptocurrencies, on the other hand, should be considered a speculative asset and not a primary source of income. Scammers have used misleading language in their marketing materials to convince people they’re investing in something legitimate.
The Signs of a Scam
Everyone, at some point, has wanted to help a friend or family member start a crypto business or startup, but it’s easy to be mislead by the feverish hype around ICOs. Fraudsters target these well-meaning people, because they’re far more vulnerable to being taken in than savvy investors.
Here are some of the most commonly shared scams among cryptocurrency scammers:
Great ICOs, but Have No Early Investors: Many scams tell people they have to purchase coins or tokens from them to be part of a “nascent” startup. Most ICOs will not only require a great deal of money upfront, but they may also keep people waiting on promises of big returns for quite some time. However, you shouldn’t be fooled: This is not a way to invest in a blockchain startup.
Red Flags That Indicate A Company Might Be A Scam
1. Don’t trust the founder or the company’s name. The primary goal of a scam artist is to build a fake company that has the word “startup” in it, even if they don’t have a working product or even an email address. Instead, look up the company’s name on Google, and use the Google search bar in your browser, so you can go directly to the company’s website to do more research.
2. Don’t rely on online reviews. Just like fake Instagram accounts and fake customer-service pages, there’s a small chance that fake reviews will turn out to be real. However, people review products and companies based on their own experiences with the product or service, so you should do a bit more digging into those reviews. Start with the customer service chat.
They offer you an unreasonably large return on your investment
During a recent Quartz review, a former Uber executive shared that he invested in a cryptocurrency startup with a $100 million valuation that was seeking $500 million to fund future development. He was offered 30% for his $100,000 investment. If you’re unsure of a company’s valuation, you should ask for more information and see if the founders are on a public blockchain for investors to see.
They promise you never to lose your money, or even your digital wallet
If a crypto startup doesn’t have a working product, but boasts that it doesn’t lose money or your digital wallet, it’s worth taking their promises with a grain of salt. It’s important to remember that digital currency trading is extremely volatile, and startups and companies can fold.
You can’t find any contact information about the company, especially the CEO or CFO
Experts advise that you know if the company you’re investigating has any offices. The next step is to search for social media accounts, especially if they’re active and mention the company. You should also check to see if the company has a full website with up-to-date information and a contact form. If it does not have a website, it’s a strong indicator that the company is fake, according to the Federal Trade Commission.
Watch out for a lack of Google Images, or a website that looks out of date or non-existent
As well as looking for an active website, another sign of a fake company is a lack of Google Images on the site. Only the company’s website can provide images to search for, according to the Federal Trade Commission. If you find an apparent Google image, the company is a fake.