Crypto scams are everywhere these days. So how can you really avoid these scams? How do you know if something is too good to be true? Here's how you can protect your crypto investments.
Cryptocurrency, a digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, has been around for a decade now. Some forms of cryptocurrency have been so successful that they have even outperformed some national currencies by far.
In fact, cryptocurrencies have been capable of producing massive gains as investors jumped in and supported their development. As you can expect, there are also considerable losses to be incurred especially with the growing number of cryptocurrencies in the market today.
Therefore, before deciding on whether or not to invest in cryptocurrency, it is imperative that you look into all aspects of these digital currencies to understand how they work.
The main consideration is that there are no physical forms, as all transactions are run digitally and recorded on a centralized ledger known as a blockchain which means you cannot touch them or hold them in your hands the way you would real money. You can only keep cryptocurrencies in digital wallets or trade them online through digital currency exchanges.
Another consideration is inflation as most forms of cryptocurrency are decentralized and unregulated. This means the number of tokens in circulation is not controlled by any central authority or government. Therefore, it can be quite risky if there is a sudden increase in the number of investors which will cause the price of cryptocurrencies to go up.
Newer cryptocurrencies are issued through mining where more coins are released when miners crack complex mathematical problems to verify crypto transactions. This makes mining a resource intensive exercise which means higher gears are required to keep your mining rig operational all the time.
Obviously, you will need to consider the market volatility like any other investment, make sure you go in with eyes wide open and understand how much you could lose if this turns out to be a scam.
How to Avoid Crypto Scams
In order to make sure you make the right decision, here are five tips from experts on how to avoid crypto scams:
Make Sure You Do Your Own Research – Don't rely on advertising hype. Learn as much as possible about any form of cryptocurrency before deciding whether or not to invest in it because your decisions will be driven by your level of knowledge and research.
Reduce Your Exposure – The more you invest in cryptocurrency, the higher the risk you incur. If you don't want to lose all your money in a single event then spread your investment to minimize risks. This way, even if one or two types of cryptocurrencies fail to pay off, you can still recover losses.
Keep Your Investment Portfolio Low – As noted earlier, volatility in the cryptocurrency market is higher than most other forms of investments. Therefore, keep your investment portfolio low until you have high degree of confidence that a specific type of cryptocurrency will yield high returns.
Cash Out When You Can – This is especially important if you are working as an investor and not as a trader. If the value of your cryptocurrency suddenly drops to lower than what you bought it for, cash out and do not wait because there is no assurance that it will go back up regardless of how strong the hype is surrounding the type of cryptocurrency.
Cryptocurrency Investments Require More Discipline – Unlike other forms of investment where you can buy and sell on a whim, cryptocurrency investments require heightened discipline and patience as these assets can show gains and losses within a very short time frame. As such, you must be willing to hold on to your investment for months before expecting results from it.
The article then goes into talking about their platforms and services that can help people with these five tips for avoiding scams.
There are always people out there with ill intentions who will do anything to get your hard-earned cash. And if it sounds too good to be true at first place, then it most likely is so AVOID THAT.
Investing in Cryptocurrency Safely
In order to make the most from your cryptocurrency investments, you need a reliable and experienced service provider who can advise on how best to hold, buy and sell cryptocurrencies in a way that minimizes risk.
There is a lot of bad advice out there for new investors which includes the suggestions not to buy cryptocurrency with real money if you want to minimize risk. This is not correct because it does not apply to all types of cryptocurrencies. In fact, it is one of the top five tips from experts on how to avoid scams.
BlockFi uses only regulated brokers who have been vetted thoroughly so you do not have any concerns about security or honesty when doing business with them. They also offer accounts in fiat currencies so even if the value of some types of cryptocurrencies does drop, you are protected because the value of your fiat currency investment will not change.
As the name implies, BlockFi is a company that offers competitive interest rates on deposits in Bitcoin and Ether. Apart from offering excellent services, they also invest part of their earnings into new cryptocurrencies by holding ICOs. This way, you can be sure that your investment will yield high returns while maintaining security since you are dealing with established companies.
Other Things to Ponder on to Avoid Crypto Scams
The cryptocurrency market is still in its infancy and as such, there are many new investors entering the space. When these new investors enter the space, they essentially need to figure out how not to get scammed when buying cryptocurrencies. This article looks at some ways for these people to minimize their chances of getting scammed when purchasing currencies on exchanges
Anonymity – The most important way to avoid being scammed is by ensuring you purchase cryptocurrencies from an anonymous source. Any sources that ask for personally identifiable information (PII) or that won't allow you to purchase cryptocurrencies without providing PII should be avoided like the plague.
Exchange Rate – Make sure you fully understand the current exchange rate before purchasing any cryptocurrencies. Some exchanges may actually be selling currencies for more than they are worth and as such, it is important that you look at the average market price of a cryptocurrency before making a purchase. This will ensure you don't pay over the odds for a currency.
Beware of websites that look similar to popular cryptocurrency exchanges or have very generic sounding names as they are likely scam sites!
Volume – The volume of a cryptocurrency being traded can also affect its value significantly. If there is relatively little volume being traded then this could mean that only a small amount of people owns that specific cryptocurrency therefore if there were to be negative news surrounding that currency or bad press, this would have a significant impact on the value of that currency.
If there is high volume being traded then this usually means that the cryptocurrency has been around for a while and has seen many highs and lows, stabilizing its price. High volume currencies are generally more stable than low volume currencies, though it is important to consider all factors when purchasing cryptocurrencies always.
Escrow – Ensure that you do not purchase cryptocurrencies from exchanges which offer direct P2P purchases (peer to peer) as these exchanges will often scam people by providing fake public wallet addresses which they use to steal money from unsuspecting victims. It is instead recommended to use an escrow service where reputable traders can be found who purchase and sell cryptocurrencies on your behalf through escrow. This means that you will not be scammed because the escrow service acts as a mediator to resolve any disputes which may arise.
It is also important to be aware that there are some exchanges which will only allow you to purchase their cryptocurrency, these can usually be easily identified because they will use phrases such as “NEW ICO is here! This new token is rising!”, something like that. These should definitely be avoided for obvious reasons!
Finally, make sure you don't fall victim to phishing scams where someone tricks you into giving away your login details for an exchange by sending you a link to what looks like the login page. These are very common in emails so make sure you are checking the address bar when entering your details to ensure that it is correct.
Read the Entire Investing in Cryptocurrency Series
- Best Cryptocurrency Platforms to Use in 2021
- Blockchain Technology Uses and Growth
- What on Earth is an NFT!?
- BlockFi Review: Investing in Cryptocurrency the Right Way
- Everything You Need to Know About Cryptocurrency Before Investing