Introduction

Cryptocurrency is very popular for online peer-to-peer payment without the involvement of the central bank. This is a digital encrypted currency that doesn't have any physical appearance. The first cryptocurrency came in 2009, which was Bitcoin. As these transactions are carried out only online, it has chances of fraud also. For 10 years, it has been seen that there are so many scams taking place. Let's see what type of scam has been taken place, and how it can be avoided.

Scams in Cryptocurrency

1. Fake Cryptocurrency Platform

Many fake currencies have popped up in the market, which was created to loot the people in the name of the cryptocurrency. Fake cryptocurrencies were created to gain investor's confidence, and they were told to invest or buy such cryptocurrency. Some innocent investors were trapped, and they lost their money in the name of cryptocurrency. Example: My Big Coin. The fraudsters behind My Big Coin took $6 million from clienteles to invest in their fake cryptocurrency and then sent the funds into their private bank accounts.

2. Fake Digital Wallet

The possessors of cryptocurrencies utilize digital wallets to store their coins. There are generally two types of digital wallets: cold and hot wallets. Cold wallets are also called offline or hardware wallets and these are thought to be safer for storing any type of cryptocurrencies as they are not connected to the internet. In contrast, a hot wallet is less safe than a cold wallet because it is connected to the internet. Some company says that their hot wallet is safer and after transferring client cryptocurrency, they stole easily.

3. Mining Scams

There are a few cloud mining services provider which allows the customer to rent server space at a given rate for mining Altcoins. In the name of mining, they will steal your cryptocurrency sometime and you will lose your money. This type of fraud is also common. There are no authentic firms that can be able to guarantee a profit for sure.

4. ICO Scam

Initial Coin Offerings (ICOs) are usually brought to raise funds for any blockchain-related activities and its ventures using selling crypto coins. However, ICOs are an unregulated market which is a free invitation for fraudsters who have taken up the chance to exploit other stakeholders. Such scams are getting generalized day by day.

5. Ponzi Schemes

These schemes are a fraudulent investing scam that produces returns for earlier investors with money taken from later investors. This is almost similar to a pyramid scheme in that both are based on using new investors' funds to pay the former backers. Fraud companies will promise lucrative returns and try to trap the new customers to take their money for investment purposes. They never return the money and ultimately investors or customer loses entire fund. This type of fraud is very common in cryptocurrency through social media, seminars, and other online channels.

How to Avoid?

Above scams can be avoided if investors keep themselves aware of the above points and they should also take care of these given points.

Legit Cryptocurrency Exchange: Customer should look for genuine cryptocurrency exchange which can offer a genuine platform for trading cryptocurrency. Cryptocurrency should be traded through branded and legal cryptocurrency exchanges where you can reply for your fund deposit.

Legit Coins:  It is always recommended to use the popular cryptocurrency rather than new unauthentic cryptocurrency with fake promises. There are numerous coins in the market which has zero values for your capital. Those coins are created to loot the new customers only. You should properly judge such crypto coins before making any investment decision.

Company Registration and Affiliation: It is recommended to find if the company is registered properly under the company registration act and if it has got the legal status to operate a cryptocurrency business. Many fraud companies will tell that they are regulated and registered, but they have not done any registration in actuality. So you need to dig the information for such suspicious companies.

Security for the Transaction: You need to check if their online security system is up to mark or not who is offering you a cryptocurrency trading platform. You can ask the services for hot and cold wallets. If you are satisfied with their security system, only then prefer to choose their platform.

KYC Method: Generally, the good and authentic company does the KYC once time, at least because it comes under regulatory compliances. So, if the company is asking for KYC, it is a good policy, which adds value for trust.

Conclusion

We have discussed the above rising scams in cryptocurrency and also learned to avoid such scams. You need to be very careful about such scams as cryptocurrency is not physically happening, but all are online. Therefore, there are high chances to be scammed. Be aware and be informed is the key to avoid scams.