Fact or Fiction: Crypto is a scammer's paradise
There is a widely held belief that cryptocurrency is nothing but a Ponzi scheme, and that if you invest in any cryptocurrency, you will inevitably lose all of your money to some malicious scammer.
Of course, this statement is absolutely ridiculous, and ignores the diversity of crypto projects in existence. It ignores those that are decentralized, and run on a consensus process, as well as those that have been around for a decade. And then there is the fact that the majority of crypto projects are far more than just a currency, and are complex blockchain protocols with the goal of creating a more equitable world.
Ponzi schemes, in their very nature, require centralization, as they require someone in control who is recruiting new investors and using these new investments to pay out a return to older investors, and so on and so forth. So, to say, for example, that a cryptocurrency that is decentralized and open source, or based on a consensus algorithm, is a Ponzi scheme, is absolutely absurd. The term “Ponzi scheme” has almost become a catch-all bogey-man term used by certain groups for any investment they disagree with or that challenges the norm. The term Ponzi scheme is to legacy financiers what socialism is to Republicans. But moving on.
It would be equally absurd to insist that the crypto space is free from scammers, and no one in their right mind would make that argument. We have unfortunately seen many cases of scams involving fake giveaways, “rug pulls” where developers ditch a project and take investor money with them, malicious pump and dumps, and more. There are also plenty of examples of malicious actors scamming crypto newcomers by promising them riches if only they give them their private keys, some personal information, or a bit of crypto to work with.
So, in conclusion, yes there are scams. At the same time, it is unfair to call the Crypto space a scammer's paradise, as it takes away from the vast majority of work being done on excellent projects that are doing good. In any financial environment, there will inevitably be scammers. With this in mind, there are certain steps that you can take to avoid scams.
Never give away your private keys to anyone, ever.
There is really no situation in which you should ever give away your private keys, your recovery phrase, your exchange password, or anything like that. The exception to this, of course, is if you are bequeathing your crypto to your loved ones. There is no reason that an exchange, a representative for a hot or cold wallet provider, or a project developer would ever need your private key, so if they are asking for it, assume it is a scam and report it.
There is no such thing as a sure thing, and be cautious of the 🚀’s
Use extra caution when you come across the “100x 🚀sure thing!”, as there is truly no such thing as a sure thing, and if an investment seems too good to be true, then it certainly is too good to be true. If you come across a claim that a certain project is guaranteed to net you an outrageous return on your investment, and that it is a fool proof investment opportunity, it is most likely a pump and dump. A pump in dump is a situation in which a currency is hyped up on social media, usually in a coordinated fashion, causing a rise (or pump) in price. It is then followed by a subsequent sell-off, or “dump” by those who pumped it. These pump and dumps are often coordinated, and thus, leave unsuspected investors as bag holders with crypto that is worth far less than what they paid for it.
So, if you come across a project that is being touted as a 100xer, use extra caution when evaluating it for its merit. Research the fundamentals of the project: what is it offering, what its value proposition is, who is on the team, what its market cap is, etc. Also check out the post history of the individual making the claim. If they are posting on Reddit, check out their account history, and how long they have been around for. The same goes for Twitter and really any other platform. Oh, and look for the tell-tale sign of bots, recently created accounts spamming the same message in a variety of different places. If you do decide to invest in the end, please ensure you are only investing what you can afford to lose.
Beware of rug pulls
Simply put, rug pulls are a scam where developers solicit investments in their project, and then abandon it, taking their investor’s money with them. Rug pulls happen on decentralized exchanges (DEXs), due in part to the lack of auditing and regulation on these exchanges, and the ease with which individuals can create and list new tokens.
Once these individuals have listed their token, they will wait for enough people to swap another crypto, typically ETH, for the new token, providing liquidity. Following this, the developers of the new token will quickly remove the liquidity from the pool, causing it to tank in price. These manoeuvres will typically be preceded by a lot of social media hype and massive gains in price leading up to the rug pull.
To avoid this situation, only invest in projects that you have vigorously researched, have a reputable team, and have ideally undergone some type of audit. Also ensure you only invest in projects that have locked liquidity, which involves the developers “renouncing the ownership of liquidity pool (LP) tokens for a fixed time period, by sending them to a time-lock smart contract. Without ownership of LP tokens, developers cannot get liquidity pool funds back.” Even with locked liquidity, there are still some ways around it that malicious developers could take advantage of, but it is still much safer.
The purpose of this post is certainly not to scare you away from investing in crypto. Its purpose is simply to shine a light on some of the more common scams out there, so you can enter this space safely and with more confidence. Scams take away from all the good being done in the crypto community, and create stigmas that scare away potential investors and partners. Scams will never fully be eliminated from crypto, but in time, hopefully they can be significantly reduced.
Do you have any tips on how to avoid scams? Tweet us at @Crypto_Altruism, to help us create a safer crypto community.
