CRYPTO SCAMS - Why now it is more important to know about top 10 Crypto Scams?
"If you told me, you owned all the bitcoin in the world and you offered it to me for $25, I wouldn't take it." - Warren Buffett
Due to recent collapse of FTX, LUNA and meteoric rise of decentralized finance platforms led scammers having an opportunity to make quick money on retail investors lack of deep knowledge in crypto and their own cognitive biases. So, it is now important to know these scams to prevent losses in future:
Crypto is not a legal tender; instead, virtual currency is a “digital representation of value that functions as a medium of exchange, a unit of account, and/or a store of value.” Top 10 Crypto Scams to watch for…
1. Phishing
Phishing is perhaps the most common type of scam and is certainly not limited to crypto. Phishers attempt to trick people into revealing sensitive information such as passwords or login details by posing as a reputable company. In the case of digital currency, phishers will persuade people to give up their “private key,” which gives access to their digital wallets.
Email scams have sophisticated over the past decade, meaning more of them look like the real deal. Be on the lookout for weird, unofficial-looking email addresses, and be sure you recognize the information in the email.
Be aware that this scam does not only occur within emails. Be wary of random links on social media platforms such as Twitter.
2. Pig Butchering
This scam typically begins on dating sites, where a scammer lures a vulnerable fellow by using an attractive picture on their dating profile. Soon after gaining their trust, the scammer tells the victim about their success with a particular cryptocurrency.
They then convince them to invest in the currency, directing them to a phony website where the “investments” the victim makes go straight into the scammer’s pocket.
In this scenario, the victim is the “pig,” and the scammer is the “butcher.” Neither the name nor the scam is pleasant.
3. Pump and Dump
This scam is not exclusive to digital currency. “Pump and dump” scams often occur in the stock market primarily with penny stocks, stocks that typically sell for less than $5 per share.
The scammers attempt to publicly hype the crypto/stock by utilizing multiple mediums such as social media or word of mouth.
After the public mindlessly invests a significant amount of money into the crypto/stock, the scammers will dump, or sell, all the crypto/stock, reaping a profit and leaving the investors to suffer.
4. Rug Pull
Although “pump and dump” and “rug pull” schemes are relatively similar, “rug pull” schemes often do not allow the public investors to sell their shares/crypto at all, meaning they are left with nothing after the scammers sell their shares/crypto.
For example: The relatively new cryptocurrency named Squid Game, gaining popularity after the Netflix series, disallowed the selling of the currency. “SQUID, the ticker for the coin, began selling at one cent, then rocketed above $90, before immediately plunging back toward zero when the scammers “rugged” the masses.”
5. Airdrop
An airdrop literally drops tokens in your digital wallet as a reward for taking certain actions with a given platform or software.
Once the user receives the token and attempts to exchange it for a more well-known token, the user gives more permissions to the scammer than they may initially think. Once the scammer gains these permissions, they have virtually complete access to your digital wallet.
6. Mining
Mining is a different kind of scam looks like promoting business or entrepreneurship through ASIC machines running on cheap electricity. As we know, 19 million bitcoins are already produced. The extra 6.25 produced every 10 minutes are a drop in the bucket of the entire supply (and the circulating supply) so the cost to produce this new bitcoin is irrelevant. Bitcoin is completely different to a commodity like oil. With bitcoin, 1) the 6.25 every ten minutes is produced regardless of price, and 2) bitcoin is never used up. Oil is used up constantly. Also, if the price of oil goes down below cost, companies stop producing oil, restricting supply. As a result, the price goes back up to above cost.
The strategists pointed to Bitcoin’s production cost as a way of calibrating how much further it can fall. The production cost is mainly the electricity needed to operate the powerful computers that run the Bitcoin network. So, if the price of Bitcoin further falls miner will stop producing the Bitcoin unless they have money to hold.
7. Viral Marketing
Bitcoin is a confidence game with the excitement of gambling, the viral marketing of a pyramid scheme, and the fake profits of a Ponzi.
8. Insider Dealing and Leveraged Assets
In case of FTX, they lend loans to Alameda Research for trading on the money of FTX depositors and clients. Also, FTT tokens has no value other than promises and fake trust. Also, half of the money on FTX balance sheet was not liquid assets or store as acceptable Tender such as USDC (USD Coin) or USDT(Tether) which are backed by USD.
9. Trading (Margin or Future)
Another common issue is a trading mania where it provides the appearance of legitimacy but, with no regulatory oversight nor controls, the trading is manipulated in case of high leverage and allowing for trades in high margin which is actually a debt.
10. Algorithmic backed
Terraform Labs created the UST coin to be an algorithmic stablecoin on the Terra network. While other stablecoins (USDC or Tether) are fiat-backed, the UST would not be backed by real assets. Instead, the value of UST would be backed by its sister token, Luna. Stablecoins are supposedly safe havens in the crypto space since they’re meant to have a fixed value of around 1 USD. Luna was Terra’s blockchain native token, similar to how ether is used on the Ethereum network. The Luna crypto crash was caused by its connection to TerraUSD (UST), the algorithmic stablecoin of the Terra network. It happened because of sudden call from investors on UST which crash both the coins to rock bottom. It is concluded that there must be a portfolio of stable coins to be maintained as reserve behind each coin.
Conclusion
After FTX and LUNA, there is much more need for tightening the regulations against crypto sphere, firms, influencers and promotions.
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