What is your favorite cryptocurrency? Is it Bitcoin, Bitcoin Cash, Litecoin, or something else? Rest assured that whatever crypto you dabble in is also a target of scammers. The reality of our digital world is that there will always be people looking to take advantage of others. The best way to protect yourself from those kinds of people is to be diligent in all of your cryptocurrency transactions.
Cryptocurrency platforms like Bitcoin and Ethereum are built to be secure. For example, they rely on cryptography and pseudonymity to protect the digital assets of coin holders. But there is no system in the world that is 100% secure. There are ways to get around security features if you are hell bent on stealing coins from other people.
Believe it or not, the biggest security concern in the crypto arena is user carelessness. Just like with email, the most successful cryptocurrency scams often involve tricking users into providing the sensitive information needed to steal from them. So be as diligent with your crypto assets as you are any other digital information you own.
1. Use cold storage
One of the most important things you can do to protect yourself against fraud is to utilize cold storage. What is cold storage? It is storage of your addresses, keys, and other data on some sort of device that is not connected to the internet. A USB flash drive is a great example.
A USB flash drive that is unplugged and stored in a safe place when not in use cannot be hacked. On the other hand, that exchange on which you have your coins stored can be. In fact, exchanges are hacked more often than you might think. Storing your data in a secure cloud is better than an exchange, but it is still not 100% foolproof. Your best bet remains cold storage.
We get that cold storage might be a bit of an inconvenience if you transact with cryptocurrency a lot. Maybe you use litecoins to play Mega Moolah online. If you make regular deposits and withdrawals, you are constantly having to retrieve your cold storage just to do so. The inconvenience is still worth it when you understand how easy it is to hack information stored online.
2. Be cautious with exchanges
People would not set up fake exchanges in order to steal from coin holders in a perfect world. The community and social responsibility aspects of cryptocurrency would prevent that sort of thing. But this is not a perfect world, and scammers are more than happy to set up fake exchanges without a single twinge of conscience. Beware of fake exchanges.
There are a few signs you can look for that should make you suspicious about an exchange. First is the exchange that continuously offers to sell Bitcoin at less than current market value. Though it is possible to do, no one in their right minds would without very good reasons. If you see an exchange inviting you to 'save big' by purchasing your Bitcoin from them at 5% savings, count that as a red flag.
Next are exchanges that offer to sell you coin via PayPal or some other electronic payment system. Selling Bitcoin through PayPal is not necessarily a problem, but there are a lot of fly-by-night operations that use digital payment systems to steal from people. Before you agree to purchase coin through an electronic payment system, do a little research on the exchange first. Find out how long it has been around and what others have to say about it. If you are at all suspicious, stick with an exchange listed on the bitcoin.com website.
When you are checking out a new exchange, pay attention to the URL that appears in your browser. If the prefix is HTTP instead of HTTPS, know that the site is insecure and possibly a scam. Even if it's not a scam, do you want to be conducting crypto transactions on an insecure site? No, you do not.
3. Be cautious with wallets
Just like there are fake exchanges out there, there are also fake wallets. A fake wallet is designed to do a couple of things. First is steal your coin. Second, a fake wallet might also be designed as malware that will infect your computer and do even more damage.
The challenge with wallets is that the fakes are bit more difficult to spot. Start with the URL prefix. If it is not HTTPS, stay away. Another suggestion is to run any downloaded software through a virus and malware checker before you install it.
Some fake wallets use clever names in an attempt to mimic a legitimate wallet that's already out there and in circulation. Let us make up fictional wallet for terms of illustration. We'll call it Acme Digital Wallet. Let's say our fictional wallet has been out there for five years and has an excellent reputation among crypto uses. Then along comes AcmiDigital Wallet.
Just two subtle changes to the name make it clear that this new wallet is not the same as the old one. But if you are not paying attention, you might be led to believe that the two are one and the same. The second wallet is the scam wallet.
Any suspicion about a digital wallet can be handled by going to your favorite crypto forum and asking around. You can always visit the Bitcoin.com website to find a list of reputable wallets as well.
4. Lookout for phishing scams
Phishing scams are as prevalent in the cryptocurrency space as they are in email. A phishing scam is a scam perpetrated with the intent of getting you to reveal sensitive information. A typical crypto phishing scam would involve sending an email to a coin holder. That email is disguised to look as though it is coming from exchange the recipient frequents.
The email instructs the recipient to click on an embedded link directing that person's browser to a fake exchange. Then the user is asked to enter certain information that allows the scammers to steal from them. Here's how to combat this sort of fraud:
- NEVER follow links embedded in emails
- NEVER open email attachments unless you know who they are from and why they are being sent to you
- Always hover over email links and check the URLs that appear.
Sometimes phishing schemes are presented in the form of online ads that point to fake exchanges. The best way to avoid these scams is to not click on search engine ads. Rather, enter the address you want to visit manually. It is a little extra work, but it ensures that you are not accidentally redirected to a scam site.
5. Lookout for Ponzi schemes
Have you ever run across ads offering Bitcoin holders an opportunity to 'double your money overnight' just by participating in their program? More often than not, these types of offers are scams. They are frequently accompanied by an additional opportunity to earn more coin by referring your friends. Most of these scams are little more than cryptocurrency Ponzi schemes.
Unfortunately, some of these schemes are presented as affiliate or referral programs. You agree to market the program as an referrer with the understanding that whenever someone follows one of your links and eventually signs up for the program, you get paid.
The affiliate referral concept is not a bad thing in and of itself. The problem where digital currencies are concerned is that there is nothing tangible to get your hands on. It is much harder to run a Ponzi scheme using tangible products that people can actually buy and hold on to. On the other hand, Ponzi schemes are pretty easy to pull off via monetary systems.
What is a Ponzi scheme? It is more or less an investment scheme. The fraudster will convince 10 people to buy into this scheme with promises of huge returns. Then he convinces another 100 people to invest with promises of returns that are slightly lower than the first group. He then pays the first group using funds collected by the second. and on it goes with every new recruit. Meanwhile, any money he does not need to pay investors is pocketed.
The best way to avoid this sort of scam is to avoid using Bitcoin or any other cryptocurrency platform as an investment. Think of cryptocurrency as a monetary system for buying and selling. If you view it that way, you are less likely to be drawn into the 'get rich quick' nature of Ponzi schemes.
The point of this post was not to cause any undue alarm among cryptocurrency users. Hopefully you didn't take it that way. Hopefully you understand that we are just trying to encourage cryptocurrency users to be diligent about their practices. It is just common sense.
Cryptocurrency is an alternative monetary system that has a lot of advantages over fiat. As such, there are people who want to steal your coins. Don't let them. Employ the simple tips listed here and your risks of being scammed go way down. The more diligent you are, the more difficult it will be for someone to steal your coins.