Following the rise of r/SatoshiStreetBets and Elon Musk’s tweet-supported Dogecoin in early 2021, many online cryptocurrency communities started pushing their tokens. From “pioneering tokens” to philanthropic coins, every MemeCoin imaginable is starting to lure budding investors with promises of massive earnings, the potential of BitCoin, and the next “go to the moon.” Fortunately, some did, but many – including the likes of ZepellinDao and Aussie Safe Shepherd – did not. Now, even though the cryptocurrency market has recently started to climb out of the recession that followed the frenzy, the majority of new investors who invested in MemeCoins when the market was high – and some are risking their entire life savings – are still at a loss.
For every comment criticizing any of these icons, there is an onslaught of responses including, “This is the way,” “to the moon,” and “only diamond hands.” Although the continued optimism of many investors that their token is the next to take off is impressive, it can be explained to an outsider in a number of ways; Among them, educated and sexy.
For new investors hoping to take advantage of what experts claim could be another period of growth in the cryptocurrency, this is where the risk comes in. Many of them are not well versed in conducting adequate due diligence, either in checking project makers and establishing credibility, or understanding the red flags to watch out for. For this reason, getting into the support and verification echo chamber — that is, a Reddit forum dedicated to tokens — eases fears and builds excitement, causing many to throw their hard-earned capital behind tokens they don’t know much about.
This exposes these investors to the risk of not only investing in tokens that may fail or be reversible objects, but also puts them at a high risk for fraudsters. This is because many of these new investors are convinced that they can get rich quickly, as long as they can identify their next comer. Unfortunately, scammers understand this perfectly, and carefully place their traps on the same forums to achieve great success. According to the Federal Trade Commission, more than 7,000 crypto investors have reported losses of more than $80 million through these scams since October 2020, more than 12 times the amount reported in the previous year.
So how can new investors better protect themselves? While there are no guarantees and the potential for risks in any investment scenario, there are a number of due diligence measures that can be taken and scams to look out for. Below is an overview of scams common in both the Reddit forums and the real world, as well as ways to avoid them.
What is it: Social engineering is basically a phishing repackaged for the age of crypto. Scammers post links, usually disguised as a telegram link, a link to claim a prize or free cryptocurrency, or other useful information related to cryptocurrency, that are intended to collect personal information, capture an initial wallet phrase, or trick investors into sending cryptocurrency. While this is common on forums like Reddit, these scammers also use email and other social media channels – such as Twitter or Facebook – and chat groups to run their schemes.
How to avoid it: Do not trust or click on links to get free crypto gifts, do not share personal information including email address or phone number, and do not share your initial phrase.
What is it: Scammers create tokens with similar names and symbols to other popular coins. Investors who are enthusiastically rushing to make a purchase mistakenly buy a fake token instead of the real currency.
How to avoid it: Take your time buying cryptocurrency. Triple check the coin’s website for buying instructions, to check out the chain it’s built on, as well as the exchanges available to buy through. Before clicking the Buy button, triple check the name and ticker symbol again.
Pump and discharge group
What is it: A group or forum sends out an invitation to sell the token in advance, claiming that they will pump a token to flood the audience for profit. However, regulators have already taken their profits from early investors and dumped the distressed coin on the group rather than the public upon issuance.
How to avoid it: Do not accept random invites for pump-and-dump groups or private token sales, reputable developers will generally have open and public calls to early adopters through their channels and websites.
What is it: A commenter is spreading the seed to a wallet full of ERC20 tokens and claiming that for anyone interested in these tokens, they just need to transfer Ethereum to that wallet to pay for the gas. Upon transfer, the bot immediately takes ETH and the investor loses their Ethereum.
How to avoid it: In the cryptocurrency world, no one is realistically giving away tokens or coins for free. Unless you have specifically entered into a contest hosted by a reputable organization or exchange, it is likely a scam.
Fake exchanges, apps, and browser extensions
What is it: Scammers in forums will post links under the guise of help, but instead of linking to real apps, exchanges or browser extensions, they send links for a disguised imitation. Once an investor enters his login details, the scammer not only gets access to his wallet or login details to exchange, but also has access to more personal information that can be used for other scams.
How to avoid it: Do not click on random links from strangers on the Internet, even if they are useful. Instead, search on Google for the name of the service you want and before entering any details, triple-check the web addresses and make sure you’re on the official website. Additionally, avoid clicking on any “ad” versions of exchanges, apps, or browser extensions within Google, as scammers also pay for their fake websites to appear as ads in certain searches.
With so many overnight success stories and what appears to be a long way to go for growth in the future, the cryptocurrency market – in addition to the hype generated by online communities – can attract many unaware investors with promises of great success. Although the tactics used by scammers are becoming increasingly more sophisticated, the best way to stay safe remains the same as in any other investment environment. This means conducting adequate due diligence on potential cryptocurrencies and staying alert for scams. By doing just that, new investors can enter the crypto market with greater awareness and reduce the risk of becoming a victim.