10,000 new coins were minted this year. How many were legit?
Wherever there is money to be made, there is money to be stolen.
So naturally, as more regular Canadians dig into the world of cryptocurrency, more bad guys are finding new ways to scam folks out of their money.
We, once again, truly hate to see it.
So what’s the deal with crypto scams? How do they work? Should you be worried?
The short answers: they suck, using nefarious means, and not necessarily.
Crypto Scams and Canadians
We can TL;DR this for you: if you’re worried about getting scammed but want to invest in crypto, you might want to consider doing it using a platform like our Bitcoin & Rewards housed in our Mogo app. It’s a secure way to purchase bitcoin, and we would never scam you!
What’s the Deal with Crypto Scams?
Crypto scams are plots and schemes devised by bad guys to swindle you out of your cash.
These scams can take different forms, and we’ll tell you about those next, but generally the idea is to convince people that it is safe and profitable to invest in a certain cryptocurrency, or “coin”.
Then, once folks have invested, scammers may use a variety of tactics to steal away into the night (literally) with investor funds.
Once the money is gone, and the scammers are gone, there is very little to be done. Law enforcement generally can’t intervene as scammers are usually completely anonymous.
So the best way to keep your cash away from these scams is by... avoiding scams in the first place. Don’t you love that?
How Do Crypto Scams Work?
There are three major types of crypto scams: the rug pull, the “soft rug”, and the honeypot.
Each relies on convincing people to invest in a certain coin. For context, Bloomberg reported that there have been 10,000 new coins minted this year alone.
Each of these coins technically has the potential to make investors big cash, and everyone is always looking for the next bitcoin. So when a flashy new coin makes an appearance, people may choose to gamble on its legitimacy. Sometimes it’s a good bet, and they make a bit of cash; sometimes, it’s a scam.
The rug pull, or exit scam, is becoming increasingly common. Using decentralized finance (DeFi) platforms, which are platforms used to trade certain cryptocurrencies, scammers can build in hidden access points that allow them to steal from investors. In a similar fashion, scammers may create fake cryptocurrency wallets which, once investors deposit coins, can be drained of their funds. The funds are there, then they’re gone in an instant.
Then there’s the “soft rug”, which Bloomberg describes as “when the creator of a coin project jumps ship and abandons efforts to promote his or her creation. Often, this essentially renders a coin worthless.” The scammer convinces people to invest in a coin and then cashes out.
Then there’s the honeypot, which is just like a trap. Using DeFi platforms or other means of exchange, scammers encourage folks to invest but then charge them to withdraw any funds—or remove the ability to sell the coins investors had purchased.
These scams can be bolstered by influencer and celebrity affiliations. Sometimes, celebrities will back a certain coin and people will buy in with enthusiasm, only to be duped. Sometimes celebrities do genuinely endorse a bad coin, but sometimes, they’re actually hacked by scammers and are made to appear like they endorse a coin when they really don’t.
Then there’s the megalomaniacs, and they’re another story. Remember the Elon Musk saga? Just because a celebrity or influencer tells you they’re investing in a certain coin doesn’t mean you should too.
They might be right, yes, maybe; but they also may be lying, misinformed, or uneducated on the risks of crypto scams.
Should You Be Worried About Crypto Scams?
So should you be worried? Not necessarily, but you should be critical, skeptical, and thorough in your crypto research.
The simplest way to avoid crypto scams is to stick to coins with wide popularity and uptake, like Bitcoin or Ethereum, and to only use platforms that are widely trusted in the crypto community. Hacks can still happen, but they’re way less common when dealing with crypto giants.
Our Bitcoin & Rewards platform, for example, is a totally regulated platform that is a core tenet of our product offering to MogoMembers; it’s demonstrably legit, and it’s not just gonna disappear.
For the purposes of most Canadians, investing in Bitcoin or Ethereum using an established platform like Bitcoin & Rewards will likely satisfy your interest in crypto investing.
If you are interested in branching out into other coins, it’s your job to do careful research before investing any cash, anywhere. Here are some things to look for:
- Does this coin have a consistent, active social media presence on multiple platforms?
- Is the website legit looking, and consistent with its social media presence?
- Are the creators of the coin anonymous, or are they real people that could be held accountable if things go awry?
- How big is the coin’s following? How many people are watching it, and investing?
Shady seeming social media presences, bad websites, or apparently shabby or untrustworthy conduct, promises, or behaviour are all red flags. If you notice something that seems off, it probably is, indeed, off!
When doing your research, be sure to consult community resources. There are websites dedicated to flagging scam coins, and other scam sites or platforms. Perhaps use websites like Scam Detector, or Token Sniffer.
And please, for the love of all that is good in the world, just forget about Elon. 🤪
Be smart out there, friends.
This blog is provided for informational purposes only, is not intended as investment advice, and is not meant to suggest that a particular investment or strategy is suitable for any particular investor. If you’re unsure about an investment, you may wish to obtain advice from a qualified professional. Nothing herein should be considered an offer, solicitation of an offer, or advice to buy or sell securities. Buying and selling bitcoin and cryptocurrency is risky and you may suffer losses. The price of bitcoin and cryptocurrency is highly volatile and speculative and so you should never invest more in cryptocurrencies than you can afford to lose. It’s also important to remember that past performance is no guarantee of future results.