With the sudden explosion of cryptocurrency, everyone is wanting to get into the space and make some money. Overall, this is great, and tons of people are learning about the good things that come with cryptocurrency. There are also, however, more scams, Ponzi schemes, and shady businesses popping up every day because of it. Luckily, this article will show you how to avoid getting scammed with cryptocurrency.
How To Avoid Getting Scammed With Cryptocurrency
1) Choose A Trusted Wallet
One of the most important parts of keeping your cryptocurrency safe is making sure that you are using a secure and trusted wallet. Below, you will find our recommendations for online cryptocurrency wallets, cryptocurrency trading platforms, and cold storage wallets.
Online Wallet: Coinbase
Coinbase has been in the Bitcoin/cryptocurrency space since 2012, and over the years they have built up the reputation as a reliable, safe place to store your Bitcoin online. Over 8-% of Coinbase's Bitcoin is stored in offline, cold storage meaning that it is completely disconnected from the internet, and thus, it can't be hacked and taken digitally. They are also the number one Bitcoin, Ethereum, and Litecoin exchange allowing you to trade out any traditional currency for the cryptocurrency of your choice making them perfect for anyone just getting into cryptocurrency.
Trading Platform: Binance
Binance is perfect for those who are planning to day trade of swing trade digital currency. It allows you to exchange and trade many of the currencies that aren't available on big exchanges like Coinbase such as DASH, NEO, Ripple, and Monero. Overall, Binance has more currencies than I can count available to trade, and because of that, it makes it perfect for someone wanting to day/swing trade or invest in popular or obscure ALT coins.
Cold Storage Wallet: Trezor
The safest and most secure way to store your Bitcoin is in an offline, cold storage wallet. There are a few different options out there, but the one we recommend the most is the Trezor. It is durable and supports a variety of cryptocurrency from DASH to good old Bitcoin. Trezor is most definitely the safest way to store your crypto.
2) Avoid Websites Offering ‘Daily Compounding Interest'
After you've gotten your cryptocurrency stored away safely, it's time to start watching out for what you invest it in. The biggest thing I can recommend you look out for is sites offering ‘guaranteed, daily compounding interest'. The reason for this is that it just simply doesn't make sense as 1% interest compounded daily would make your $1,000 investment worth $50 million+ in 3 Years! That is unsustainable, and that is why most of these sites are running ponzi schemes.
Ponzi schemes are fraudulent investment systems where the business offer the schemes pays out on returns for older investors through revenue paid by new investors instead of legitimately earning the money through actual trading. TONS of ponzi schemes have appeared in cryptocurrency over the years and all of them have started out in very similar ways. They offer great returns – 1%+ compounded every day, and at first, they payout until one day, the site goes down and they disappear never to return again.
If you see a website offering you incredible returns, be very careful. It is most likely a scam and if you stay invested long enough, you will lose your money. Many of these are promoted by big cryptocurrency YouTubers, so be sure you've done your own research before blindly investing.
3) Do Not Do Cloud Mining
Another common ponzi scheme in the cryptocurrency space is cloud mining. There have been hundreds of cloud mining ponzi schemes in the cloud mining space. The reason for this is usually, these companies say they are mining Bitcoin for you, and you invest up-front in order to start up the process. While this may sound legitimate, most of these companies do not actually do any mining. They pay you from the new money brought in by investors, and they never actually do any real mining.
Most of the time, cloud mining isn't actually probably. There is one real cloud miner that I can recommend, and that is Genesis Mining. However, it is hard to find any real profit with Genesis cloud mining unless Bitcoin is at an all-time high, and even then, Genesis very rarely has any open mining spots as they are always needing to expand and add in new mining hardware. Because of this, companies that seem to have incredible growth with no need to shut down are most likely scams. It's just impossible to profitably scale hardware that quickly.
Overall, watch out for cloud mining. I personally will never own a cloud mining contract. It is much more profitable to mine crypto yourself.
4) If It Sounds Too Good To Be True, It Is
This one is pretty simple. If you read something and think, “WOW! That is crazy. No way that is correct.”, you are right. It is too good to be true. Don't even question yourself. You are right. It's too good to be true, and it is a scam. I promise. There is a reason that you got that gut feeling. Stop yourself now, or I guarantee you will regret it later. Instinct can go a long way when it comes to sniffing out cryptocurrency scams.
5) Read The Whitepaper Before Investing
Before you even think about investing in any coin, read the whitepaper. A whitepaper is an entire overview of what a coin plans to do. It will outline the tech behind the coin, what they plan on doing with the coin, and how it will be used in functionality. Every coin that is worth your attention from Bitcoin to Substratum will have a whitepaper, and if you are going to invest your money in a coin, you better read it cover to cover. This way, you will know everything you need to know about a coin, and you can truly invest your money in confidence.
Note: If a coin does not have a whitepaper at all, DO NOT INVEST IN IT. The coin is most likely a scam coin or a joke coin. Either way, I'd recommend staying away from it.
6) Don't Do It Because Someone Else Is
Just because a popular YouTuber or your friends recommend something, don't assume it is safe. There are tons of extremely popular YouTubers who have promoted multiple ponzi schemes from those based on guaranteed interest to those based on cloud mining. YouTubers are usually the biggest ambassadors for these because they will earn a referral/affiliate commission if you invest. In general, affiliate marketing is not bad, but when it has you investing in a ponzi scheme, it obviously is. If a YouTuber promotes something, make sure you have also done your own research, and make sure they have also invested their own money. If they haven't, chances are you shouldn't either.
Additionally, your friends may not be the best people to listen to either. How much experience do they have in investing? If the answer isn't a lot, I would suggest staying away from whatever they recommend especially if it is online cloud mining or a promised interest scheme. As mentioned earlier, these are almost always scams. Sure, they may have gotten payouts, but that is no guarantee that it will pay out forever. Usually, it won't. Use your own common sense, and be sure to do your own research.
7) Be Careful With ICOs
ICOs, also known as an initial coin offerings, are when a new service, business, or non-profit is starting around a future cryptocurrency based project. Suddenly, there have been tons of ICOs popping up, and some of them are complete scams. There are some legitimate ICOs that are for great projects. They have incredible teams behind, and there really is a need for the blockchain to be involved in the service. Substratum is a good example of this in my opinion. They are working towards an end goal that will actually help the world.
With that being said, how can you tell if an ICO is legit? Before even thinking about investing, read their whitepaper. If they don't have a whitepaper, don't invest. You aren't missing out on anything because if they don't have a whitepaper, they don't have a vision. A new project with no vision is worth nothing. Something else I would recommend is finding and at least doing a little bit of research about the team behind the ICO. If you can't find the team, don't invest. The two biggest parts of an ICO are their vision and the team behind the vision. If one or the other doesn't exist, the project most likely won't succeed.
Disclosure: I am holding a long-term investment in Substrate.
8) Watch Out For Pyramid Schemes
Last but not least, you need to watch out for pyramid schemes in the crypto space. Now, normal affiliate marketing is perfectly fine, but an issue arises when you are only making money if you refer someone to the program. For example, the only way you make money is if you invite 3 friends and they each invest $50. Then, they only make money if they invite 3 people and each one of those invests $50, but you also make money from the people they referred. The system continues to go on and on until you in they run out of people in the world to invite. You can find more information on a pyramid scheme on Wikipedia.
The reason to watch out for these systems is because they are not sustainable, and you are literally robbing from your friends in order to earn some money. Pyramid schemes can be worse than ponzi schemes because usually no one wins ever. People just continue to lose money until there isn't anyone left to invite. It's a sad system, and it should be avoided at all costs.
Thanks for reading. If there is a cryptocurrency scam we missed, please add it in the comment section below. We will happily add it! Also, let us know if you have any questions in the comments below. We are happy to look at any sites you make think are scams and tell you one way or the other. Also, check out our video on How To Avoid Getting Scammed With Cryptocurrency by clicking here!