How to recognise and avoid cryptocurrency scams in 2021
Investors who lack experience and knowledge about new asset class an easy prey for bad actors
The Dubai Electronic Security Centre officially confirmed on Thursday night that the digital currency known as “Dubai Coin” is not authorised by any administrative body. The site trying to promote the coin is an unlicenced entity aimed at phishing user’s data.
Scammers worldwide are attracted to cryptocurrencies as it is easier for unscrupulous persons to exit with investor’s money due to the immutable and irreversible nature of blockchain-based transactions, which makes it challenging to recover investor’s funds. The cryptocurrency market crossing total capitalisation of $2.2 trillion has further increased the interest among investors for this new class of asset.
As investors are prepared to invest their money into highly speculative assets, the scammer’s appetite for marketing and promoting fraudulent tokens or cryptocurrencies to investors who lack experience and knowledge about this new asset class has increased significantly, also exposing gaps in investor education regarding digital assets.
Perform due diligence as an investor: Scammers often exploit fraudulent investment schemes promising high returns on investment, such as promising investors to double or triple their investments to dupe unsuspecting investors. Therefore, investors should always perform due diligence and check the website for any red flags, read the whitepaper and ask questions regarding the claims being made by the team members. Further, the investor should confirm the company’s legal presence like the registration, office address and people behind the company who are marketing such investments.
In the case of investments schemes like DubaiCoin — where the name of a city, organisation, royal family or nation is being used for marketing the coin to investors — it is critical to cross-check government websites and sources and confirm with regulatory authorities to determine whether the investment scheme or blockchain is legitimate.
Further, it is crucial to cross-check the news sources and confirm their authenticity as often such fraudulent investment schemes are advertised in misleading news pieces that look to be legitimate media outlets.
Impersonation, misrepresentation and social engineering through fake profiles: This next fraud of leveraging social engineering tactics may take many different formats, but the concept is the same: It requires the creation of fake accounts that are tailored to seem like natural persons and provide authenticity and authority to the project.
In 2017, we saw various cases where fraudulent ICOs were using stolen pictures of natural persons retrieved from social media of unsuspecting users depicting them as the company’s CEO, founder or team members.
In such cases, a Google image reverse search can inform an investor whether such an image is fake or real. However, with the advancement of machine learning in the field of generative images, scammers are now using fake AI-generated faces to create fake team member profiles to market fraudulent investment schemes to investors.
Detecting Ponzi schemes in crypto industry: Ponzi schemes have been around for decades. In a crypto Ponzi scheme, investors are promised large payouts to attract new users, friends and relatives to expand the pyramid.
For example, the Ponzi scheme PlusToken exited with $2.9 billion in 2019, and WoToken, a similar operation run by many of the same criminals behind PlusToken, defrauded investors of $1.1 billion in an exit scam in 2020. Therefore, the thumb rule for detecting a crypto Ponzi scheme is that if an investment sounds too good to be true, it most often is.
Conservative approach the way forward: Even though these frauds may seem intimidating, following simple due diligence steps can help users stay secure. A conservative approach helps users avoid becoming a victim of these frauds. Further, it is crucial to secure digital devices, passwords and only engage with official representatives of a cryptocurrency exchange or startup.
With digital assets becoming mainstream, we will, unfortunately, see more instances of such frauds taking place on a larger spectrum and this is going to invite more regulations or measures from regulators to ensure investor protection and market integrity globally.
The writer is founder of Karm Legal Consultants. Views expressed are her own and do not reflect the newspaper’s policy.
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