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Popular crypto scams of 2022: did you escape all?

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The cryptocurrency market is largely unregulated, leading to severe financial losses for many parties. But these five stood out the most of all the modern financial scams in 2022.

Check them out so that you can prevent losses of that magnitude in the future:

Pump and Dump scams

It sounds just like its name. A pump and dump scam is a financial rip-off. It happens when the price or value of a token suddenly spirals, appealing to investors because of its seemingly good potential.

Unfortunately for big-time investors, the value suddenly comes back down but way below the entry point for most.

Pump-and-dump scams happen when influencers, celebrities, or people in a position to give influence a large following tout untrue information about a coin. Of course, the cryptocurrency will increase in value to a considerable extent, and more buying power will cause the price to keep climbing up.

All of a sudden, the value plummets to nothing! This is because investors (often the promoters and owners of the project) suddenly sell their coins when the price attains a particular point or the infamous all-time high.

They would know the best time to sell because there will be a plan behind the scenes. But you can spot it from a mile away and protect yourself. Only invest in viable and long-term projects.

But if a new project catches your fancy and seems promising, invest of your own accord, not based on the research or recommendations of a celebrity or influencer. Often, you don’t know the motivation for such investment advice, so it is better to refrain from dabbling in them.

So, how can you tell when it’s simply a pump-and-dump scheme? Well, the price will skyrocket after some endorsements. A cryptocurrency that hasn’t previously traded at a high or even stable and sustainable value suddenly gains recognition via popular messaging and social media platforms. Unsuspecting people buy into the dream.

This is an illicit method of controlling prices and selling at an inflationary rate.

Pump and dump scams happen in different ways. But the most popular are the groups of people that come together to influence the price for personal gain.

It begins with a pump signal, which is good or impressive news about the token, what it can do (which is untrue), and incentives for buying or investing in the project.

You can avoid pump and dump schemes by taking investment advice from people who have something to lose and not merely their credibility. In other words, avoid crypto investing advice from strangers, people without a means of accountability, or people you cannot vouch for.

If the price of a token suddenly increases at an alarming rate, be alarmed!

A good example is the recent SEC case involving Kim Kardashian. She seemed to have contravened the law by encouraging her 331.5 million followers to invest in a coin called EthereumMax.

Barely a year after the investment advice, the token lost 95 percent of its value, leaving investors with a worthless project on their hands.

Rug pulling

Rug pulling is another potential scam in the cryptocurrency market. It is an illegitimate scheme that involves creating a shitcoin or project without much value, especially intended to deprive people of their hard-earned funds.

If you know how investing in tokens works, you would understand that the investors provide their funds in exchange for tokens that supposedly hold value. In cases like Bitcoin and Ethereum, you get perhaps a fraction or an entire coin or more.

All these tokens are in your custody, in a wallet that no one else can access. But if they are valueless, that is just as bad as a hacked wallet because the value is also zero.

With rug pulling, the developers of a coin are aware that their token is not worth anything, but they are the only ones who know that. They promote the cryptocurrency the same as the valid ones, with promises of what the project will achieve. In other words, they rely on hype to increase demand, which is mostly temporary or short-lived and perpetuated for personal gain.

Of course, an impending increase in the token’s value is the reason anyone would invest in cryptocurrencies, leading unaware investors astray. In the crypto world, not everything that glitters is gold. You certainly shouldn’t be investing in every token you stumble upon, regardless of how promising it is.

With a rug pull, investors are misled into believing that a token is valid and has a bright future. It may have a low value at the time too, which may be the best time to buy, considering that it is a rule of thumb to buy low and sell high.

This is why you must know the developers of a coin before investing in it. There are a few exceptions, such as bitcoin and Shiba Inu, two projects with anonymous creators or developers. They have been around for long and have contributed to the crypto sphere. However, it is safe to conclude that the time for investing in coins by unknown developing teams has passed.

A good example is the Squid Games token. Around the time when there was an intense buzz around Squid Games, a Korean show that broke the internet and perhaps the world, a team of developers banded and created a coin called SQUID.

The thing about rug pulls is that they are most common on decentralized exchanges, as we have seen with the SQUID token. It started trading on the 21st of October when the buzz was still on and gained a value from $40 to $3,000.

The increase in value happened price fell back to $0! It was later discovered that they absconded with almost 12 million dollars.

Phishing

The phenomenon of phishing affects every aspect of the World Wide Web, but cryptocurrency trading is especially susceptible for many reasons. For one, it is a decentralized finance sector, which makes it unregulated and anonymous.

The transparency, decentralization, and anonymity are used as an advantage by the unscrupulous among us, and you would be surprised at how easy it is to pull a phishing scam. All that is needed is a few bucks to purchase and register a domain, and many users fall victim to the deceit.

In crypto trading, you need a secure wallet to hold your tokens. In that case, looking up an ERC or BEP-compatible wallet is as easy as typing it into google and getting results.

However, the commonplace practice of clicking on the first link you see because it is often believed to be the most credible may result in a massive loss. This is because it may be a website clone, and once your tokens are transferred there, it costs you immediately.

In other words, cloning websites is one of the easiest cryptocurrency scams that have led to financial losses for many. An example is a website called Myetherwallettribe (stay away from it!)

A mere look at it indicates that you may be choosing an Ethereum-supported wallet to store your coins. And actually, that is what you should expect because there is also a wallet, a legitimate one, called Myetherwallet.

Notice the difference and similarities between both websites. The valid one is Myetherwallet.com, while the scam is Myetherwallettribe.com.

Again, it is effortless to fall victim to a deception of this nature, which is why you must fact-check before taking any action in the crypto market. If you aren’t sure about something, this isn’t the place to gamble or take chances, or you will lose your funds.

Confirm that you are on the right website before providing information about yourself or your wallet.

Phishing can also happen when a third party gets ahold of information that can lead to hacking your wallet or personal crypto portfolio. By dropping details like your password and seed phrase, you make it easy for scammers to get into your wallet and steal your funds.

Using celebrities

Investing in cryptocurrencies can also be a thing of regret when you rely on celebrities for advice. Often, these people are not in a position to give any advice, especially not investment related.

However, they take advantage of their large followings and promote or endorse coins they have no belief in. The United States Securities and Exchange Commission does not fully control the crypto market, but some of its regulations still apply to decentralized finance.

One such is to inform the public about the amount you are paid as an influencer to promote a coin. The reason is to allow followers to know about the validity of the token and the influencer’s vested interest in it.

In other words, let the public know whether the recommendation comes from a place of confidence and trust in the token or whether it is a way to make money in the short run.

A valid token with something to offer the blockchain will not necessarily need much publicity because it is not going away soon. Therefore, there can be patience in the project and a slow build of trust in what it offers.

However, there may be something fishy when a token is in a hurry to amass funding for its initial public offering. And the project developers are never above paying the right channel, i.e., celebrities, to push their illegitimate token.

Stipulating clearly that a certain sum was paid for the endorsement of the token gives investors more information and guidance about whether to invest or not. Kardashian included in her post that it was an ad but failed to disclose that she was paid $250,000 for the promotion.

The same applies to Paul Pierce, Floyd Mayweather, and DJ Khaled; they promoted tokens they didn’t invest in or believe in without disclosing all the necessary information to make a good investment in the project.

In other words, they took advantage of their loyal following’s trust in the credibility of their word.

The use of celebrities to promote a coin is not a new phenomenon. But crypto enthusiasts should use their heads before taking the word of someone who may not be made accountable for misleading you.

Simply put, using celebrities to promote a coin with no value to the decentralized finance world is not new, but you can avoid falling victim by not taking advice from them.

Shitcoins

Shitcoins are characterized by short-term profits and an immediate dump, causing the price to drop and possibly never rise again.

Typically, shitcoins are used to refer to altcoins or cryptocurrency projects that were created after Bitcoin. However, shitcoins also refer to tokens that see a fast pump or inflation in price followed by a quick dump that the token has difficulty getting out of.

It happens because the developers know the project offers no value and therefore seek to make quick gains before the rest of the world knows about it. The value of a coin is determined by the demand for it, and demand is created by scarcity and promotions.

Therefore, you can tell a shitcoin from a token worth investing in through the maximum and circulating supply. It may be a shitcoin if there is an almost infinite supply, as in trillions and billions of tokens.

Let’s consider Bitcoin, for instance. There is a limited supply, which guarantees that demand will always chase supply. In contrast, a shitcoin is valueless and in excess supply, so supply chases demand instead.

Of course, the developers have created this coin, knowing it will not make much progress in the DeFi space. Therefore, they do whatever is necessary to increase the value, take their profit, and abandon the coin.

Verge is an example of a token of this nature. There are 16 billion coins in circulation, meaning the price may never go higher than the all-time high it attained five years ago.

Cryptocurrency can make you rich overnight, but you can also lose everything within a split second. It is a matter of investing in proper projects. You can achieve this milestone by trusting your instinct, believing in only valid, legitimate, and long-term coins, and evaluating the credibility of the developing team.

But most importantly, you want to avoid trusting the words of someone who shouldn’t be giving financial investment advice, regardless of how large a following they have. And, of course, you certainly should never accept the financial advice of an anonymous entity attempting to convince you to invest in a project which is often new and unrecognized.

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