Cryptocurrency Frauds: What one should know
In the recent times, use of virtual currency as a tool for exchange as well as investment has gained pace across the world. Cryptocurrencies are a form of virtual currency or tokens which differ from typical currencies issued by a central bank of a particular country. They are digital assets which are secured by cryptography. While real money or currency gets it validity due to government backing, in case of cryptocurrencies, it is provided by a blockchain system. Further, an open distributed ledger records all the transactions, thus making the entire process decentralized. Over the past few years, several cryptocurrencies such as Bitcoin, Etherium, Ripple’s XRP, Dogecoin among others have gained widespread popularity. This popularity has resulted in the expansion of its functionality by providing customers a platform to trade these currencies for other assets, including standard currencies.
As the prominence of crypto is increasing with incredible public interest, the opportunities for fraudsters and scams has also risen. The cryptocurrencies, just like any other financial tool has become volatile to defraud investors due to which it has become a dominant topic of discussion among the various government agencies. Steps are being taken to address the various forms of these digital assets, how it can facilitate fraud and avoid its abuse.
The digital nature of cryptocurrencies means the threats and frauds too originate through the internet. A fraud may occur in many forms which utilize the nature of transactions. As the transactions are carried through the cyber domain, it can be carried out instantly, with a global reach. Though this feature is advantageous for exchanges by reducing transaction time, it also has the potential to be used a tool for tax evasion and laundering.
The classic method of “Pump and Dump” schemes can also be used as tool by dominant investors or originators to earn phony profits. In this case, the owners are seen to drive the prices to an artificial peak before selling off. The hype created around a particular crypto due to false claims results in the movement of demand which in turn shifts the price accordingly.
Yet another method of fraud that crypto investors should be careful about is imposter websites. The instance of frauds involving fake websites is a hurdle that holds the caliber to drive away potential investors. The websites are designed carefully to resemble original ones of companies. These websites usually direct visitors to a different platform for payment. Small unidentifiable changes to a particular investment links redirect people from the cryptocurrency investment they seek for. Hence, ensuring the legitimacy of URLs used for transacting is important to avoid becoming a victim of cyber fraud. Another common way used to trick investors is through fake apps, as per the Bitcoin news. These apps are build similar to those of the actual stakeholders, with minor misspellings or changes in the color of the logo. Although, such apps are identifiable by stakeholders and quickly removed from Google Play or Apple App Store, the impact on the bottom line is minimal. Due to the hype around investment returns and easy accessibility of internet connected mobile phones, thousands of people get fall prey within minutes to these fake apps before they are terminated.
The cryptocurrency is bringing about a revolution through the use of blockchain technology. However, unfortunately, the internet has also provided numerous ways to exploit users. The unsecured system is being used to steal or mine cryptocurrency. Therefore, it is necessary to learn to stay safe and protect oneself from the emerging world of cryptocurrency before investing in the market.
