From hackers who take advantage of security holes to fraud by the people running the system. This article reveals the dark side of cryptocurrencies and everything you should avoid!
It’s impossible to think that anyone working with cryptocurrencies doesn’t know the industry is rife with scams and theft and carries extraordinary risks. Any investor no matter how savvy they are, who falls into the trap of digital coins will have to fork over a lot of cash. Scams and hacking have reportedly cost tens of billions of dollars in this industry over the past decade.
Of course, fraud, theft, and black market money existed long before the creation of cryptocurrencies a decade ago, and the vast majority of current financial crimes still involve dollars, shekels, or other legitimate forms of currency.
It’s also important to remember that the majority of bitcoin transactions are carried out honorably, despite the fact that they are not subject to any kind of central authority or governmental oversight. Slowly but surely, governments around the world are beginning to establish rules for this industry, and Israel is no exception.
Yet, investors should be wary of being taken advantage of due to the high risk involved and the technological sophistication of the assets they are investing in.
Risks in cryptocurrencies
As promising as the crypto market is, there are quite a number of risks that should either be avoided or properly evaluated before an investment is made. Here are a number of risks in the crypto market:
- Volatility
- Cybersecurity
- Regulation
Volatility
Volatility refers to how much the price of a cryptocurrency changes in a short amount of time. Cryptocurrencies are known for being very volatile, which can put investors at a lot of risks.
For example, an investor who buys a cryptocurrency at a high price may quickly lose a lot of money when the price of that cryptocurrency drops.
On the other hand, an investor who buys a cryptocurrency at a low price may see its value skyrocket, leading to big gains.
Cryptocurrencies are very volatile because of a number of things, such as their low market capitalization, lack of oversight by regulators, and susceptibility to market speculation and hype. So, people who want to invest in cryptocurrencies should be aware of the risks that come with their volatility.
Cybersecurity
Cybersecurity risk in cryptocurrencies refers to the chance that digital wallets, cryptocurrency exchanges, and other related platforms will be stolen from, hacked, or attacked in some other way.
Cryptocurrencies are kept in digital wallets that are protected by encryption, but these wallets can be vulnerable to cyberattacks. For example, hackers can use malware or phishing attacks to gain access to a user’s wallet and steal their cryptocurrency.
Also, cryptocurrency exchanges, which let people buy and sell cryptocurrencies, are vulnerable to cyberattacks. In recent years, a number of well-known exchanges have been hacked.
Cybersecurity risks in cryptocurrencies can cause investors to lose a lot of money, so it’s important to take the right security steps to protect yourself.
Investors should use digital wallets and cryptocurrency exchanges from reputable companies, use strong passwords and two-factor authentication,
and keep their software up to date to reduce the risk of cyberattacks.
Regulation
Regulatory risk in cryptocurrencies is the uncertainty and possible effect of government rules on how cryptocurrencies are used and how much they are worth.
Cryptocurrencies are not backed by any government or financial institution, and because they are not centralized, they are hard to control. But as cryptocurrencies have become more popular, governments around the world have started to regulate them.
This includes things like making cryptocurrency exchanges get licenses, having rules against money laundering, and taxing cryptocurrency transactions. Adding new rules can cause uncertainty and make people less likely to use cryptocurrencies, which can lower their value.
Some governments have also taken a more aggressive approach to regulate cryptocurrencies, such as banning or limiting their use outright. These actions can have a big effect on the market for cryptocurrencies and put investors at risk.
So, it’s important for investors to keep up with changes in regulations and know how they might affect their investments in cryptocurrencies.
Scams in cryptocurrencies
Cryptocurrencies have been the target of more than a few frauds throughout the years. Some of the most well-known scams are as follows:
- Initial coin offerings (ICOs)
- Fake wallet and exchanges
- Phishing scams
- Pump-and-dump schemes
Scams involving Initial Coin Offerings (ICOs)
ICOs are a way for cryptocurrency startups to raise money by giving investors new digital tokens. But some ICOs have been scams, and the people who made them have taken the money and disappeared. One example is the PlexCoin Initial Coin Offering, which the SEC shut down in 2017.
Fake wallets and exchanges
Hackers sometimes make fake cryptocurrency wallets and exchanges to steal money from their users. In 2018, hackers broke into the popular Japanese exchange Coincheck and stole more than $500 million worth of cryptocurrency.
Phishing scams
This happens when scammers send emails or messages that look like they come from a real cryptocurrency company or exchange. They ask users to enter their login information or send money to a certain wallet address. In reality, hackers are sending these messages to try to get money from you.
Pump-and-dump schemes:
These are scenarios when people spread false information to drive up the price of a cryptocurrency, then sell their own holdings when the price reaches a certain level. Other investors lose money because of this.
Before investing in cryptocurrencies, you should be careful and do your own research.
Ponzi schemes in cryptocurrencies
Over the course of the past few years, the cryptocurrency industry has been plagued by multiple Ponzi scams. The following are some of the most notable ones:
- Bitconnect
- OneCoin
- Plus Token
- MMM Global
Bitconnect
Bitconnect was a lending and investing website that offered customers the opportunity to make substantial returns on their investments in the platform’s own cryptocurrency. Unfortunately, it was eventually discovered that the platform was actually a Ponzi scheme, and it was shut down in the year 2018.
OneCoin
OneCoin was a cryptocurrency that had a network marketing model and claimed to be backed by gold reserves. The company behind OneCoin was called OneCoin. Nevertheless, it was eventually discovered to be a Ponzi scheme, and the individual who created it, Ruja Ignatova, has been charged with fraud as well as money laundering.
Plus Token
PlusToken was a mobile wallet that offered consumers an incentive to hold its cryptocurrency by promising large returns on their investments. After further investigation, it turned out to be a Ponzi scheme, and in 2019, the people behind it were arrested.
MMM Global
MMM Global was a Ponzi scheme that operated in the early days of Bitcoin while Bitcoin was still relatively new. Those that invested in the company’s “Mavro” cryptocurrency were promised significant profits, however, the company went out of business in 2016.
Before investing in any cryptocurrency, it is essential to conduct one’s own research and proceed with extreme caution. It is crucial to keep in mind that not all cryptocurrencies or investments involving cryptocurrencies are Ponzi schemes.
Final Thoughts
When you trade in cryptocurrencies, it’s important to remember that you can both make and lose a lot of money. Learn as much as you can before you invest and be thrilled at the profits you will make.
