What is a Bitcoin scam?
A bitcoin scam is a company or a person that claims to sell digital coins (or other cryptocurrency) at a discount. The cryptocurrency is sold through platforms that promise they’re protected by the “blockchain,” a distributed public ledger that keeps track of every transaction and coin transfer. These platforms typically set up wallets that users can deposit their money into, only to have the funds quickly removed from the blockchain and re-deposited into the scammer’s wallet. Once the wallet is cleaned out, you’ve been scammed.
How can you tell if a company is bitcoin scam?
There are three steps to identifying a bitcoin scam:
Check to see if the company operates a legitimate cryptocurrency exchange.
What makes a Bitcoin startup suspicious?
Before you make your purchase, ask about the legitimacy of the company and what its scope is, including what kind of venture capital the venture is attracting, and what kind of outside investors are involved. A quick internet search for a company’s name and “internet protocol address” will reveal to you if the company is using technology to track user activity or a cloud-based solution. Also be aware of the types of assets the startup will be buying or selling. A Bitcoin or other cryptocurrency startup that exclusively trades in bitcoin may be a scam. Likewise, a startup that sells goods on the blockchain is probably not legitimate.
How to avoid scams when investing in cryptocurrencies
One of the easiest ways to avoid scam artists is by not spreading your money around to numerous startups. Only invest in companies that offer products that you’ll use — or would use if they actually existed. Like any investment, it’s all about the risk you’re willing to take.
Investors need to remember that the cryptocurrency industry is still young and untested. If a company doesn’t seem to be moving forward, be wary of its prospects. Watch for new products and developments in the company’s marketing, or if their current product isn’t their most recent innovation. Look at how the company maintains its current valuation, and ask yourself if there’s room for growth. Keep an eye out for updated and enticing data on your investment’s crypto market value.