Ponzi Scheme
Fraudsters promise huge returns on investments, when in fact the funds from new investors are used to pay returns to older investors.
Example: Finiko, a Russian Bitcoin investment firm, promised 30% monthly returns. This Ponzi scheme stole $100 billion worth of BTC and greatly disrupted Moscow’s crypto market.
Phishing
Scammers deceive users using fake emails or websites that resemble the original. Unsuspecting users will give away their private keys or credentials.
Identity Theft
Scammers pose as famous figures, organizations, or authorities to deceive users.
Example: In 2024, three US teenagers pretended to be Google Support officers. They guided victims to show their screens and reset their two-factor authentication, thereby gaining access to the victims' private keys and stealing 3,100 Bitcoin.
Pump and Dump
A token’s price is artificially inflated through hype and excessive promotion. Once investors have purchased the token, its price rises. Then, the perpetrators immediately sell their tokens, leaving the victims with worthless tokens.
Example: In 2021, SafeMoon tokens were heavily promoted by major celebrities, such as Jake Paul, Soulja Boy, Nick Carter, and Lil Yachty. However, by the end of the year, the value of these tokens had fallen by 80%. SafeMoon executives and the lineup of artists who promoted them were accused of holding most of the tokens and selling them after the token value rose.
The importance of Wallet and Seed Phrase
The first step in investing in crypto safely is securing your crypto assets. Cryptocurrencies are stored on the blockchain and accessed through crypto wallets. All private keys for assets are stored in software or hardware wallets. Therefore, wallet security must be maintained to prevent damage, loss, or hacker attacks.
In addition to wallets, investors must also understand the importance of seed phrases. A seed phrase or recovery phrase is the master key to your wallet. The seed phrase acts as a backup for your private key, enabling you to regain access to your wallet and assets if you forget your wallet password or lose your wallet.
Also Read: How to Choose the Best Crypto Wallet for Beginners
How to Store Crypto Assets Safely
Use the Right Crypto Wallet
Store assets for transactions, investments, and trading in a secure hot wallet. On the other hand, use a cold wallet to store large amounts of assets for the long term. If you have a collection of NFTs or real-world asset (RWA) tokens, store them in a secure cold wallet.
Secure Your Seed Phrase
If your wallet is damaged, lost, or hacked, your seed phrase is the only way to regain access to your wallet and assets. Store your seed phrase in a protected offline location.
Enable Multisig Verification
Some wallets offer a shared wallet option with multisig (multi-signature) verification. Multisig verification involves the approval of more than one person to make a transaction. This prevents any single party from making transactions arbitrarily.
Set a Strong Password
Software wallets are typically protected by a password, so it is essential to use a strong password that is not easily guessable. In addition, enable biometric protection using fingerprints or facial recognition so no one but you can access your wallet.
Enable Two-Factor Authentication
Use third-party applications, such as Google Authenticator, so that no one can access your wallet account even if your password is compromised. Authenticator apps can also alert you if your account is accessed by another device.
How to Avoid Crypto Scams
Scams in the crypto world are becoming more and more advanced, so investors need to know how to invest in crypto safely. There are several ways to protect your assets from scams. The key is discipline and making decisions calmly.
- Be aware of scams: Read news about crypto scams, their causes, and signs of a scam.
- Secure your passwords: Don't use the same password for your wallet as you use on other platforms, change your passwords regularly, and implement an additional security layer with two-factor authentication.
- Understand crypto technology: Learn how blockchain and smart contracts work, as well as the importance of security audits.
- Do Your Own Research (DYOR): Don't be swayed by excessive promotion and hype on social media or from friends. Always research token projects before investing.
Common Beginner Investor Mistakes
As a beginner investor, there are several common mistakes you should avoid in order to invest in crypto safely.
Overinvesting
Beginners are often lured by promises of huge returns, so they invest large amounts of capital. Set aside funds for investment, and don't invest more than you can afford to lose.
Investing Without a Strategy
If you don't have an investment strategy, you are more likely to fall for FOMO, hype, and suspicious projects. Plan an investment strategy that defines your investment goals and risk tolerance.
Making Emotional Decisions
The volatile crypto market makes novice investors prone to panic or greed when prices rise or fall dramatically. Ensure you stick to your investment strategy and avoid making hasty decisions.
Lack of Diversification
Don't invest in just one type of coin, because if its value falls, you will experience a huge loss. A safe way to invest in crypto is to spread your investment funds across several types of tokens to minimize the risk of loss.
Conclusion
The increasing popularity of crypto has attracted many novice investors to the market. Crypto indeed offers attractive returns, but it still carries risks. Beginners must understand how to protect themselves from threats and how to invest safely in crypto.
One way to invest safely in crypto is by understanding the various types of scams in the modern financial world. Learn about the different types of scams in the article What is a Scam? A Complete Guide to Digital & Cryptocurrency Fraud.
