Decentralization, immutability, and anonymity. These are the key elements that make cryptocurrencies attractive to investors and traders due to their numerous advantages. However, the mentioned factors are also the key reasons why they are pulling in people who are involved in crypto scams.
In this article, we will establish the reason why decentralization, immutability, and anonymity, also form an integral part of crypto scams. Knowing how they can be exploited gives you a step up in the protection of your crypto assets.
A Trip Down the Earliest and Latest Known Major Crypto Scams
Since the accessibility of cryptocurrencies for public utilization, it also brought in a plethora of crypto scams along the way. Each comes with creative ways to cheat investors and traders of this digital commodity.
The earliest crypto scandal that caught global attention was the Mt. Gox affair wherein the company lost around 750,000 units of its customer’s Bitcoins and an estimated 100,000 coins of its own from its operations between 2010 to 2014. At that time, these were valuated to be somewhere around $473 million. The Tokyo-based exchange blamed the loss on a series of hacks.
Fast-forward to the present and more notable crypto scams along the way, the industry is once again plagued with a scandal. This time, it’s Sam Bankman-Fried’s FTX, which most of you may be familiar with.
The crypto exchange was launched in 2019 and its operations peaked in 2021 during the COVID-19 lockdowns. However, this once-promising venture quickly folded in November 2022 after having liquidity problems supposedly stemming from the mishandling of its funds.
From these major scandals, problems always occur with third-party actors since blockchain comes with a consensus mechanism that offers plenty of safeguards that makes it very hard, if not impossible, to hack within its internal system.
The Top Three Factors that Make Cryptos Prone to Scams
The same features that make cryptos a great choice for a specific set of investors and traders are the same things that scammers are exploiting to serve their aim. Here is a quick look at how they can work against you:
Cryptocurrency transactions are performed in a distributed digital ledger, meaning that there is no single central authority to oversee it. This lack of regulation is attractive for scammers as they can freely conduct malicious activities without proper documentation and manual verification of the processes.
All the transactions made within cryptocurrency networks are permanent, meaning that if fraudulent activities occur, they cannot be reversed or modified. This makes it difficult to trace any stolen funds or assets back to their original owners.
Exchanges only use wallet addresses that allow anonymous trading for users. These hide their identities from other people on the platform and government operatives. This gives way to malicious actors who can use the platform to mask themselves while deceiving unsuspecting traders or investors.
Just like any other product out there, cryptos have inherent advantages over other forms of investments because of their decentralized, immutable, and anonymous nature. However, the same set of benefits also have their drawbacks.
If you are an investor or trader, it is important to be aware of these factors and understand how they can put your assets at risk. Make sure to always double-check all details before engaging in any activities related to crypto exchanges. Taking the necessary precautionary measures can help save you from being victimized by malicious actors.
Now that you have a better understanding of how scammers take advantage of the features of cryptocurrencies, you can make more informed decisions when it comes to protecting your digital assets and investments. Remember, knowledge is power, so always practice due diligence to stay vigilant and safe in order to keep your risks in check and protect your investments or trades at all times.
Giancarlo is an economist and researcher by profession. Prior to his addition to Blockzeit’s dynamic team, he was handling several crypto projects for both the government and private sectors as a Project Manager for a consultancy firm.