Cryptocurrencies are nothing but currencies that are virtually or digitally available. They are organized by a peer-to-peer network known as the blockchain, which also acts as a secure ledger for crypto transactions. These cryptos don’t involve banks or other financial institutions in the management of their transactions. It means they have got nothing to do with centralized bodies. The word “crypto” refers to several encryption algorithms and cryptographic techniques that shelter entries, like elliptical curve encryption, public-private key pairs, and hashing functions. Despite all of this, crypto scams are increasing daily. Many people lose their wealth due to these scams. As a result, they become bankrupt and even face health problems such as heart attacks, depression, panic attacks, etc. Therefore, crypto investors need to know in depth about crypto scams and the signals that help in identifying them.
The process of creating cryptocurrencies:
The procedure for creating cryptocurrencies is as follows:
- Selecting a consensus mechanism:
Consensus mechanisms are the protocols that regard a particular transaction to be valid, further adding it to the block.
- Choosing a blockchain platform:
Selecting the right blockchain platform entirely depends on the consensus mechanism you choose. It is essential to select the right blockchain platform.
- Designing the nodes:
You must find out the operation of your blockchain. After doing that, you should design your nodes according to the determined operation of your blockchain.
- Setting up the internal architecture for the blockchain:
For establishing the blockchain’s interior architecture, you should be sure of all aspects before the launch. It is because, after the launch, it won’t be possible for you to change the parameters of the blockchain you’ve developed.
- API Integration:
Certain platforms don’t offer APIs that are already built. But still, there are many third-party blockchain API providers such as ChromaWay, Gem, Colu, BlockCypher, etc.
- UI Designing:
Building a top-quality cryptocurrency becomes a waste if the UI isn’t correctly designed. In addition, you should ensure that the web, FTP server, and external databases are up-to-date. Finally, you should also check that front-end and back-end programming are done with future upgrades.
- Legalizing your cryptocurrency:
You must make sure that your cryptocurrency is ready and meets the expectations of the upcoming international cryptocurrency regulations. In that way, your work gets preserved, and no sudden modifications can damage your effort in creating a new digital currency.
Working of cryptocurrencies:
The working of cryptocurrencies is as follows.
- Central authorities like governments, banks, or other financial institutions don’t manage cryptocurrency transactions.
- Instead, they work on a peer-to-peer network. A public ledger called blockchain technology records the transactions.
- Blockchain technology permits the data to be shared globally for the verification of transactions, preventing false double spending of cryptocurrencies.
- Cryptocurrencies function by recording transactions to the ledger, which are later made into blocks. The ledger is public, online, and not controlled by any central body.
- While the transactions are recorded on this public ledger, the details of the people trading in those cryptos remain anonymous.
- It is almost impossible to fake cryptocurrencies.
- All the computers that store and update the copies of blockchain technology must “acknowledge” on the correct version of the public ledger.
- While purchasing a digital currency, you own a private key. It is a piece of code that permits the outgoing of transactions on the blockchain network so that you can spend your cryptocurrency.
Risks of investing in cryptocurrencies:
The following are the risks associated with a crypto investment.
- Debit and credit cards have legal protections when something goes wrong, whereas cryptocurrencies don’t come with legal protection.
- When you pay for something through cryptocurrency, the payments are irreversible. You’ll only get the money back if the recipient you have paid sends it back. Therefore, you should be careful while using cryptocurrencies for payments.
- There is no guarantee of more returns on crypto investment.
- If you store your cryptos online, you won’t have the same protections as bank accounts.
- As the value of cryptocurrency constantly changes, the value of cryptocurrency investment also changes. For example, if the value of a crypto investment may be worth thousands of dollars today, it can be worth only hundreds tomorrow. It means if the value of the cryptocurrency falls, then there is no guarantee that it will rise again.
Benefits of using cryptos:
Cryptocurrencies provide the following benefits to its investors.
- The transfer of funds between two parties will be easier and more convenient without the need of a third party.
- Cryptocurrencies can be transferred to anyone, irrespective of location and time.
- The crypto payments are secured and safe. They even provide a higher level of anonymity.
- The crypto markets have high volatility, which makes them open to higher returns.
- Another benefit of these cryptocurrencies is that anyone can mine them if they have the properly available resources and knowledge.
- The cryptocurrency market hours are open for all seven days a week. It means the crypto market has no fixed time, unlike traditional trading markets.
- Cryptocurrencies can be used as a payment method because they aren’t subjected to inflation.
- The transaction costs in the case of cryptocurrencies are from low to none.
- You can manage your cryptocurrencies without any help from the banks or other financial institutions.
- You’ll also have access to the private and public keys to the cryptocurrency wallets.
Drawbacks of using cryptocurrencies:
There are a few disadvantages when it comes to cryptocurrencies, the biggest of the category being frauds and scams.
- Romance cryptocurrency frauds:
Initially, the victim connects with the fraudster on a dating site. Then the relationship between the victim and the fraudster becomes stronger. Slowly, the victim starts trusting the scammer. The level of trust between the victim and the scammer increases. After that, the scammer requests money from the victim by giving any random excuse like car repair, registration for a contest, etc. Finally, the scammer disappears after collecting money from the victim.
For example, you come across a person on a dating site. Then you start chatting with that person. Later, a strong relationship is established between you and that person. Next, the person begins requesting money from you for a bike repair in the form of cryptocurrencies. Of course, you’ll agree to the request and pay the money. However, after some time, you’ll notice that you have lost your money and that the person you paid was a scammer.
- Fake broker frauds:
The fraudster pretends to be a registered broker. The fraudster attempts to convince the cryptocurrency investors to send them money and even claims to invest on their behalf in the crypto coins. After receiving money from the investors, the fraudster vanishes and then moves to the next victim. The fake brokers always look forward to fooling the cryptocurrency investors, especially those who are new to crypto investment.
For example, you come across a person pretending to be a registered broker. The fake broker attempts to convince you to send money and claims to invest money on your behalf in cryptocurrency coins. After you send the money, the phony broker vanishes. You realize that you’ve lost your money and that the broker was not an authentic investment broker.
- Social media crypto investment scams:
Crypto scammers post fake crypto investment opportunities on social media. In these posts, the scammers mention that investors can earn more returns in a short time if they invest their money through them. They’ll also provide a link for the investors to invest their money in crypto. As a result, people get tempted and wish to become rich quickly, and they invest their money. However, after receiving money from investors, the scammers just go away with the money without even informing the investors.
Cryptojacking is the unofficial usage of someone’s computer for mining cryptocurrencies. Cybercriminals employ two methods for mining cryptocurrencies from the systems of the victims. The first method is to trick the victims into loading the crypto mining code into their computers. For example, victims may get a legitimate-looking email that asks them to click on a link. Upon clicking the URL, it will run a code that places a crypto-mining script on the computer. The other method is the cybercriminals injecting a malicious script on a website or an advertisement. Once a victim accesses the website or ad, the script initiates its execution. After successfully loading, the crypto-mining code runs complex mathematical problems on the victims’ systems, and results are sent to a server that the hacker controls.
Identification of crypto scams:
People suffer a lot due to their ignorance towards crypto scams. As a result, they become bankrupt and suffer severe health problems. Therefore, below are the warning signals that’ll teach you how to spot crypto scams.
- You may see Social media posts about the cryptocurrency investment that gives you a guarantee of making quick returns in a short time. They may also provide a link for you to invest your money in cryptos. But those links are fake and will only hack your crypto account details.
- Some people may blackmail you regarding specific “inappropriate photos” being in their possession. They may ask you to pay money in cryptocurrency. Don’t send crypto payments to them, as they do this only to get cryptocurrencies from you.
- Any job offer that asks for crypto payments for training purposes is fake.
- A person you have met online suddenly starts making some excuse and asks you to pay money in the form of cryptocurrency. Please note that it is a strategy to grab your cryptocurrency details.
- Be careful if you get any emails asking you to give your crypto account login credentials.
Cryptocurrency investors should never forget to learn about the risks associated with a crypto investment before investing in it. They should also educate themselves about the strategies scammers use to cheat them. It is also essential for people to learn about crypto scams and their warning signals to stay safe from them.