Six Signs of a Fake Exchange

Oct 8, 2021 | Digital Finance, Security

Because cryptocurrency trading operates with little government oversight and doesn’t have a single entity that’s in charge, you may worry about getting scammed by a fake Bitcoin exchange. This is a legitimate concern since there have been fake exchange scams. But, if you know what to look for, you can avoid scams and keep your money safe. 

1. Offers of Free Coins

One way scammers have lured investors is with offers of free coins. One such scheme was run through the social media platform Discord. The scammers offered free coins, and collected personal information by calling it a Know Your Customer requirement, and then convinced would-be customers to deposit money. When the unsuspecting victims went to withdraw, they then realized they had been scammed. 

New customer bonuses are a legitimate business practice of many brokers and exchanges. But, if you see an offer, be sure to verify that it’s an established firm and that the website you’re directed to actually belongs to that firm. 

2. Impostors

Some fake Bitcoin exchanges try to appear as if they’re branches of legitimate financial institutions. One example is BitKRX, which masqueraded as an affiliate of the Korean trading platform KRX. BitKRX collected customer deposits but customers were never able to withdraw their funds. 

If an exchange is affiliated with an existing platform, there should be a link from the original platform to the exchange. Make sure you check before clicking the link.

3. Guaranteed Rates of Return

Cryptocurrency is a risky investment. It may be less risky than some investments or offer higher rates of returns, but, as with other types of investments, there is always a risk of losing your money. 

Guaranteed rates of return are a likely sign of a scam. This was a tactic used by Bernie Madoff when he pulled off the largest Ponzi scheme in history, by promising too-good-to-be-true returns and using new deposits to cover withdrawal requests. An exchange may give a positive outlook, but alarm bells should ring if it provides an absolute guarantee. 

If it sounds too good to be true, it probably is. Use the same common sense approach with a digital currency that you would if you were trying to buy a car online. Even if the deal makes sense, it’s always prudent to verify it. 

4. Fake Cryptocurrencies

With so many different cryptocurrencies available, it might be easy for a scammer to offer a fake new coin. The pitch is that you already missed out on Bitcoin and need to get in at the bottom. That’s what happened with My Big Coin, when a New York man stole over US$6 million from investors, by claiming he was launching a new virtual currency backed by gold.  

If you’re going to invest in a new coin, look for reputable third-party resources that confirm its existence and trading volume. That may be problematic since there’s no official/regulated listing process like there is with stocks. Instead, you could look for mentions in the news, watch trading data, and research the company behind the offering.

5. Fake Apps

Another approach scammers may use is to create a fake mobile app. The app may try to give the impression of  a legitimate exchange or present itself as its own exchange. If you can download it from an app store, this might lead you to assume the app store has approved it, so it must be legitimate. 

App Store reviews aren’t thorough enough to catch all scams. Their main concern is making sure the app functions properly. If the scammer puts up a convincing front, reviewers may have no way of knowing that the company isn’t real. 

6. Unsolicited Communications

Cold calling isn’t an unheard-of tactic for financial advisors, but it’s still a cause for concern. You have no idea if the person calling you is legitimate. Even if the product is real, it may or may not be in your best interests to use it. Unsolicited communications could come in the form of emails, letters, phone calls, or texts.  

One thing to understand is that most cold calls aren’t purely cold. Even if you’ve never asked about a product before, you may have an existing relationship with the wider business  or an affiliated company. Financial advisors may also contact people in their network. No matter who is contacting you and how, if you like the pitch, it might be wise to check they are who they claim to be and recontact with them through a verified form of communication, like a phone number found on a known website. 

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