Don't Fall for Scams: Tips to Identify Real vs. Fake Cryptocurrency Exchanges
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Fake Exchange Scams
Cryptocurrency exchanges provide an essential platform for buying and trading digital assets. However, many exchanges remain unregulated and are susceptible to scams. Fraudsters create fake cryptocurrency exchanges and manipulate trading volumes to attract potential investors and steal their funds. These exchanges may harass users, deny crypto withdrawals, charge exorbitant fees, or even take away your entire investment. To prevent these scams, experts advise using only reputable exchanges. Before opening an account, you should learn to spot the signs of a fake site.
Contents
- Fake Cryptocurrency Exchanges
- Examples of Fake Trading
- How to Identify Fake Cryptocurrency Exchanges
Fake Cryptocurrency Exchanges
Fraudulent and unregulated cryptocurrency exchanges deceive potential victims by posing as legitimate ones. Scam transactions often lure users through celebrity endorsements, unsolicited calls, or emails promising excessive investment returns. Once directed to the exchange, users may receive frequent emails or calls to ensure the legitimacy of investments in these fake Bitcoin (BTC) exchanges.
If an investment is made, users may be required to pay high initial fees before fake trading portals show manipulated transactions. Customers might then receive harassing calls, be forced to increase investments, or be enticed by fake returns showing excessive profits. When attempting to withdraw funds, users may face numerous obstacles like undisclosed fees or fake taxes. They may even find their money has vanished completely.
Examples of Fake Trading
In 2017, Korean authorities exposed one of the most notorious fake cryptocurrency exchanges, BitKRX. Named to appear as a crypto arm of the country's largest legitimate financial trading platform, Korea Exchange (KRX), BitKRX exemplifies the common technique of fake exchanges trying to quickly establish legitimacy.
Based on public goodwill towards KRX, BitKRX attracted investors who believed it was operated by KRX. However, when customers who thought they had purchased BTC tried to use their funds, they discovered their money was gone.
Authorities also arrested two men behind another Korean exchange, Komid, who deceived investors from the start. Their scheme involved luring customers to buy cryptocurrencies and spreading false information about token listings. Subsequently, South Korea's third-largest cryptocurrency exchange, Coinbit, was seized by police, reportedly found with 99% of its trading volume faked.
In another crypto scam, a joint Dutch and British investigation led to the arrest of six individuals for creating fake online cryptocurrency exchanges, which defrauded over 4,000 victims in 12 countries of an estimated $27 million in cryptocurrency. Fraudsters accessed Bitcoin wallets through "domain spoofing," relying on users' accidental typos or domain errors. Victims were then directed to a counterfeit website resembling the legitimate one they intended to visit. The fake site's address might differ by just one letter from the real exchange, a small detail easily overlooked.
How to Identify Fake Cryptocurrency Exchanges
Common advice for cryptocurrency holders is to only turn to well-known and respected cryptocurrency exchanges. Reputable exchanges should have an extensive social media presence, website, and verifiable staff. They should also have an established history among researchers and the cryptocurrency community. Research before creating an account, and check if other users or notable researchers in the crypto space can verify its legitimacy.
Some typical additional red flags for fake exchanges include:
- If the exchange's promised investment returns seem too good to be true, they probably are. Any offers guaranteeing returns, especially those promising excessive returns, should be viewed with suspicion.
- Check the exchange's registration status and licensing. Not all legitimate exchanges are regulated, but many scam exchanges use fake regulatory bodies or certifications to look legitimate.
- Beware of exchanges with hidden or unclear fees, withdrawal issues, or unusual transaction limitations.
- Look for reviews or reports of negative experiences from other users. If there are consistent complaints about an exchange, it's a sign to proceed cautiously or avoid it altogether.
Always be skeptical and double-check the URL and other details when accessing an exchange. Additionally, consider using hardware wallets or other secure storage methods for long-term holdings instead of keeping funds on an exchange, even a reputable one.