Don’t let them pull the rug under you, pump you, fish or pump your pool
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Don’t let them pull the rug under you, pump you, fish or pump your pool

Adi Marcus, Adv.
October 27, 2024
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It is a well-known fact that the digital currency market is a fertile ground for scams. As in any situation where there is a large profit potential on the one hand, and minimal regulation and regulatory legislation on the other - the field of digital currencies has been a source of fraud and manipulation for years, which are becoming more sophisticated by the day. This is in fact due to a number of essential reasons, the first of which being a clear case where the legislation has difficulty adapting and catching up with the technology and the second is that digital currencies from their very foundation and definition are intended to bypass the institutional banking system and exist outside the boundaries of the legislation and therefore inherently make it difficult for the legislator to regulate them.

The scams in digital currencies are endless: starting with the creation of fictitious currencies and trading sites, through the creation of smart contracts that steal money from users' digital wallets (fake websites and phishing scams), creating a fictitious value for the currency through false promises or false transactions (pump and dump, wash trading), guaranteeing services or supplements that are never given (giveaway scams), stealing the liquidity pool in full and canceling the currency after investments and purchases have been made, and more. While the authorities around the world are starting to act against such fraud operators in an attempt to combat the phenomenon, it is a drop in the ocean when it is estimated that in 2023 alone, digital currency frauds will reach a total of USD 5.6 billion.

However, despite the number of scams and their increasing sophistication, there are still a number of ways in which an investor or trader in digital currencies can avoid falling into the trap of fraud, and a number of things that coin creators and companies dealing in services in the field of digital currencies are required to avoid in order not to risk themselves breaking the law:
Keeping and securing digital wallets, documenting transactions - Individuals who wish to trade in digital currencies must always remember that there is no reason to give their digital wallet details to any third party and that such a request usually indicates a scam of some kind. Owners of wallets must monitor what is happening in their wallet regularly and owners of companies dealing in services in the field of digital currencies or people who carry out trading in such currencies in a "professional and commercial" manner (including for others) are advised to keep accurate records of transactions carried out in the wallet to avoid allegations of money laundering in the future.

White Paper - Every legitimate issuance of a digital currency should be accompanied by a "white paper" which is actually an information sheet that includes an explanation about the currency, how it was built and what the mechanism is behind it. The White Paper should provide links to a website or other internet sources related to the currency as well as the basic details of the founders of the currency. As much as the White Paper does not make sense or is flawed, naturally the currency should be treated with the utmost suspicion. Coin creators and companies involved in the field must make sure to produce a White Paper for each currency (in the European Union at least this is a regulatory requirement) as the provision of such information may help to protect them against future claims of fraud as the provision of accurate and complete details implies a conscious investment.

Be careful of false promises - it must be remembered that the digital currency market is an inherently unstable and risky market. Any promise of a certain profit is most likely a false promise which should turn on red lights in a reasonable investor or trader. In general, over-hype of a certain currency, and massive advertising that includes promises of add-ons, bonuses and "free money" are often an indication of some kind of fraud. Thus, it is better for currency creators and companies in the field to make as few publications and "promises" (promotions) regarding a certain currency, its value or the profits that can be obtained from trading it. It must be remembered that when the day comes, any advertisement, promise or promotion as mentioned will be examined and checked, and any word that is out of place may be perceived as a false advertisement or fraud and thus - as the saying goes - a sign of wisdom in silence.
As a general rule - it must be remembered that if something seems too good to be true - it usually is, especially when it comes to a market and a field which is so young and so subject to manipulation. Everyone who operates in the field, both as a private investor and as a business entity, must perform all possible tests and consult with experts in the field, including the legal channel, in order to try to hedge the risks and avoid falling into the trap.