June 11, 2020
When you first start your crypto journey, you’ll find yourself asking a ton of questions.
‘How do I buy a Bitcoin?”
“What are the best cryptocurrency exchanges in Canada?”
“Are cryptocurrencies safe?”
And asking questions is great. The world of crypto is daunting to many, especially due to its associations with scams and money laundering. So it’s important to get into the space armed with the right knowledge. It’s fair for people to want to do their due diligence before committing to digital currencies. And to do that, you should know what common scams are out there and what to look out for.
Related: How to Buy Bitcoin in Canada
After all, progress in any field means a new territory is available for exploring. And along with all the innovators there will inevitably be scammers. Scammers take advantage of the misinformed within the new financial frontier, unfairly damaging the reputation of cryptocurrencies and blockchain technology. They do this through hacking and fraud. Sadly, the cryptocurrency revolution has not been immune to the plague of scammers tarnishing the system.
Indeed, the overwhelming majority of security breaches are not at all related to the security encoded into the cryptos, but rather the security measures taken by crypto holders in storing, trading, or transferring their cryptocurrencies. There is also scamming involved with Initial Coin Offerings (or ICO) for more on that visit: How to identify ICO scams. For now we’ll focus on online storage and transaction scams.
So what are some common crypto scams and frauds?
Cryptocurrency exchanges in Canada are targeted with identity theft by scammers, as is common with online platforms. This is a low tech means for the fraudsters to take control of online accounts so they can plunder them.
Financial institutions, including crypto exchanges in Canada, gather detailed information about their clients in order to build a security profile that would authenticate them. This measure is called Know Your Client (or KYC for short) and it helps weed out anyone trying to impersonate a client and access their account. The idea is that in the event a scammer has managed to access some of a client’s personal information, they’ll still not have enough to successfully trick the system.
Naturally this means the more tediously detailed the client profile is with questions the more secure the KYC safeguard will be These are questions like: ‘where was your first ever trip with your parents?’ Of course, the system also has to be reasonably user friendly; there’s a balance to be struck between depth of details for security and ease of use.
Fake Cryptocurrency Exchanges
It turns out identity theft works both ways. Most instances are cases of fraudsters assuming the identity of clients in order to gain access to their funds on a website or platform. However, it can just as easily work the other way around.
There are examples of fraudulent exchanges where the owners of these exchanges stole from clients. They did this by setting up accounts and transferring client funds into their own wallets. Unfortunately, cryptocurrency transfers are irreversible. Therefore it’s not really possible to track the journey of a payment and halt or send it back if fraud is suspected.
So in such cases, even if the scammers are caught, the victims have little chance of recovering their deposits which will have been rerouted and stored offline as soon as the scammers received the funds. The case of BitKRX was a major wake up call to the cryptocurrency sector not too long ago. More on that here: South Korean Government Concerned With Scams in Bitcoin Market, Fake Exchanges
It’s important to apply due diligence when searching for a reputable cryptocurrency exchange in Vancouver, Toronto, or anywhere else in Canada. This means looking for signs of accountability by the crypto exchanges.
For example, the Netcoins cryptocurrency exchange is licensed by the Money Services Business (MSB) Registration, complies with the British Columbia Security Commission standards and is publicly traded, which means regular audits. These detailed factors are evidence of credibility that only a well established and secure exchange could offer. For other such examples you can look here: 10 Best Canadian Cryptocurrency Exchanges
As an added measure of protection, online financial services introduced 2 Factor Authentication (or 2FA). This technique makes it even more challenging for identity theft fraudsters to trick security systems by using the stolen information from a client. The system sends a notification to a personal device of the account holder, which normally includes a temporary pin that is then used on the login device to grant access.
However, thieves have countered this by resorting to SIM card swapping for crypto scams. Using the same personal data they’ve gathered on their targeted victim, they trick the victim’s mobile service provider into providing them with a new SIM card that gives them access to all the victim’s communications. This means the 2FA message sent to authenticate an account holder can be intercepted and used by the scammer instead. The key takeaway here is using SMS for 2FA isn’t quite as secure as using a third party app tied to a device (like Google Authentication for example).
For more on Two Factor Authentication check out our blog: What is Two Factor Authentication
Although a great leap ahead in technological advancement, cryptocurrency is still just a tool. It’s therefore limited by the experience and judgement of its human user. It’s paramount for crypto holders to take the time to familiarize themselves with the intricacies of crypto trade, the pitfalls laid out by scammers, and how to best protect themselves from scams.
But the road ahead needn’t be daunting for consumers, because service providers like Netcoins are leading the way into a secure and stable future for cryptocurrency trading in Canada. Visit www.netcoins.ca to safely explore just how easy it is to start trading in cryptocurrency today.
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