The growing popularity of crypto has led to an increase in the number of crypto investors as well as genuine and fake crypto exchanges.
A cryptocurrency exchange is a marketplace, where cryptocurrencies can be bought and sold. Crypto exchanges provide storage for crypto along with trading services and price discovery through trading activity.
Incidentally, cybersecurity firm CloudSEK revealed in a recent study how Indian investors were duped out of over Rs 1,000 crore by a fake crypto exchange scam. This is not the only case though, as according to data shared by Chainalysis, a Singapore-based Blockchain data platform, crypto scammers stole a record $14 billion in 2021.
Amidst all this, experts in the crypto industry have now suggested ways in which investors can spot these bogus exchanges.
According to crypto industry experts, one of the easiest ways to identify and perform basic due diligence is to verify details of the registered company, including information about its founders, media coverage and customer reviews.
“Companies that are registered outside India should not be entrusted with digital assets as it is difficult to perform due diligence and there is no legal recourse in case of fraud,” says Mark Tighe, founder of Catax, a crypto tax, audit, and forensic startup.
Tighe said that Bitex and Franc Exchange, which are copies of known exchanges like BitMEX and Binance, emerged to dupe the customer under the guise of crypto services.
Crypto industry experts have also said that if a crypto platform gives very high returns, that is the first red flag.
“Dodgy and non-descriptive crypto platforms offer ‘too good to be true’ returns on digital assets. If you spot a platform offering very high returns, this is the first red flag. Given the uncertainty and turmoil in the crypto markets, it is not possible to generate high returns on crypto,” says Sharat Chandra, VP, Research and Analytics, EarthID, a company based on Blockchain.
Mantras to Stay Cautious Against Fake Crypto Exchange
Experts have also suggested ways to stay cautious of fake crypto exchanges.
“If an exchange promises a rate of return on an investment that sounds too good to be true, it probably isn’t. Any offer of guaranteed returns should also be considered suspicious. Since the cryptocurrency market is very volatile, you will never know how much you will gain or lose. I would say potential investors should only use trusted exchanges if they want to invest in cryptocurrencies,” says Dr. Oriol Caudevilla, Board Director of the Global Impact FinTech Forum (GIFT) and FinTech Advisor.
Sandeep Shukla, professor of computer science and engineering at IIT-Kanpur and co-director of the National Blockchain Project, advises investors never to choose an exchange based on social media ads or direct messages.
“Always do some research and most of the time you’ll find a real exchange that they fake,” he says.
“Additionally, the behavior of the crypto exchange, in terms of advertising, attracting customers, the nature of the advertising they run on social media or via email, is important and should be notified,” he adds.
Fake crypto exchange
In March 2022, over 900 investors were allegedly duped out of Rs 1,200 crore by a website offering a fake cryptocurrency called Morris Coin. This coin has been listed as Franc crypto exchange, a fake crypto exchange by some industry experts.
Morris Coin was launched by K Nishad, a resident of Malapuram, Kerala in 2020 through the initial coin offering (ICO) of “Morris Coin”, a new cryptocurrency token as the main promoter of the cryptocurrency.
According to reports, 900 people contributed to the ICO. Investors were required to hold the tokens in developer-provided cryptocurrency wallets for 300 days after purchasing 10 Morris Coins for Rs 15,000. At this point, the token was to be listed on the Franc exchange, a Coimbatore-based cryptocurrency exchange. Proponents of the tokens guaranteed that their value would increase many times after signing up, but it all turned into a big scam.
Nishad was later booked and arrested by the Law Enforcement Branch for the Morris Coin scam.
Delhi Police DCP (Cyber Cell) KPS Malhotra told Outlook Money that there are several platforms that pretend to be crypto exchanges and are circulating links on WhatsApp/Telegram groups through which some investors are trading. trade, which opens the door to fraud.
According to him, investors should make payments through major exchange websites only, rather than through links.
Chandra adds, “These platforms have no due diligence or framework to list tokens, and often come with an anti-dumping clause for tokens. Investors should review credentials from project owners, developer team, and community before investing in any crypto-token.
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Scared Of Crypto? Here’s How You Can Spot Fake Crypto Exchanges
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