Scammers are always eager to fleece unsuspecting people when there is a new industry or technology. So, the risk of fraud is always a threat to any kind of investment done online, and sadly cryptocurrency investments are no exception. The emergence of the internet birthed a different set of scammers and the trendy blockchain technology has birthed another set – crypto-scammers. Bitcoin and other cryptocurrencies are currently in their “gold rush” phase: The temptation from the quick earnings promise with little supervision of course, also call fraudsters on the scene.
For scammers, it is easy to cheat people because only a few people understand the technology. Cryptocurrency’s anonymity and lack of regulation make it a prime target for scammers looking to fleece crypto novice.
There are several ways scammers can take advantage of people with cryptocurrency, here are some:
- Cloud mining scam
- Ponzi schemes dealing in Bitcoin
- Fake wallets
- Fake exchanges
- Phishing scam
Cryptocurrency experts are not likely to fall for these scams but unsuspecting folks looking to invest in Bitcoin and other digital coins are potential victims. This article explains how to identify one of these scams – cryptocurrency cloud mining scam. However, before diving into how to identify a cryptocurrency cloud mining scam, it is crucial to understand cryptocurrency and what mining a cryptocurrency entails.
What exactly is cryptocurrency?
Cryptocurrency is a digital asset designed as an exchange that uses cryptography to secure financial transactions and verify the transfer of assets. Cryptocurrency uses a decentralized control as opposed to centralized electronic money and central banking systems.
In other words, cryptocurrency is a digital currency designed for secure and anonymous financial transaction. Examples of cryptocurrency include Bitcoin, Litecoin, Ethereum, Ripple, and Dash.
What does cryptocurrency cloud mining involve?
Mining is the process in which cryptocurrencies are generated; also, it involves verifying cryptocurrency transactions and adding them to a digital ledger called blockchain.
Cryptomining (mining cryptocurrency) requires a computer and a special program that helps miners compete with their counterparts in solving complicated mathematical problems. Earlier, miners were a bunch of cryptography enthusiasts. However, as cryptocurrency became more popular and valuable, mining is now considered a lucrative business.
Cloud mining is also a process of cryptocurrency mining utilizing a remote data center with shared processing power. Cloud mining enables users to mine cryptocurrencies without managing the hardware. The mining rigs are located and maintained in a facility owned by a mining company. The customer is simply required to register to purchase mining contracts or shares. Generally, there is some costs involved since cloud mining is provided as a service; this can also result in a lower return for the miner. Cloud mining or cloud hashing enables users to earn cryptocurrency without bitcoin mining hardware, bitcoin mining software, electricity, bandwidth or other offline issues.
All cryptocurrency mining is done remotely in the cloud. This enables users not to deal with any hassle usually encountered when mining bitcoins. Hence, in other words, cloud mining is the process for getting cryptocurrencies, like Bitcoin and Ethereum, with the help of general and remote data processing center. Cloud mining provides a possibility to withdraw bitcoins without participating in hardware management. Thus, all that is needed is a computer and wallets for withdrawing money.
How to identify a cryptocurrency cloud mining scam
While cloud mining is a legitimate operation in the cryptocurrency world, there are many cloud mining websites or companies that are the scam. The origin of cloud mining scam is traced to the increase in the cost of mining cryptocurrencies, which is as a result of an increase in numbers of cryptocurrency miners.
Since individuals could not afford to mine digital coins themselves, cloud mining became in vogue, and scammers take full advantage by setting up cloud mining companies offering juicy benefits to unsuspecting miners.
It can be difficult to identify these cryptocurrency cloud mining scams but here are some pointers:
1. Unregistered domain name
Most cryptocurrency cloud mining scams do not have a registered domain name. If the domain name is registered then it is not registered to a real user. These scam artists do this so they cannot be traced.
Therefore, before you subscribe or register with a cloud mining company, ensure they have a registered domain name that is not hidden.
2. Their directors are foreign
To appear authentic and legit, these scammers register their companies in a country where they are not based in. However, they register as foreigners from countries where it is easy to create or fake an identity. For instance, the company is registered in the United States or the United Kingdom but the director has a Serbian’s identity.
3. Heavy focus on promotion
These companies are always loud on promotion! They prefer promotion over offering quality substance. What they offer is often unclear and baseless.
4. They are evasive on proof of equipment
A real cryptocurrency cloud mining company will be eager to show you proof of equipment at your demand. It is the shady ones that fail to provide proof of equipment because they don’t have any. However, this does not mean any cloud mining company that provides proof of equipment is authentic.
5. They operate for a short period of time
Cloud mining scammers do not operate for long. What they do is invest some money into their shady scheme for payout in building trust and getting more subscribers. Once they have enough subscribers and a lot of money, they stop payout and close shop. Then they repeat the same thing with a different name and website.
Mining cryptocurrency is not a scam, but some companies who claim to be doing also are scams. The problem with cloud mining is that there is no proof that a subscriber is getting an actual spot in a data center.
A user could verify getting payouts in his wallets, but regarding the actual mining backend, at best the proof is dubious. Hence, it is easy to create these fake cloud mining companies; just set up a website, get subscribers, and then not pay out.
Any company can claim to be a cloud mining one, even without any proof of owning any mining hardware. Therefore, it is essential to do proper and extensive research before stepping into the world of cryptocurrencies because of the high number of fraudulent activities.