Watch Out for These 5 Cryptocurrency Investment Scams

Unless you have been living under a rock for the past few months, then you've probably heard a little something about a digital currency called Bitcoin.

There's so much hype about alt-coins lately that there are reports of people even taking out second mortgages and home equity lines to buy them.

The volatility is so great that the Chicago Board Options Exchange (CBOE) stopped bitcoin trading twice on Dec. 10and after more on Dec. 13, and Coinbase stopped litecoin and ethereum trading on Dec. 12.

For years, financial analysts have warned people apart from cryptocurrency by asserting it was too explosive for a safe investment. However, with prices going sky-high, it is hard for investors and entrepreneurs to sit on the sidelines while a significant new asset class emerges.

However, before people take the plunge, they need to understand the dangers. The cryptocurrency markets are not just volatile, they're also extremely cloudy and riddled with fraud.

Since the launching of bitcoin in 2009, these markets are plagued with cyber attacks and scams who have cost investors millions of dollars. To make matters worse, cryptocurrency isn't protected by the FDIC, so losses due to theft may not be covered.

There are two main ways cryptocurrency investors can lose their shirts to scammers.

Reuters estimates that 980,000 bitcoins are stolen out of cryptocurrency exchanges because 2011, the equivalent of $15 billion to $18 billion in current prices. And let's not forget the massive Mt. Gox hack in 2014 -- $460 million has been lost consequently.

The next is when criminals target investors directly. You will find an assortment of these online scams, which often use "social engineering" approaches, but the primary ones to worry about are initial coin supplying (ICO) fraud, phone-porting, fake wallets and malware.

While there is not much investors can do to safeguard themselves from attacks on the cryptocurrency system, they can take steps to lower their own risk of falling for a targeted assault.

Here's a breakdown of those four attacks and ways to reduce the threat:

Initial Coin Offering (ICO) Fraud

An ICO is when a recently invented cryptocurrency is introduced to investors. Needless to say, this is an unregulated and insecure activity all by itself, but it is also plagued by hackers.

There are just two ways ICO fraud occurs. The first is when criminals make a fake ICO and steal any cash that investors give them.

The second type of ICO fraud is when hackers "spoof," or impersonate, a legitimate ICO and trick investors into paying them rather than the real firm. This happened recently with messaging giant Kik's ICO, which really goes to show it could affect even well-established companies.

Typically, cybercriminals will produce a fake site or societal media accounts and use phishing emails to market a fake "pre-sale" provide or other trick. Chainalysis lately estimated that ICO spoofing has victimized 30,000 investors this year, to the tune of $225 million.

Security Suggestion: Do sufficient research on an ICO before purchasing in. Check business websites like CoinDesk to confirm the validity of a promised ICO.

Do not fall for hard sell tactics or too-good-to-be-true offers, particularly when obtained over email or societal networking messaging, because these are likely advertising efforts. Watch the SEC's tips on ICO investments.

Phone-Porting

Cell phone identity theft, called "phone-porting," is when criminals commandeer a individual's telephone number by tricking the cell provider into giving them control of their accounts. Once they have the phone number, they can reset the password into a digital wallet and then drain the accounts.

Since these cryptocurrency trades can not be reversed, the investor can eliminate everything. According to Federal Trade Commission figures, phone-porting attacks in general rose by 256 percent between 2013 and 2016.

Security suggestion: Mobile providers generally recommend including a exceptional PIN and verification question to the accounts to boost safety. But a much better solution is to change two-factor authentication from SMS into a third party service such as Google Authenticator.

Fake Digital Wallets

Cryptocurrency needs to be saved somewhere, and investors often utilize virtual wallets. The issue is that fake wallets occasionally appear online or in mobile app stores, and they may steal investors' savings.

This occurred recently with the bitcoin gold pocket scam, which allegedly stole $3 million. On Dec. 10, the favorite service MyEtherWallet warned customers about a fake MyEtherWallet digital wallet program, which had climbed to No. 3 at the iOS App Store's finance category.

Security Tip: Before selecting an electronic wallet supplier, do your homework. Simply use services that have a good track record.

It is estimated that nearly one-third of all home computers are infected with some kind of malware. Lately, a new category of malware has surfaced which specializes in 1 activity -- stealing bitcoins.

It may do this in a couple of distinct ways, such as stealing log-in credentials or even the pocket itself, or at the middle of a trade. Dell Secure Works estimates this malware increased 11-fold between 2012 and 2014.

Security Suggestion: Use a strong antivirus program and also an inbound/outbound firewall to secure your PC.

Cryptocurrency investors face a great deal of threats, not the least of which is scamming. Since this sector is largely unregulated and unprotected, it is up to individual investors to account to their safety.

Follow the above tips, and take extra steps, like encrypting the internet connection with a VPN (virtual private network). It's also not advisable to consider having a dedicated computer (i.e., it does nothing else but log in to your bitcoin account) to become safer when performing these trades.