From hacking and scams to lost passwords and forgotten wallets, there are various ways to lose your digital assets. In this article, we will explore some of the most infamous cases of crypto losses, examining the methods used and the valuable lessons learned from these unfortunate events.
Get ready to discover the risks and realities of the crypto world, and how to protect your investments from potential disasters.
Ways to Lose Your Cryptocurrency
Participate in Scam Distribution
Beware of ads on YouTube and Twitter offering free Bitcoin from celebrities like Elon Musk. Scammers promise to send crypto on behalf of Tesla and SpaceX heads, only to ask for coins in return — a known hoax.
Stay vigilant — no one gives away cryptocurrency for free, especially not in exchange for coins from you. Due to the rise in such scams, blockchain industry figures have changed their social media usernames to avoid confusion. For instance, Vitalik Buterin, an Ethereum creator, once used the Twitter handle "Not giving away ETH" to prevent fraud.
The apogee of the scammers' actions was Twitter hacking in July 2020. The accounts of Elon Musk, Bill Gates, Barack Obama, Apple, and others have been compromised. On the pages of the billionaires, politicians, representatives of the crypto industry, celebrities, and posts on the free distribution of digital money were published. Thus, the criminals were able to raise Bitcoin within two hours.
Keep Cryptocurrency on the Exchange
Cryptocurrency exchanges, even the largest ones, can fall victim to hacks or bankruptcy, resulting in the loss of funds.
The funds may be stolen from the site by hackers or the company may suffer losses due to a decline in trader activity or other reasons. When this is known, it is impossible to retrieve the digital coins.
For example, Coincheck, a Japanese cryptocurrency exchange was hacked in 2018, resulting in the theft of over $500 million worth of NEM tokens. This incident highlighted the vulnerability of exchanges to cyber attacks and the importance of implementing robust security measures to safeguard user funds.
Funds can also be lost by sending them to scam exchanges. Once cryptocurrency is transferred to such platforms, it becomes unrecoverable. Scammers may use various tactics, such as citing technical issues, to prevent withdrawals.
It is advisable to collaborate with well-established websites that have a long-standing reputation. However, it may be beneficial to engage with a lesser-known platform by investing a small symbolic amount to verify its withdrawal process.
Join a Financial Pyramid Scheme
For two consecutive years, the majority of funds lost by cryptocurrency users were due to financial pyramids. In 2020, the Wotoken scheme led the way, attracting more than US$ 1 billion from over 715,000 investors. OneCoin occupies the top spot in the list of cryptocurrency scams. According to various estimates, scammers have stolen anywhere, from $4 billion to $15 billion.
All these schemes are similar. Users are offered the opportunity to earn money by attracting other investors and are promised high profits if they deposit funds.
All the profits received by early investors are at the expense of later investments. As a rule, organizers retain the majority of the funds for themselves, leaving the remaining participants with nothing.
Buy When the Market Grows and Sell When it Falls
Inexperienced traders often sell assets during price drops and buy them during growth periods. However, this strategy leads to negative results.
As a trader and investor, you should develop strategies to avoid such mistakes. First, divide capital into parts, allowing multiple transactions to occur simultaneously. Second, calculate how they will act in a given situation.
The most dangerous aspect of trading is the FOMO effect (the fear of missing out on profits). This forces not only beginners but also experienced traders to buy an asset that has risen in price because of regret that they did not purchase it earlier. In most cases, this leads to losses.
Trading with leverage
Margin trading allows money to be borrowed from the exchange, and in return, it takes the user's funds as collateral. If he loses, she keeps the deposit.
Leverage is very popular because it allows for a significant increase in working capital, sometimes hundreds of times. However, with this option, the risk of losing funds was high.
The cryptocurrency market moves unpredictably and even experienced traders often incur significant losses. For example, on March 4th, when the Bitcoin exchange rate dropped from $68,300 to $63,100, traders incurred losses worth $224.8 billion in margin trading. It is important to work with this tool carefully and not use it without sufficient knowledge and training.
The Largest Cryptocurrency Losses: Case Studies
1. Mt. Gox Hack
One of the most infamous incidents in the history of cryptocurrency is the Mt. Gox hack. The Gox hack in 2014 resulted in the loss of approximately 850,000 Bitcoins, worth over $450 million at the time. The exchange filed for bankruptcy, leaving thousands of investors empty-handed and shaking their confidence in the nascent industry.
2. BitConnect Ponzi Scheme
BitConnect, a high-yield investment program that promised exorbitant returns, turned out to be a Ponzi scheme that defrauded investors by millions of dollars. When the scheme collapsed in 2018, investors lost substantial amounts of their investments, highlighting the danger of trusting unverified platforms in the cryptocurrency space.
3. QuadrigaCX Exchange Collapse
QuadrigaCX, once Canada's largest cryptocurrency exchange, faced a crisis when its founder unexpectedly passed away. This has led to a loss of approximately $190 million in cryptocurrencies, leaving investors in limbo and raising questions about security measures in the industry.
4. PlusToken Scam
The PlusToken scam, one of the largest Ponzi schemes in the crypto space, defrauded investors by billions of dollars. Operating as a high-yield investment platform, PlusToken lured users with promises of significant returns only to disappear with their funds in 2019, leading to arrests and investigations across multiple countries.
5. Elon Musk Twitter Scams
Various Twitter scams impersonating Elon Musk have tricked unsuspecting users into sending their cryptocurrencies to fraudulent addresses, resulting in significant losses. These scams exploit the trust and influence of high-profile individuals in deceiving users and stealing their digital assets.
Lessons Learned and Future Implications
These high-profile cryptocurrency loss cases underscore the importance of due diligence, risk management, and security practices in the crypto space.
Investors must conduct thorough research before investing, diversify their portfolios, and implement robust security measures to safeguard assets. Regulatory bodies are also stepping up enforcement efforts to combat fraud and protect investors, signaling a maturing industry that aims to weed out bad actors.
Looking ahead, the cryptocurrency market is likely to see a continued evolution, with advancements in security, regulation, and investor education playing key roles in shaping a more resilient and trustworthy ecosystem.
By learning from past mistakes and staying informed, investors can navigate the risks inherent in the crypto market more effectively and participate in potential growth with greater confidence.
Conclusion
The world of cryptocurrency offers immense opportunities for wealth creation but also presents significant risks that can lead to substantial losses.
By understanding the various ways in which individuals can lose their cryptos, learn from past incidents, and adopt best practices in risk management and security, investors can navigate this dynamic landscape more effectively.
As the industry continues to mature and regulatory frameworks evolve, staying informed and vigilant will be crucial for safeguarding investments and participating in the future growth of the cryptocurrency market.
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