Scammers always find new ways to take your money. The explosion of cryptocurrency has opened up many opportunities for fraud. Cryptocurrency fraud saw a record year in 2021. Fraudsters took $14 billion worth of cryptocurrency that year. It is important to understand the risks associated with crypto. Continue reading to learn more about common scams in crypto, how to spot them and how you can avoid them.
It is important to understand the risks associated with crypto. These scams can be avoided by users. Continue reading to learn more about crypto scams and how to avoid them.
Common Cryptocurrency Scams
There are many kinds of crypto scams. The most popular are:
Phishing is a social engineering attack that is used to steal login credentials and wallet information. Scammers are looking for crypto wallet private keys to gain access to the wallet’s funds. In order to trick victims into giving their sensitive data to scammers, they often use a phishing website to do so. They work in a similar way to other phishing schemes and are related to fake websites. To lure people to their website, they send them an email asking for private key information. Once they have this information, the hackers can steal cryptocurrency from the wallets.
Fake Crypto Wallets and Apps
Scammers also use fake apps to trick crypto investors. These apps can be downloaded through Google Play or the Apple App Store. These fake apps can be quickly removed but they still have an impact on many businesses’ bottom lines. Fake cryptocurrency apps have been downloaded by thousands.
To trick victims, scammers often create fake crypto trading platforms and fake versions of official cryptocurrency wallets. Fake websites often have identical domain names, but they are slightly different from the ones they try to imitate. Fake websites often look identical to legitimate sites, making them difficult to distinguish the difference. One of two possible ways fake crypto sites operate is:
- As phishing Pages: All details entered, including your crypto wallet password and recovery phrase, are passed on to the scammers.
- It’s simple theft: At first, you may be able to withdraw small amounts of money. You might decide to invest more money in this site as your investments perform well. The site will either decline or close your request to withdraw money.
Fake Endorsements of Celebrities
To attract the attention of potential victims, crypto scammers often pretend to be celebrities or business people, or influencers. This can include selling phantom cryptocurrency that isn’t available to novice investors. These scams are sophisticated and can involve brochures and glossy websites that seem to endorse celebrities such as Elon Musk.
There is a high chance you’ve seen comments or posts about crypto-related topics on social media like Youtube or Twitter. Although many people realize that this sounds too good to be true and are able to see the potential, some people fall for it. The clever messaging that appears to be from a legitimate social media account can give the impression of legitimacy and create urgency. People may be tempted to quickly transfer money in the hopes of receiving a quick return.
Rug pulls are a common scam that almost every crypto user has heard of or been a victim of. DeFi hacks are an outsider exploiting protocol from the outside. A project can be considered rug pulled if its founders dump all tokens they own on the open markets and abandon the project. Token prices can rise quickly with the right combination of marketing hype, eager investors, and a lot of enthusiasm. Once the founders feel they have made enough money, the tokens are thrown on the market. They then claim the assets that it was traded against. This causes the price to plummet and makes it clear to investors that the founders are left with a useless token while they have all the tokens people purchased.
Fraudulent initial coins offerings (ICOs)
An ICO, or initial coin offering, is a way for crypto companies to raise capital from potential users. Customers are often promised discounts on new crypto coins in return for active cryptocurrencies such as bitcoin, or any other popular cryptocurrency. Scammers will claim that they have invented a new crypto coin and promise huge returns. Investors’ funds then disappear into thin air. Once enough money is collected, scammers will take the funds of the victims and then disappear. This scam is similar in nature to a rug pull. However, the scam project doesn’t even have a token and users lose their money while they wait for it to arrive in their wallets.
Cloud Mining Scams
Cloud mining is a term that refers to companies that allow you to rent equipment from them in return for a fixed fee or a percentage of the revenue they make. This allows users to mine remotely from their computers without the need for expensive hardware. Many cloud mining companies are frauds, or at the very least, ineffective. You may lose money or earn less than you were promised.
How can you spot cryptocurrency scams?
You should be on the lookout for these warning signs:
1. Guaranteed returns: These scams often promise huge returns. There is no guarantee of a return on any investment, particularly a large one. It’s unlikely that it will be true if it seems too good to be true.
2. Poor or inexistent whitepaper: A whitepaper is essential for any cryptocurrency. The whitepaper should describe how the cryptocurrency was designed and how it will function. You should be cautious if the whitepaper isn’t clear or doesn’t explain what it does.
3. Extensive marketing to promote themselves: One-way crypto fraudsters can attract people is to invest in extensive marketing, such as online advertising, social media promotion on Telegram or Twitter, and so forth. This marketing is intended to reach as many people as possible quickly and raise money quickly. You may feel the marketing for a cryptocurrency offering is too heavy-handed, or that it makes exaggerated claims without supporting them.
4. Unnamed team members: It should be easy to identify the key individuals behind most investment businesses. This usually means that you can easily find biographies of those who manage the investment and that they are active on social media. Be cautious if you are unable to find out who runs a cryptocurrency.
5. Any investment opportunity that promises free money, whether in cryptocurrency or cash, is most likely a scam.
6. A lack of detail: Crypto investment scams often overlook the details of how the investment works. Instead, legitimate investment advisors are eager to show you how they can make you money.
How can you protect yourself against crypto scams?
Many fraudsters using cryptocurrencies are clever and convincing. These are steps to take to protect yourself.
Protect your wallet. To invest in cryptocurrency you will need a private wallet. It’s very likely that a company will ask you to share your keys in order to take part in an investment opportunity. Your wallet keys should remain private.
Pay attention to your wallet app. Send a small amount the first time you send money to verify that a crypto wallet is legitimate. If you see suspicious behavior while updating your wallet app, you can terminate the update and uninstall it.
Take your Time: Scammers use high-pressure tactics to convince you to invest quickly. They may offer discounts or bonuses if you take part immediately. Before you invest any money, take your time.
Do your homework: The most popular cryptocurrency are not scams. If you don’t know anything about a cryptocurrency, you should research it. Look for a whitepaper, learn more about the company, and read testimonials and reviews. To avoid scams, make sure you have a credible and up-to-date fake cryptocurrency list. Do not invest in anything you don’t understand.
Pay attention to social media ads, which are a red flag for scammers using social media to market their schemes. To create legitimacy, they might use unauthorized images of celebrities and high-profile business people. They may also promise cash giveaways. Keep an open mind and be skeptical when you see cryptocurrency opportunities on social media.
Only download apps from offical platforms. Fake apps could end up in Apple App Store or Google Play Store. However, it is safer than downloading apps from other places.
Be patient: Scammers use high-pressure tactics to convince you to invest quickly. They may offer discounts or bonuses if you sign up immediately. Before you invest any money, take your time.
Avoid cold calls. If someone contacts you out of the blue to offer you a crypto investment opportunity it is likely a scam. Do not give out personal information to anyone who contacts you this way.
Be cautious. It’s possible to fall for promises of guaranteed returns and instant riches. Be cautious if you believe something is too good to be true.
Two-factor authentication should be enabled whenever possible on any type of crypto wallet or exchange. This isn’t a foolproof solution as Coinbase showed.
Be alart with upfrony fees. Any offer that asks for an upfront fee, regardless of what should be rejected.
As with all investment opportunities, you should never invest money that you cannot afford to lose. You may not be being scammed but cryptocurrency can be volatile and speculative so it is important to understand the risks.
What to do if you fall for a crypto scam?
It can be very devastating to fall for a scam using cryptocurrency.
Contact your bank immediately
- If you made a payment with a credit or debit card.
- If you transmitted a bank transfer to make a payment.
If you shared key personal information about yourself, Identity Theft Protection Services may need to be applied.
Many criminals sell information gathered by crypto fraudsters. To prevent further damage, it is important to change all passwords and usernames. You can report a social media scam to the relevant platform if you’re a victim. You can report frauds depending on where you live. In the US, for example, the Federal Trade Commission, Commodity Futures Trading Commission, or Securities and Exchange Commission. Similar systems are available in other countries.