Table of Contents
Introduction
This article aims to provide guidance on protecting oneself from falling prey to cryptocurrency scams, which are becoming increasingly prevalent as fraudsters capitalize on the growth of digital currencies. In 2021, the theft of cryptocurrencies reached a new high, with a staggering $14 billion worth of digital assets being stolen, according to Chainalysis. Therefore, it is crucial for anyone interested in cryptocurrencies to be aware of the potential dangers. The article discusses common cryptocurrency scams and offers advice on how to identify and steer clear of them.
Cryptocurrency Investment Fraud
The realm of cryptocurrency scams encompasses a wide range of fraudulent activities. Outlined below are the most prevalent ones.
Fake sites
Cryptocurrency fraudsters employ various tactics to deceive individuals, including creating counterfeit cryptocurrency trading platforms or fake versions of legitimate crypto wallets. These fake sites often have domain names that closely resemble the legitimate ones, making it challenging to distinguish between the two. Scammers employ two primary techniques on these fake sites:
Firstly, they use phishing pages to obtain users’ private information, including the password to the crypto wallet, phrase for recovering funds, and other sensitive financial data.
Secondly, they engage in simple theft by initially allowing users to withdraw a small amount of money, creating an impression of trustworthiness and profitability. This can prompt users to invest more funds, but on subsequent attempts to withdraw money, the site either closes or rejects the request.
Phishing scam
Cryptophishing often aims to obtain sensitive information related to online wallets, such as private keys, which are necessary to access the funds stored in them. This type of scam shares similarities with other phishing attacks and typically involves fake websites, as mentioned earlier. Attackers commonly use emails to lure victims to a bogus website and deceive them into revealing their secret key details. Once fraudsters obtain this information, they can siphon off the cryptocurrency stored in these wallets.
Market buildup schemes (“pump and dump”)
Scammers often use email or social media campaigns, such as Twitter, Facebook, or Telegram, to promote a particular cryptocurrency or token. They create hype and persuade traders to buy the promoted cryptocurrency, causing its price to skyrocket. Once the price reaches its peak, the scammers sell their assets at inflated prices, causing the value of the cryptocurrency to rapidly decrease. This can happen in a matter of minutes, resulting in significant losses for unsuspecting traders.
Fake Apps
A prevalent method used to defraud cryptocurrency investors is through the distribution of fraudulent apps that can be downloaded from the Apple App Store or Google Play. Although these fake apps are eventually discovered and taken down, they still result in significant financial losses for unsuspecting investors. Indeed, thousands of people fall victim to fake cryptocurrency applications each year.
Fake Celebrity Recommendations
In order to lure unsuspecting victims, scammers in the world of cryptocurrency often impersonate famous personalities, celebrities, and businessmen, or falsely claim that these individuals support their cryptocurrency offerings. In some cases, they may even sell non-existent virtual currencies to inexperienced investors. These scams can be quite sophisticated, often featuring slick websites and glossy marketing materials that prominently display the names of celebrities such as Elon Musk.
Free giveaways
This scam involves scammers offering free distributions or giveaways of cryptocurrencies with the promise of returning or multiplying the amount sent to them. They create smart feeds that mimic real social media users to make the giveaway appear legitimate and create a sense of urgency among users. As a result, users quickly transfer their funds in the hopes of receiving an instant profit. The scammers take advantage of users’ greed and lack of knowledge to steal their funds.
Blackmail and extortion
Scammers often use blackmail to extort cryptocurrency from their victims. They send threatening emails claiming to have evidence of the user’s visits to adult websites and demand a cryptocurrency ransom or a private key in exchange for not exposing them.
Cloud mining scam
Cloud mining companies offer users the opportunity to rent mining equipment for a fixed fee and a share of the profit earned. This enables users to mine cryptocurrency remotely without purchasing expensive equipment. However, many of these companies are fraudulent, or at best, inefficient. When users cooperate with them, they often end up losing their funds or earning less than expected.
Cryptocurrency IPO Fraud
An initial coin offering (ICO) is a fundraising method used by emerging cryptocurrency companies to obtain funds from potential future users. The process usually involves offering customers a discount on new cryptocurrencies in exchange for investing in established cryptocurrencies such as Bitcoin or other popular cryptocurrencies. However, some ICOs have been fraudulent in nature, with scammers going as far as renting offices and creating high-quality marketing materials to deceive investors.
How to recognize cryptocurrency scams
Below are the key indicators to be aware of when detecting cryptocurrency scams:
- When it comes to cryptocurrency investment, beware of promises of guaranteed profits. It is impossible to guarantee profitability in any investment, as the market value of cryptocurrencies can fluctuate and result in losses as well as gains. If an offer related to cryptocurrency guarantees profits, it should be viewed with suspicion;
- The technical document, also known as a white paper, is a crucial component of any cryptocurrency initial offering. It should explain how the cryptocurrency operates and what its future plans are. A lack of content or a non-existent white paper is a red flag and calls for caution;
- Excessive or forceful marketing tactics are commonly employed by crypto scammers to lure unsuspecting investors into their schemes. These tactics include online ads, endorsements from influencers, and even offline promotions. Their aim is to quickly garner as many investors as possible and make off with their money. If a cryptocurrency advertisement appears to be overly aggressive, and makes claims that seem too good to be true or are not substantiated by verifiable information, it is wise to exercise caution, conduct thorough research, and gather additional information before proceeding;
- Anonymity of the team. In general, key employees of investment companies are publicly known, and information about them and the company is readily available online. The lack of information or the inability to identify key employees who are responsible for managing the cryptocurrency can be a warning sign;
- Investment offers that promise quick and effortless money or cryptocurrency gains are often fraudulent and should be approached with caution;
How to protect yourself from cryptocurrency scams
To guard against cryptocurrency fraud, several measures are advised, as many fraudulent crypto schemes are intricate and appear plausible to users:
- To prevent cryptocurrency fraud, it's important to safeguard your wallet, which is used to store cryptocurrency along with its private keys. If someone asks you to provide your key data to participate in a supposedly profitable investment opportunity, it's most likely a scam. Therefore, it's essential to keep your wallet keys private and secure;
- One way to protect yourself from crypto fraud is to monitor your wallet app closely. Before making a large transfer, it's recommended to send a small amount of funds to test the legitimacy of the wallet app. If you notice any suspicious activity during an app update, stop the update and uninstall the app immediately;
- One should only invest in instruments that they fully comprehend. If one does not understand how a particular cryptocurrency operates, it is advisable to conduct research and learn more about it before investing;
- Fraudsters may use high-pressure tactics to entice users to invest funds quickly, promising bonuses and discounts for immediate participation. To avoid falling prey to such tactics, it is recommended that you take your time before investing and conduct your own research;
- It is advisable to exercise caution when it comes to social media ads as attackers frequently employ such platforms to promote their fraudulent schemes. These ads may include unauthorized images of media personalities or famous businessmen, along with offers of gifts or easy money, in an attempt to boost user confidence. If you encounter an advertisement for investing in cryptocurrencies on social media, it is important to maintain a healthy skepticism and exercise due diligence;
- It is advisable to disregard unsolicited cold calls that attempt to lure you into investing in cryptocurrency as they are likely to be fraudulent. Under no circumstances should you divulge personal information or transfer funds to anyone who contacts you in this manner;
- To ensure the safety of your device, it is recommended that you download applications solely from official platforms such as the Google Play Store or Apple App Store. It is worth noting that fake apps may still be present on these platforms, but the likelihood of encountering such apps is lower compared to other sources;
- To safeguard yourself against fraudulent cryptocurrencies, it is advisable to conduct your own research. While the most widely recognized cryptocurrencies are generally deemed trustworthy, it is crucial to investigate any unfamiliar cryptocurrencies. This entails delving into the details of the cryptocurrency, including examining its white paper, identifying its hosting entity, comprehending how it operates, and seeking out reliable reviews and testimonials. Additionally, to evade scams, it is recommended to check if the cryptocurrency is listed on a dependable, current list of fake cryptocurrencies;
- Proceed with caution when confronted with an offer that appears too good to be true, as companies that pledge guaranteed profits or instant wealth are often fraudulent. Be wary of such enticing offers, as they are most likely scams;
It is crucial to comprehend the risks involved with cryptocurrency as it is a volatile speculative instrument. As with any investment, it is wise not to invest the last funds you cannot afford to lose, even in the absence of fraud.
How to protect yourself from cryptocurrency scams
The consequences of falling prey to cryptocurrency fraud can be devastating. In the event that you have shared personal information or made a payment, it is imperative to take prompt action.
Contact your bank immediately if you:
- Made a payment using a debit or credit card;
- Made payment by bank transfer;
- Provided your personal information.
