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Cybercriminals, scam artists, and hackers always look for new ways to steal people’s money. And with the massive growth of cryptocurrency, NFT, and other digital assets has created plenty of opportunities for scams and fraud.
In recent years, notably in 2021, cryptocurrency scams hit a new record. According to FTC, since the start of 2021, more than 46,000 people have reported losing over $1 billion in crypto in scams.
If you’re considering investing in crypto, It’s essential to know about the risks as well. In this article, we’ll discuss some common crypto scams, how to spot & avoid them, and how to report a crypto scam, if you end up falling victim to one.
What is a Cryptocurrency Scam?
Cryptocurrency scams work just like any other financial scam, except for one thing: scammers target your crypto assets rather than your cash.
Crypto scammers use many tactics similar to other financial scams like pump-and-dump schemes where investors are given lucrative offers to purchase an asset with fake claims about its value, selling digital asset assets with fake market value, or outright trying to steal the digital assets.
Scammers would try to steal their victim’s credentials and get access to their crypto wallet or have an investor trade digital currency or assets as a form of payment for a fraudulent transaction.
Cryptocurrency’s easy conversion to fiat money, ready-to-use third-party transaction applications, and many techniques to hide a user’s true identity make crypto an appealing instrument for scammers.
In a nutshell, crypto scams are appealing to scammers for 3 main reasons: their decentralized nature, irreversible transactions, and the ability to be pseudonymous.
- Decentralized: Cryptocurrencies and applications are part of a decentralized financial (DeFi) system that lacks oversight from a bank or a government. This means there’s no central authority to stop or flag a suspicious transaction.
- Irreversible: Transactions in a blockchain are irreversible, once someone sends crypto to another person, there’s no way to reverse that transaction.
- Pseudonymous: Crypto interactions happen through wallet addresses, not legal names. This makes it challenging to track down specific users, especially if they’re trying to stay hidden.
Types of Crypto Scams
Some common cryptocurrency scams include:
- Investment Scams: Scammers promise guaranteed returns and convince people to send their crypto, resulting in permanent loss.
- Pump-and-Dump Schemes: Scammers manipulate social media to create hype around obscure cryptocurrencies, then sell their holdings, causing prices to crash.
- Phishing Scams: Scammers trick victims into revealing their crypto keys by impersonating reputable companies or sending phishing links.
- Upgrade Scams: Scammers exploit software updates to trick users into giving up their private keys.
- SIM-Swap Scams: Scammers gain access to a victim's phone data and use it to hack and wipe their crypto accounts.
- Fake Crypto Exchanges and Crypto Wallets: Fraudulent websites or malware deceive users into investing or stealing their private keys.
- Fraudulent Crypto Investments/Apps: Fake trading apps or investment opportunities are created to steal cryptocurrencies.
- Scam Tokens in Crypto Wallets: Scammers place fake tokens in wallets, which activate a smart contract to transfer legitimate tokens from the victim's crypto account to a scammer's crypto account.
- Initial Coin Offering (ICO) or "Rug Pull" Scam: Scammers raise funds through ICOs, then disappear, leaving investors with worthless tokens.
- Crypto Ponzi Scheme: Scammers pay existing investors with new investors' money until the scheme collapses, resulting in total loss.
- "Crypto Trading" Job Scams: Fake job offers involve money laundering or upfront payment/investment scams.
- Crypto-only Payment Requests: Organizations that only accept crypto may be fronts for scams, leading to loss of funds without recourse.
- Giveaway Scams: Scammers lure victims with promises of matching or multiplying investments, often using fake celebrity endorsements.
- Criminal Extortion Attempt: Scammers threaten victims with exposing personal information unless a ransom in crypto is paid.
- Social Engineering Scams: Scammers gain trust and trick victims into revealing keys or sending crypto to their wallets.
- Romance Scams: Scammers use dating websites to build relationships and convince victims to transfer funds or disclose account details.
- Cloud Mining Scams: Companies offer mining services but fail to deliver promised rewards or close down after receiving payments.
- Man-in-the-Middle Attack: Hackers intercept personal details, including crypto transactions and wallet keys, on public networks.
- Celebrity Endorsement Scams: Scammers use fake websites and endorsements from celebrities to sell non-existent cryptocurrencies.
- Blackmail and extortion scams: Some scammers threaten their victims to expose personal information or compromising materials unless a ransom is paid in cryptocurrency.
You can protect yourself from falling victim to these crypto scams by being cautious, conducting proper research, and following security measures. You can learn more about these scams in this Article so you can protect yourself better.
How to Spot a Crypto Scam
If you want to invest in cryptocurrencies without losing your life savings, you must watch out for potential red flags before making a decision.
For starters, search for the cryptocurrency, the company, or associated people’s names and add words like “scam”, “review”, or “complaint” to find out what people think about them.
Other red flags indicating a crypto scam include:
Random Financial Advice
Sometimes, you'll get random financial advice from complete strangers or people you barely know through phone, text messages, social media, or email.
Some of these people may even claim to be something like an investment manager or broker, discussing cryptos on online forums and groups. These scammers promise or predict high profits on cryptocurrencies, trying to convince people into investing in them.
Some scammers invest heavily in advertisements or share fraudulent posts, fake celebrity endorsements, etc. on social media. They may also get promotions from online personalities with claims of quick and huge profits.
Pressure to Take Action
Some scammers would insist you to invest crypto through their site, or tell you that their site follows a crypto-only payment method.
Apart from that, they might also insist you to download an investment app from third-party websites, deposit money into different bank accounts to invest only to get requests to invest more money or pay an absurd amount of money as taxes to get access to your funds.
Some investment scams offer "guaranteed" high returns, multiply your investments in a very short period, or just straight-up "free" money. These are obvious scams, as there is no such thing as free money.
Other odd occurrences may include:
- Withholding your investment earnings for "tax purposes"
- You randomly receive strange tokens worth thousands of dollars without trading
- The crypto exchange you're using has poorly written documentation or is nonexistent with little to no paper trail for your crypto investment
- Online news and searches indicating that your crypto exchange is a scam or becoming insolvent
- "Work-from-home jobs" asking you to invest in a cryptocurrency
If you notice any of these odd occurrences, you might be dealing with a group of scammers.
- Dating apps are riddled with various types of scams. However, if you’re still going for online dating, never mix dating with investment advice.
- If someone you met on a dating site or an app tries to convince you into investing in crypto or asks you to send money to them any crypto, be assured that you’re dealing with a scammer.
- Never respond to unsolicited contacts. Whether it’s someone from your crypto brokerage, bank, or financial institution, your first instinct should be to contact the official number and verify the identity of that person.
- Always check before you click. Avoid opening email attachments or hyperlinks from unfamiliar sources.
- Remember to keep your crypto brokerage accounts and traditional bank accounts separate. Never link them permanently.
- If you notice any unusual transactions or other suspicious activities on your account, put a hold on any future transactions immediately.
- Use reputable companies for your every crypto-related activity. Whether you’re looking for a crypto exchange or shopping for hot/cold wallets, make sure you do your research before making a decision.
- Another common thing most people seem to overlook: HTTPS vs. HTTP. Whenever you visit a website, make sure the URl has HTTPS in it. HTTPS indicates that the site has secured and encrypted traffic, which is essential for security.
How to Report Crypto Scams
If you fall victim to a cryptocurrency scam, you must take action to get your assets back. If you want your brokerage to initiate a proper investigation, you must file a formal complaint. You must quickly figure out how to file a complaint and proceed with it.
You must also keep in mind that many scammers reside outside of the U.S., so if you’re a U.S. resident, you might have a hard time finding the scammers. But you should report crimes anyway.
You can report fraud and other cryptocurrency-related suspicious activity at
- The Federal Trade Commission (FTC) at ReportFraud.ftc.gov
- The Security and Exchange Commission (SEC) at sec.gov/tcr
- The Commodity Futures Trading Commission (CFTC) at CFTC.gov/complaint
- The Internet Crime Complaint Center (IC3) at IC3.gov/home/filecomplaint
- The cryptocurrency exchange company you were using for the transaction.
How to Protect Yourself from Cryptocurrency Scams
Falling for a crypto scam can be stressful and time-consuming. Scam artists are very skilled at convincing people to invest their money with flashy marketing campaigns and over-promising.
But that doesn’t mean they’re impossible to avoid. Here are some tips to help you protect yourself from these types of crypto scams.
Things to Do Before Investing
It’s never too early to take precautions to avoid cryptocurrency scams and protect yourself from crypto scams. The following tips will help you spot crypto scams and avoid them:
- Be skeptical about social media ads and celebrity endorsements promoting a crypto or crypto exchange. Always remember, celebrities will only endorse a company when they get hired by that company.
- Before investing, search for the token/crypto exchange name on Google with the word “scam”, ”warning”, or ”complaint”.
- Read the whitepaper for new coins and see if you can find any spelling mistakes. Look for more information about the people that are involved in the project. If the company claims of having any large partnerships/sponsorships, look for enough evidence to back up their claims.
- Check the websites very carefully. Once again, look for spelling mistakes. Verify their listed address and phone numbers. If they promise large rewards for signing up or large returns over a short period, consider avoiding them.
- Beware of platforms with a crypto-only payment policy. Legitimate financial services firms don’t usually ask you to pay exclusively in crypto. Be wary of people asking for crypto payments online as well.
- If someone offers “high returns” for “low-risk” crypto investments, it’s probably a good idea to avoid them. Low-risk, high-return investments are very rare, and if a new project is offering you high returns from low risks, they’re probably trying to scam you.
Things to Do After Investing
You can never be too careful when it comes to safeguarding your crypto investments. Even if your cryptos are in safe hands, you never know when cybercriminals might steal your assets. You can follow these tips to safeguard your crypto investments from cybercriminals:
- Always use a private Wi-Fi network when connecting to your crypto wallet. Scammers and cybercriminals can steal information sent over public networks. Use a VPN if you have no options other than using public Wi-Fi.
- If a token suddenly appears in your wallet and you don’t have any knowledge of trading it, do not interact with it. It’s probably a scam token sent to your wallet to steal your wallet’s credentials.
- If you’re installing browser add-ons or extensions or software that links to your crypto holdings, make sure you’re installing the legitimate software that performs the task. Many scam applications are identical to legitimate ones, so make sure that you are downloading from the official site.
- If you are getting manipulated, threatened, blackmailed, or extorted for your cryptocurrency, Report it to the local Law Enforcement Agency immediately.
- Last but not least, always practice good digital security habits such as using strong passwords, using only secured connections or VPNs, choosing safe storage, etc.
Also, you can use hardware wallets to store information about your cryptocurrency wallet and keys offline within a device.
Keep in mind, the Federal Deposit Insurance Corporation does not insure cryptocurrency, so keeping it safe should be your topmost priority. Do not give access to your wallet under any circumstances.
Can You Get Your Money Back from Crypto Scams?
Blockchain transactions are immutable, making it very difficult to recover once it’s transferred. However, if you can track down the criminal, you have a very high chance of recovering your lost crypto.
You must always scam incidents to the legal authorities. The government will only initiate an investigation if you reach out to them and track down the criminals to get your funds back.
Also, the best recourse is to take extra precautions with your future assets so you don’t become a victim again.
Cryptocurrency’s unprecedented growth has put it in the crosshairs of many hackers and scammers, tricking thousands of people into losing their crypto asset to various scams.
That doesn’t mean that you have to lose your money to lousy scams too. Hopefully, with the help of this article, you’ve learned about every kind of scam in the crypto world, how to spot them and protect yourself from them, and also what to do if you ever find yourself in a situation where you’re getting targeted by scammers.
The key is to be vigilant. If you’re thinking about investing in crypto, or have already invested in crypto, your only option is to pay attention to your every action and stay safe from every scam.
Stay vigilant, stay safe.
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