Cryptocurrency scams have become increasingly prevalent in recent years, with scammers using a range of tactics to defraud unsuspecting victims.
From Jan 1, 2021, to Mar 31, 2022, people reported $417M in cryptocurrency lost due to social media fraud. Investment-related fraud accounted for $273M of the losses. Romance scams caused $69M in losses, and business imposters caused $35M in losses according to the Federal Trade Commission.
In this article, we will explore what crypto scams are, how they work, and the different types of scams that exist. We will also provide tips on how to avoid falling victim to these scams.
What Are Crypto Scams?
Crypto scams are fraudulent activities in the cryptocurrency space that aim to deceive investors for financial gain or steal cryptocurrency. These scams take advantage of the relative anonymity and decentralization of the crypto space to trick unsuspecting investors.
There are several types of crypto scams, including investment scams, phishing scams, upgrade scams, sim-swap scams, blackmail & extortion scams, cloud mining scams, fake ICOs, or even posing as a fake exchange.
Scammers often target new investors who are unfamiliar with the risks associated with cryptocurrency investing. To protect themselves from crypto scams, investors should do their due diligence and thoroughly research any investment opportunity before committing funds. They should also use reputable exchanges and wallets, and be wary of any offers that seem too good to be true.
How do Cryptocurrency Scams Work
Crypto scams work by deceiving investors into sending their cryptocurrency to scammers, who then disappear with the funds. There are several common methods used by scammers to carry out these fraudulent activities.
Crypto scammers typically connect with their victims through various channels, such as social media, email, messaging apps, and online forums. They use a variety of tactics to make their scams appear legitimate and to gain the trust of potential victims.
One common tactic is to create fake profiles or accounts that appear to belong to reputable figures or organizations in the cryptocurrency industry. For example, a scammer may create a fake Twitter account that looks like it belongs to a well-known crypto influencer or company, and then use this account to promote their scam.
Another tactic is to use phishing emails or messages that appear to come from legitimate cryptocurrency exchanges or wallets. These messages will typically ask the recipient to log in to their account or enter their private keys, and then direct them to a fake website where the scammer can steal their login credentials.
Scammers may also use social engineering techniques to gain the trust of their victims. For example, they may pose as a support representative for a cryptocurrency exchange and offer to help the victim with a technical issue. Once the victim has given the scammer access to their account, the scammer can then steal their cryptocurrency.
Scammers may also use malware or other tactics to gain access to the victim’s cryptocurrency wallet or private keys. In a bit, we’ll go through all the common ones in the space so you can be abreast of these circumstances in case you come in contact with any.
13 Common Crypto Scams
Regardless of what scam and how they are carried out, they fall under one or two things. They are either meant for investors to give up access to their digital wallets or to lure them into sending specific amounts into designated wallets using social engineering tactics to trick their victims.
This type of scam in the crypto space are fraudulent activities that target investors looking to profit from the growing cryptocurrency market. These scams often promise high returns on investment in a short period of time.
These scammers play into people’s greed. Of course, who doesn’t want a substantial reward especially when what they stand to lose is nothing compared to what’s coming? These scams, more often than not, result in significant financial losses for investors, as scammers often disappear with the funds they have collected.
When it comes to phishing scams, scammers create fake websites or emails that mimic legitimate ones to steal users’ login credentials or private keys. These scammers often pose as trusted cryptocurrency exchanges, wallets, or service providers to trick unsuspecting users into revealing their sensitive information.
Once the scammers have obtained the user’s login credentials or private keys, they can access the user’s cryptocurrency holdings and steal them. And in most cases, they just steal everything, leaving investors with nothing at all.
Upgrade scams are usually where scammers impersonate legitimate service providers to deceive users into downloading fake software updates or upgrading their wallets. The scammers will often offer users improved features, functionality, or security to entice them into downloading fake software or upgrading their wallets.
Once the user has downloaded the fake software or upgraded their wallet, the scammers can gain access to their private keys and steal their cryptocurrency holdings. And in some cases, they ask for crypto payments to give users access to these seemingly secure features.
SIM-swap scams are totally different kinds of fraudulent activities where scammers gain access to a user’s phone number and use it to gain control of the user’s cryptocurrency accounts.
The scammers will typically contact the user’s phone company and request that the phone number be transferred to a new SIM card under their control. Once they have control of the user’s phone number, they can bypass two-factor authentication measures and gain access to the user’s cryptocurrency holdings.
Blackmail and Extortion Scams
Blackmail and extortion scams involve scammers threatening to release compromising or sensitive information about the user unless they pay a ransom in cryptocurrency.
These scammers may claim to have obtained the user’s personal information through hacking or other illegal means, and use this information to intimidate the user into paying the ransom.
Cloud Mining Scams
Cloud mining scams are also quite popular and they involve scammers offering investors the opportunity to mine cryptocurrencies through cloud-based mining services. These scammers often promise high returns on investment with low fees and little to no effort required.
However, these services often do not have any mining hardware or capacity, and investors’ funds are simply used to pay off early investors or are completely stolen by scammers.
The Rug Pull Scams
In rug pull scams, developers of a new cryptocurrency or token attract investors, build up its value, and then suddenly disappear with the funds raised by investors. These scams are executed by creating a false sense of security and trust with investors, often through heavy promotion and marketing, and then suddenly pulling the rug out from under them by liquidating the project and absconding with the funds.
When it comes to romance scams, scammers pose as potential romantic partners to lure unsuspecting victims into sending them cryptocurrency. These scammers will often create fake profiles on dating websites or social media platforms and initiate a relationship with the victim, often using flattery, sympathy, or promises of love and affection, and
sometimes more lasting relationships such as marriage. Once the scammers have gained the victim’s trust, they will ask them to send them cryptocurrency, often using the pretext of an emergency.
Man-in-the-middle attacks are activities where scammers intercept and modify the communication between two parties, allowing them to steal cryptocurrency or other sensitive information.
These scammers will typically position themselves between the user and the legitimate service provider, allowing them to intercept and modify any data being transmitted between them. They can then use this access to steal cryptocurrency, alter transactions, or gain access to the user’s private keys.
Social Media Cryptocurrency Giveaway
Social media cryptocurrency giveaway scams are more popular scams where scammers pose as well-known individuals or companies in the cryptocurrency space and offer free cryptocurrency giveaways to followers.
These scams often appear on platforms like Twitter and Facebook and involve scammers requesting small amounts of cryptocurrency in exchange for much larger returns. However, once the scammers receive the initial funds, they disappear and the promised returns never materialize.
Ponzi schemes type scams are where scammers promise high returns to investors in exchange for their investment, and then use the funds raised from new investors to pay off earlier investors in a pyramid-style system.
This system involves scammers recruiting investors and these investors in turn recruit more investors, and so on. These scams rely on a constant influx of new investors to sustain the scheme, and once new investors stop joining, the scheme inevitably collapses and the scammers disappear with the funds.
Fake Cryptocurrency Exchanges
When it comes to fake cryptocurrency exchanges, scammers create fake trading platforms that look like legitimate cryptocurrency exchanges. These scammers lure users into depositing cryptocurrency by offering low fees or attractive trading pairs, or even posing to have a more secure platform than others. But once the cryptocurrency is deposited, the scammers disappear and the funds are lost.
Employment Offers and Fraudulent Employees
With the employment offers and fraudulent employees kind of scam, scammers pose as employers or employees and offer high-paying job opportunities that involve handling cryptocurrency.
These scams often involve scammers asking the victim to deposit cryptocurrency into an account or wallet, promising to return it with a bonus or a commission. As unreal as that might sound, scammers are very convincing and people who are desperate for a job often fall for this trick. Once the funds are deposited, the scammers disappear and the funds are lost.
8 Ways To Avoid Crypto Scams
- Before investing in any cryptocurrency company, project, or individual, it is important to do due diligence and research.
- Staying updated with the latest happenings in the cryptocurrency space, especially with chosen projects, is crucial. This helps investors detect any red flags or discrepancies.
- Investors should not trust anyone they do not know personally
- Investors should ignore any emails, social media messages, or phone calls that request access to their personal information or cryptocurrency assets.
- If an investment opportunity seems too good to be true, it probably is
- Double-check URLs to ensure they are legitimate and only follow links from official sources
- Use two-factor authentication and strong passwords when using centralized exchanges or cryptocurrency wallets managed by third parties
- Choose industry-standard cryptocurrency exchanges or wallets to ensure security and reliability
Where To Report Cryptocurrency-Related Scams
It’s crucial to report cryptocurrency scams to authorities even if it’s not always possible to recover lost money. Here are some channels to report them.
- Report cryptocurrency scams to your local law enforcement agency if you have lost a significant amount of money
- File a complaint with the Federal Trade Commission (FTC) for scams and frauds related to cryptocurrencies
- File a complaint with the Internet Crime Complaint Centre (IC3) if you have been a victim of Internet crime.
- File a complaint with the Financial Industry Regulatory Authority (FINRA) if you have been scammed through a brokerage firm.
- File a complaint with the Securities and Exchange Commission (SEC) if you have been scammed through an investment in a cryptocurrency that is classified as a security
- File a complaint with the Better Business Bureau (BBB) if you have been scammed by a business that accepts cryptocurrency.
- Report cryptocurrency scams and share experiences with CryptoScamAlert, an online platform for victims of cryptocurrency scams
Reporting incidents of cryptocurrency scams helps authorities investigate and prevent further fraud.
Regardless of all scammers out there, crypto shouldn’t be looked at as a space where only scammers succeed. Blockchain technology has to offer far more benefits to different industries, and I am sure that with time we will see fewer malicious activities and fewer bad actors in the crypto world.
Stay safe out there.