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Federal Trade Commission.” [Cryptocurrency Buzz Drives Record Investment Scam Losses] .”
Federal Bureau of Investigation.” [2019 Internet Crime Report] ,” Pages 19-20.
Cryptocurrency scams can take many forms.Similar to the money in your bank account, scammers want your crypto and will do anything they can to get it.To protect your crypto assets, it helps to know when and how you’re being targeted and what you can do if you suspect that a cryptocurrency and communications related to it are a scam.
Generally speaking, cryptocurrency scams fall into two different categories:
For social engineering scams, scammers use psychological manipulation and deceit to gain control of vital information relating to user accounts.These scams condition people to think they are dealing with a trusted entity such as a government agency, well-known business, tech support, community member, work colleague, or friend.
Scammers will often work from any angle or take as much time as they need to gain the trust of a potential victim so that they reveal keys or send money to the scammer’s digital wallet.
When one of these “trusted” entities demand cryptocurrency for any reason, it is a sign of a scam.
Scammers often use dating websites to make unsuspecting targets believe they are in a real long-term relationship.When trust has been granted, conversations often turn to lucrative cryptocurrency opportunities and the eventual transfer of either coins or account authentication credentials.
The Federal Trade Commission (FTC) found approximately 20% of the money reported lost in romance scams was in cryptocurrency.
Moving down the sphere of influence, scammers also try to pose as celebrities, businesspeople, or cryptocurrency influencers .To capture the attention of potential targets, many scammers promise to match or multiply the cryptocurrency sent to them in what is known as a giveaway scam.Well-crafted messaging from what often looks like an existing social media account can often create a sense of validity and spark a sense of urgency.This mythical “once-in-a-lifetime” opportunity can lead people to transfer funds quickly in hopes of an instant return.
For example, in the six months before March 31, 2021, there were reports of more than $2 million in cryptocurrency transferred to Elon Musk impersonators.
According to the FTC, 14% of reported losses to imposters of all types are now in cryptocurrency.
Within the context of the cryptocurrency industry, phishing scams target information pertaining to online wallets .Specifically, scammers are interested in crypto wallet private keys, which are the keys required to access cryptocurrency.Their method is like many standard scams—they send an email with links that lead holders to a specially created website and ask them to enter private keys.When the hackers have this information, they can steal the cryptocurrency.
Phishing scams are among the most common attacks on consumers.
According to the FBI, more than 114,700 people fell victim to phishing scams in 2019.Collectively, $57.8 million, or an average of about $500 each, was lost.
Another popular social engineering method scammers use is to send blackmail emails.In such emails, scam artists claim to have a record of adult websites or other illicit web pages visited by the user and threaten to expose them unless they share private keys or send cryptocurrency to the scammer.These cases represent a criminal extortion attempt and should be reported to an enforcement agency such as the FBI.
The adage “if something sounds too good to be true, then it probably is” is one to keep top of mind for anyone venturing into investing in general, but it is especially true for cryptocurrencies.Countless profit-seeking speculators turn to misleading websites offering so-called guaranteed returns or other setups for which investors must invest large sums of money for even larger guaranteed returns.
Unfortunately, these bogus guarantees often lead to financial disaster when individuals try to get their money out and find that they can’t.
Crypto-based investments such as initial coin offerings (ICO) and non-fungible tokens (NFT) have given even more avenues for scammers to access your money.
What’s important to know is that although crypto-based investments or business opportunities may sound lucrative, it doesn’t always reflect reality.
For example, some scammers create fake websites for ICOs and instruct users to deposit cryptocurrency into a compromised wallet.In other instances, the ICO itself may be at fault.Founders could distribute unregulated tokens or mislead investors about their products through false advertising.
A rug pull occurs when project members raise capital or crypto to fund a project and then suddenly remove all of the liquidity and disappear.The project is abandoned, and investors lose everything they have contributed.
Platforms will market to retail buyers and investors to get them to put upfront capital down to secure an ongoing stream of mining power and reward.These platforms do not actually own the hash rate they say they do and will not deliver the rewards after your down payment.While cloud mining is not necessarily a scam, due diligence must be conducted on the platform before investment.
Cryptocurrency scams are easy to spot when you know what you’re looking for.Legitimate cryptocurrencies have readily available disclosure, with detailed information about the blockchain and associated tokens.
Cryptocurrencies go through a development process.
Before this process, there is generally a document published for the public to read called a white paper that describes the protocols, blockchain, outlines the formulas, and explains how the entire network will function.Fake cryptocurrencies do not do this—the people behind them publish “white papers” that are poorly written, have figures that don’t add up, tell you how they envision the money being used or don’t generally seem like a proper white paper.
For comparison, you can read through the white papers of well-known cryptocurrencies such as Ethereum and Bitcoin to see how they are written and explained.
White papers should always identify the members and developers behind the cryptocurrency.There are cases where an open-source crypto project might not have named developers—but this is typical for open-source.Most coding, comments, and discussions can be viewed on Github or GitLab.
Some projects use forums and applications like Discord for discussion.If you can’t find any of these and the white paper is full of errors, it is likely a scam.
Many cryptocurrency scams offer free coins or promise to “drop” coins into your wallet.Remind yourself that nothing is ever free, especially money and cryptocurrencies.
Cryptocurrencies are generally not a money-making endeavor.They are projects with a stated purpose and have coins or tokens designed to be used to help the blockchain function.
Valid crypto projects won’t be posting on social media, pumping themselves up as the next best crypto you shouldn’t miss out on.
You might see cryptocurrency updates about blockchain developments or new security measures taken, but you should be wary of updates like “$14 million raised” or communications that feel like they are more about money than about advances in the technology behind the crypto.
Most valid cryptocurrency developers do not market the coin; they post documentation that outlines the cryptocurrency’s purpose.If it doesn’t have a purpose, it is likely (but not always) a scam.It might be a cryptocurrency just to be a cryptocurrency, similar to Dogecoin , which has no official purpose.
There are legitimate businesses using blockchain technology to provide services.They might have tokens used within their blockchains to pay transaction fees, but the advertising and marketing should appear much more official.They’ll have money to spend on celebrity endorsements and appearances and have all the information readily available on their websites.These businesses will not ask everyone to buy their crypto; they will advertise their blockchain-based services.
There are several indicators that an attempt to scam you is in progress.
If you notice any of these signs, you shouldn’t click on any links, dial a phone number, contact them in any way, or send them money:
Several organizations exist that can help you if you’re a victim of a cryptocurrency scam or suspect one.Use their online complaint forms to seek help:
You can also contact the crypto exchange you use.They might have fraud prevention or other measures in place to protect your crypto assets and money.
The most common scams are rug pulls, romance, phishing, and investment schemes.
You shouldn’t accept transactions you don’t know about.With that in mind, the only way someone can steal your crypto is if you give it to them in a well-planned scam, you give them the keys, or if they hack your wallet and steal your keys.
The best way to avoid being scammed is to be aware of scammers’ techniques and remain alert.Know the signs of the scams, and secure your keys outside your wallet in cold storage.
For many people, the mad rush into cryptocurrencies has evoked feelings of the Wild West.However, as the crypto ecosystem gains scale and complexity, it will undoubtedly remain a focal point for scammers.
Crypto scams generally fall into two categories: socially engineered initiatives to obtain account or security information, and having a target send cryptocurrency to a comprised digital wallet.
By understanding the common ways that scammers try to steal your information (and ultimately your money), you should be able to spot a crypto-related scam early and prevent it from happening to you.
Investing in cryptocurrencies and other Initial Coin Offerings (“ICOs”) is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or other ICOs.
Because each individual’s situation is unique, a qualified professional should always be consulted before making any financial decisions.Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein..
