The cryptocurrency industry is expanding day by day, with thousands of people joining and investing in different crypto assets. With this ever-increasing user base, the industry has also been filled with such actors committing fraud and scams. These fraudsters come up with several enticing techniques to loot crypto assets from other people.
A report suggested that crypto users lost $1.8 billion in 2023 to hackers and scammers. After hacking, scams come second, where users unknowingly lose their assets most in such unpleasant incidents. Hacking is where user assets are stolen due to a breach in security, but scamming involves the user’s consent, which is done by manipulation and misleading information.
The most unlikely thing about crypto scamming is that these transactions can not even be reversed. Scammers always outpass every possible trick and leave no traces. Factors such as anonymity, decentralization, and the lack of regulation always turn out to be beneficial for these scammers. Despite even being experienced crypto users, thousands of them fall for scams, resulting in substantial financial losses.
Common Cryptocurrency Scams
Crypto scams can take many forms, such as fake giveaways or airdrops, direct calls for crypto investments, Ponzi schemes, and more. Scammers always find creative ways to allure their targets. The most common crypto scamming techniques, which are widely used by fraudsters and scammers, are listed below.
1. Crypto Phishing Scams
Phishing is the most commonly used method for executing cryptocurrency scams in the past couple of years. In this type of scam, the scammer behaves as a trustworthy entity to trap users and gain access to their accounts, crypto wallets, and other information.
For instance, these people create fake websites that look similar to other popular crypto companies. Later, they drive user attention to these websites by offering impressive benefits and asking them to connect crypto wallets using malicious code. When users permit the website, their wallets are drained. Sometimes, it’s hard to find the difference between original and fake websites that are created for phishing attacks.
2. Rug Pulls
Another infamous crypto scamming method is rug pull, where the project developers pull back all the liquidity from the market. This usually takes place when a new token is launched for trading on decentralized exchanges. After token price gains following initial buying hype, developers close trading access and take away all collected money from liquidity pools.
Rugpulls are widely executed in decentralized finance (DeFi). Famous examples of crypto rug pulls are Thodex and AnubisDAO.
3. Fake Giveaways & Airdrops
Giveaways and airdrops are very popular marketing tactics in the cryptocurrency industry. Users are offered exclusive rewards by participating in these giveaways. However, this technique has recently been exploited by scammers who invite users to participate for internal benefits. This is more often used to promote illegitimate schemes and gather user information.
4. Pump And Dumps Schemes
Crypto pump and dump schemes involve inflating the price of a crypto asset to attract investor attention. This price uptrend is driven by false promises on the token’s potential and future prices. Once sufficient market placing and a pre-determined price are reached, the owner of the token project sells their previously acquired or company-allocated token holdings. This way, the team and project associate people gain lucrative profits.
5. Investment Scams
Sometimes, users are directly approached to invest in cryptocurrency companies, which later turns out to be a scam. These companies have legitimate-looking websites and people working for them, but it does not exist in any government registries. They come in contact with target users and ask them to invest in their company, and they become unreachable after investment deals.
6. Crypto Ponzis
Ponzi and multi-level marketing (MLM) schemes are also the most common scams in the crypto space. These Ponzi scheme operators charge a specific amount as membership fees and offer incentives when they refer others to join them. Basically, these incentives are paid out using the new joiner’s membership fees, and this cycle continues forever. Bitconnect and OneCoin are the most successful crypto Ponzi schemes, both of which collected billions of dollars.
7. Fake ICOs
The initial coin offering (ICO) is a fundraising technique for crypto projects, and it is referred to by many people who want to invest in projects earlier. While taking advantage of this, scammers launch fake ICOs by presenting newer crypto project ideas and collecting money from investors. However, the promised project was never delivered, and the project developers ran away with raised funds.
In 2017, several crypto projects launched ICOs for fundraising, but hardly any of them actually built the companies using funds.
8. Impersonating Scams
In this type of scam, scammers impersonate other popular people in the crypto industry to defraud users. They steal or create similar identities, contact victims, and ask for formalities, which end up in a scam.
9. Cryptojacking
Cryptojacking – also known as a crypto mining scam – is not properly a scam but a cybercriminal activity in which the hacker takes over the victim user’s mobile or computer device to mine cryptocurrency. These hackers use the power and electricity of other devices collectively to mine cryptocurrencies such as Bitcoin or Monero.
Also Read: 7 Common Crypto Scams on Twitter
Signs of a Crypto Scams
All of these scams are hyperactive in the crypto space, and it’s often hard to spot one. Usually, most of the victims of these scams are investors who have just entered the crypto industry. As new investors are charmed by flourishing returns in cryptocurrencies, fraudsters use different manipulative strategies to convince them to deposit funds.
The points listed below are some apparent red signals that can help identify crypto scams at first seen;
- Over-promising Profits: A significant red sign is when the project or team behind it is promising unbelievable profits for the future. In the crypto market, predicting future profits is often impractical. If someone does, then it’s probably all out of thin air.
- Alluring Marketing: Another red signal is when the crypto project is employing alluring marketing techniques to gain attention. These campaigns are sometimes “too good to be true”, and it becomes so apparent that attaining such results is impossible.
- Mysterious Team Profile: A scam project will probably have a fraud team profile. It is easy to find by searching associated people on LinkedIn or other professional networking platforms. If finding even one person from the team is hard, it’s a warning that something illegitimate is happening.
- Direct Contact: Most of the time, crypto scammers directly contact their targets and ask for investment or favours for some tasks. This all eventually comes across the same thing of depositing funds to never-seen schemes.
- Fake Social Media Hype: The majority of crypto scams happen directly or indirectly using social media platforms such as Twitter or Facebook. These platforms are used to show fake followers and engagements to win the trust of investors.
How To Be Secure Against Scams
Scams always seem legitimate at first, but they really get ugly once a considerable amount of money is invested. It is necessary to be cautious and aware of such entities that are in action for stealing crypto or fiat.
These are some guidelines to keep in mind for being safe in the cryptocurrency industry;
- Avoid Quick Investment Decisions: The first thing to consider is not making any investment decisions very quickly. Investing immediately just for the sake of finding majestic returns will probably turn into a loss of money or crypto assets.
- Verify Company & Team: Searching about the company before investing is an essential step. Before investing, it is necessary to thoroughly research what work the company is doing and what the background of the team is.
- Don’t Click On Random Links: Many users have lost millions of dollars in crypto just because they clicked links sent to them that led to fake and malicious websites. These kinds of websites usually have fake airdrop claims and designs similar to those of other famous companies. It encourages users to connect their wallets and approve transactions, which results in the hacking of cryptocurrency assets.
It is also suggested to report scams to related regulatory agencies after finding out. This will help protect and save other investors from falling for scams.
Also Read: Leveraging Blockchain Technology in Tackling Scams and Frauds
Conclusion:
The way the crypto industry is moving, the risks of scams and fraud are also seemingly increasing. Several users have lost millions of crypto assets from wallet hacks, phishing attacks, pump-dump schemes, and more to date. What is even worse is that such scams are so normalized in the crypto community that they pose a significant threat to newcomers. These problems must be addressed to keep the ecosystem genuine and legitimate.
FAQs
Q1. What Are the Examples of Crypto Scams?
Ans: Pump and dump schemes, rug pulls, phishing attacks, Fake fundraising, etc. are the most common examples of crypto scams.
Q2. How Can I Recover Money Lost in a Crypto Scam?
Ans: Consider taking legal action against the scammers if you have lost money in the crypto scams.
Q3. Where should I report crypto scams?
Ans: You can register complaints to the local police or cyber-criminal agencies of your country to deal with crypto scams and track down frauds.
