Nowadays, the implementation of cryptocurrency into our everyday life grows significantly fast. This process is caused by the rapid development of technologies, like web 3.0, that provides an excellent and suitable environment for digital currency. Thus, plenty of people are digging into cryptocurrency, including investors who are willing to spend their money to get a further profit. But unfortunately, such activities could not be unnoticed by scammers aiming to conduct fraud schemes to get money quickly.
So we could not leave this topic bypassed and decided to expose the most used types of cryptocurrency scams. After reading this article, you will be well-informed about fraud schemes and easily avoid crypto scams.
How often can you face a cryptocurrency scam?
Cryptocurrency fraud has exploded in recent years resulting from an increase in cryptocurrencies as the market has boomed. Many people become victims of scammers every day, getting deceived by their sophisticated fraud schemes. Nobody wants to make a transaction one day and understand that they got fooled and lost their money. But sadly, those situations appear more often.
Cryptoasset, Risk Management Elliptic, cites a recent report by The New York Times that the DeFi (decentralized financial) user and investor losses are expected to reach a record $1.1 billion in November 2020. And that is just statistics on what happened two years ago. Right now, the situation is even rougher, as every new day, crypto markets are only getting more dangerous, with tens of thousands of new scams appearing.
Most popular types of crypto scams
Scammers have developed tons of ways to get their hands on your cash, where you, as a casual investor, will spot no suspicious actions. They are using free money promises, operating false information, and giving you false guarantees to get their dirty job done.
Let’s break down the most popular ways for fraudsters to scam their victims and how you can prevent those.
Pump and dump schemes
We are starting with a unique scam that is primarily used in the different trading platforms, including the cryptocurrency market. To perform a pump and dump scheme, scammers will artificially inflate the price of the crypto tokens and sell them at an overprice. So basically, a group of people will find an asset with a low price and buy an entire stock of it. Then, they will put it back on the market when it is done, but with a higher price. And when you invest in the artificially inflated token, scammers get extra money quickly.
This type of scam can be prosecuted by the law due to the few laws which can be applied to it. For example, the Securities act of 1933 and 1934, intended to regulate a stock market, states that anybody who sells a property at a fake price is violating a law.
We recommend following these easy recommendations to avoid pump and dump scams. First, always check the price of the token or another asset by reading the white paper or doing your own research. Don’t get deceived by unrealistic benefits and big claims; they are just baiting and easily faked.
Phishing scams
Most internet users have probably faced this kind of scam. In the case of cryptocurrency context, scammers will try to get your private information which will lead them to your digital wallet, for example. To perform this fraud, they send an e-mail or social media letters that consist of fake promises and other misinformation. Those fakes are aimed at one final result – getting access to your crypto wallet.
FBI reports that more than 100 000 people became victims of the phishing scams during the 2019 year and lost over 50 million dollars! This makes phishing statistically one of the most common scams that have ever appeared on the net.
We heavily recommend restricting yourself from clicking on suspicious links in the mail to avoid potential phishing scams. Signs of these scams are random messages encouraging you to visit a website or take another action. You can additionally download an app that will spot malicious emails and prevent you from entering suspicious websites.
Rug Pull scams
Rug Pull scams are something that is used solely on decentralized crypto platforms, and the only victim of them are crypto investors. This scam is relatively easy to understand. It starts with creating a new cryptocurrency token on the Ethereum platform. After that, scammers will get this token listed in the decentralized exchanges or P2P marketplaces. But when they get cash, they just disappear with all of that. This way, they mislead investors, as they find it very hard to verify this scam.
Respected blockchain company Chainanalysis reported losses of 2.8 billion dollars among cryptocurrency investors. Rug Pull scam is 37% of all cryptocurrency scams out there.
Before starting cryptocurrency investments, make sure to research the chosen crypto project. Don’t invest your money just because a project looks legitimate. Instead, reinforce this factual evidence of its reputation. The main worry sign is anonymity. So make sure that desired crypto project has a legitimate developer.
Fake cryptocurrency applications
Another popular scam scheme is creating fake crypto wallet apps. Those apps appear to look very promising at first sight, but their services are nothing more than a scam. The scammer will send you messages impersonating themselves as a crypto wallet company, convincing you to use their fake app. They would even create a website that will look just like a legitimate site. But what you will get if you use their services is losing your wallet and money.
Trend Micro Threat organization states that they found 249 fake crypto wallets on the web. With the help of those fakes, the fraudster stole more than 4 million dollars.
To prevent falling into the trap of fake apps, we recommend you download apps only via Google Play/AppStore. If you are not sure about the app’s legitimacy, then try a small crypto wallet on it first, instead of logging in with an account that has more money on it.
Social engineering scam
Social engineering scam is deceiving cryptocurrency investors by psychological manipulation. This is done by impersonating themselves as trusted people, social media influencers, or even faking celebrity endorsement. Thus they will try to prove their reliability, for a purpose of you sharing with them your personal info. After that, scammers will log in to your cryptocurrency wallet, and you will lose money.
To prevent a social engineering scam, make sure not to get baited and share much of your personal info easily. Make your social media accounts a little bit more concise, otherwise, scammers will have plenty of material to work with.
Blackmails
And finally, we will make a brief touch on the sneaky blackmail scam. Blackmail scammers are deceiving users by telling them that they have a record of you visiting provocative websites. They will use this info to perform a criminal extortion attempt. For example, they can force you to send cryptocurrency on their wallet or your crypto wallet info.
The thing is that even if you visited such websites, they probably don’t have a record of it. So you shouldn’t worry if you face this and quickly use the law to protect yourself, as blackmailing is a crime that is prosecuted.
Initial Coin Offering scam
With ICO (Initial Coin Offering) being one of the most popular ways to earn additional funds for services related to cryptocurrency, there are plenty of scammers in this area. Scammer organizations will start an ICO to get funds and trade cryptocurrency tokens. But similarly to rug pull scam, they will just take money to themselves and make cryptocurrency tokens that you got worthless.
One of the best ways to ensure that you are investing in a legitimate ICO is to examine their whitepaper carefully. What is also essential is to research the developers of this crypto platform. Make sure that they are real people who work in crypto.
The bottom line
The rush to cryptocurrencies has triggered a sense of the Wild West. As crypto ecosystems become increasingly complicated, they will probably be a desirable target for scammers. The scam generally follows two main categories: socially engineered initiatives to gather account or security information and send cryptocurrency to an encrypted digital wallet.
As soon as we understand how to detect and block cryptos from happening, you’re likely to spot a cryptocurrency swindle early enough and avoid any possible scams. This article included most of the information to keep you out of the scammer’s reach. We hope that you now know more about their schemes and will never fall victim to fraudsters.
Frequently asked questions
Sadly to say, with all the hype around crypto, there are many fraudsters who want to get profit by deceiving investors.
When it comes to a cryptocurrency scam, the most common schemes are rug pull scams, pump and dump methods, and initial coin offerings.
You need to constantly check and filter the information that you get, especially when it’s about spending your money.