Cryptocurrencies are a hot topic now, and the subject is creating plenty of buzz. And with good reason—the value of a virtual currency like Bitcoin, Ethereum, XRP, Tether etc. has been on the rise for quite some time. As with anything that is popular, especially when it comes to financial transactions, there are a lot of scams surrounding them. In this article, we will discuss 8 cryptocurrency fraudulent schemes businesses need to avoid. We will also talk about what they are, how to spot them and what to do if you fall victim to one.
What is a Cryptocurrency Scam?
Elon Musk made news headlines for pumping up Dogecoin on Twitter, which caused the price to surge. And who could forget him joking about cryptocurrency being a “hustle” during a skit on “Saturday Night Live?” The joke caused laughs, and Dogecoin tumbled in the market at the time. Meanwhile, cryptocurrency hustles are no laughing matter.
For those who are unaware, a cryptocurrency scam is when someone uses the popularity of cryptocurrencies to trick people into giving them cryptocurrency transactions—which often take the form of money or personal information.
They might do this by promising to double your investment, offering free coins for signing up—or even simply asking for donations. Some scammers will also set up fake websites or social media accounts that look like they are associated with a legitimate cryptocurrency!
If you are new to cryptocurrency and its transactions and want to know more, you may find the following article helpful:
Read More: What is Cryptocurrency?
Common Cryptocurrency Scams to Watch Out for
Millions of dollars are lost every day in cryptocurrency scams. Fraud makes up the majority of them at around 30 percent. Luckily, being able to spot them can keep you from being swindled out of your hard-earned money.
To help keep you from being a victim of this seedy section of the cryptocurrency industry, here are 8 common scams to be aware of.
1. Downloaded Fake Cryptocurrency Apps
This type of cryptocurrency fraud comes in the form of fake apps that advertise an association with a certain type of cryptocurrency. In actuality, they are scammers trying to steal your money or personal information. They might do this by offering free coins for signing up or by promising to double your investment.
How to Avoid: You can avoid these scams by only downloading cryptocurrency apps from trusted sources, such as the App Store or Google Play. Barring that, be sure to research the app before you download it to make sure it is legitimate.
2. Phishing Scams
Phishing scams are another common type of cryptocurrency scheme. With this one, someone tries to trick you into giving them your personal information, such as your login credentials or credit card number. These scammers often do this by sending emails that look like it is from a legitimate website or by setting up a fake website that looks like the real thing.
How to Avoid: You can avoid these scams by being very careful about the emails you open and the websites you visit. If you are not sure if a website is legitimate, you can do a quick Google search to see if other people have reported it as a scam. You should also never click on links in emails or texts from people you do not know.
3. Digital Games & Collectibles
Giveaway scams are a form of social engineering attack that is used to convince you to send money to scammers. Digital games and collectibles are a specific type of giveaway scam, and they are usually perpetrated on popular social media sites like Youtube and Instagram.
With this giveaway scam, someone tries to trick you into giving them your money or private information by promising to give you a digital game or collectible, such as a skin for your favorite game or a rare Pokemon card.
A specific example of this happening was the squid game scam. It’s also known as a rug pull case, a malicious maneuver where crypto developers abandon projects and abscond with investors’ funds. Rug pulls are seen a lot with new crypto schemes.
During the time it happened, crypto exchange company Binance launched a probe into Squid token and froze the wallet addresses of all the token developers. It is estimated that the brains behind the scheme made off with $3.3 million before everything was over.
Does that mean everything involving such a thing is done? Not by a longshot. Unfortunately, sophisticated coders can now design imaginary worlds and games on the blockchain and launch the next social engineering attack as soon as the next hot Netflix show rolls around.
How to Avoid: The best way to avoid this type of trickery is, again, through detailed research. Know who you’re dealing with and what you’re getting yourself into. If someone promises you a rare or valuable item for free, be very, very wary. It’s likely a scam.
4. Romance Scams
Dating apps are overrun with cryptocurrency scams and about 20% of the money lost in romance scams from October 2020 through March 2021 was sent by cryptocurrency to fake accounts, according to the Federal Trade Commission (FTC). You’ll typically know you are involved in this type of scheme if you are in a digital relationship with someone, and they ask for cash or gifts early on in the relationship.
How to Avoid: The best way to avoid this scam is by being skeptical of anyone you meet online. Don’t send cryptocurrency to them until you’ve met them in person and gotten to know them extremely well. Also, do a reverse image search of their profile pictures to see if they’ve stolen from someone else. You should also trust your gut—you know, that nagging feeling that tells you that someone is trying to pick your crypto wallet.
Business Opportunity and Investment Cryptocurrency Scams
From October 2020 to March 31, 2021, 7,000 people lost over $80 million to cryptocurrency investment scams, according to the FTC. The agency also said in the FTC Sentinel that “these figures reflect a 12-fold increase in the number of reports compared to the same period a year ago and a nearly 1,000% rise in reported losses.”
If you don’t know about scams involving business and investment opportunities, they are when someone tries to trick you into giving them your funds by promising to give you a share of the profits from their business or investment. They may promise to give you cash or cryptocurrency payments for your troubles, but the odds are you’ll never see one red cent (or digital coin) when all is said and done.
Some of the most common ones are listed below.
5. Ponzi Schemes
Number 5 on this list is one of the better-known business opportunity scams, thanks to Bernie Madoff, a former NASDAQ chairman who made off with billions of dollars of his investor’s cash before he was imprisoned. Even Kevin Bacon and his wife Kyra Sedgewick fell for this one!
Madoff perpetuated what’s known as a Ponzi scheme, a fraudulent investment operation where the operator generates returns for older investors through revenue paid by new investors.
It’s also known as a pyramid scheme; the tiny tip at the top of the pyramid represents the promoters that make money off the large base of investors at the bottom.
What is a warning sign for one? Cryptocurrency schemes of this nature often promise high or guaranteed returns for cryptocurrency investors.
How to Avoid: The best way to avoid this scam is by doing your research and being very skeptical of promoters making inflated promises about your earning potential. You should also check for other red flags, such as the business having a history of fraud or promoters emphasizing recruiting new distributors for your sales network as your only avenue to making money.
6. Multilevel Marketing Schemes
There are legitimate multilevel marketing (MLM) but others are just plain old pyramid schemes. A legitimate MLM operates by selling a product or service, while a pyramid scheme simply recruits people to join—and then gets cash from recruitment fees and commissions. Cryptocurrency MLM schemes often promise high returns but don’t have any products or services to sell.
How to Avoid: The best way to avoid this trickery is by researching the company you’re thinking of investing in. Be wary of anyone who’s trying to get you to invest in something without fully explaining what it is and how it works. Make sure they have a product or service and that it’s something you’re interested in.
7. Pump and Dump
Another common crypto scam is called the “pump and dump.” This is when someone buys a lot of a certain cryptocurrency to artificially inflate the price. Afterward, they sell it all once the price goes up. This often happens on small, lesser-known coins that don’t have a lot of trading volume. The scammer will often use social media to pump up the coin, and then sell it once the price has risen.
How to Avoid: Above all, do your research and be knowledgeable about how cryptocurrency works. Moreover, you can avoid pump and dump cryptocurrency schemes by not buying into the hype of a coin that doesn’t have a lot of trading volume. You should also be wary of social media posts about certain coins, as they might be part of a pump and dump scheme.
8. Scams Involving Crypto Investments
Many people get caught up in cryptocurrency investment scams. This is where someone promises to invest your money in cryptocurrencies and then disappears with it.
This scheme happens a lot with initial coin offerings (ICOs). ICOs are when a company offers investors tokens in exchange for money. The problem is that many of these companies are not legitimate and will simply take your funds without giving you anything in return.
How to Avoid: Be leery of websites or other services that promise sky-high returns or investment opportunities that don’t sound realistic. As with everything else on this list, if an initial coin offering sounds too good to be true, it probably is. Only send cryptocurrency to a trusted third party.
How to Avoid Crypto Scams
As you can tell, there are a lot of bad players involved in cryptocurrency. Luckily, there are things you can do to protect yourself. Here, we’ve collected a few watchdog alerts that help you avoid cryptocurrency scams that are common to credit card fraud and money wiring.
Some common warning signs to look for are:
- Unsophisticated communication: This is when fraudsters post messages on places like Facebook, Twitter and Instagram. When they do, the text is often loaded with typos and obvious misspellings (although this isn’t always the case). The same with emails: the subject line is typically unprofessional-looking, and the content within the email often looks like it is written by 5th-graders.
- Bogus contractual obligations: This is where someone asks you to enter into holding crypto without you being allowed to sell.
- Pretenders: You may have encountered this one on Instagram before. It is where people pretend to be celebrities or social media influencers. You’re almost flattered enough to exchange personal information, but by all means, don’t get starstruck and carried away.
- Threats: This is when scammers try psychological methods such as blackmail, extortion, or even threats of imprisonment to gain access to your private keys or to trick you into sending cryptocurrency to them.
- Vagueness: You’re never given clear details about where your funds are going.
- Requests for authentication: Scammers may ask you to share sensitive authentication credentials. They can spoof phone lines and appear legitimate too. However, be smart. Don’t give them sensitive information, such as your 2-Factor Authentication, passwords or security codes if they ask for it.
- Requests for private information: Fraudsters often use information mined from data breaches at other websites to fool you into thinking they are legitimate and that they have more data about you than they really do.
- Promises, promises: Potential victims are fed free money promises and promises to multiply their monies to an amount that doesn’t seem reasonable. Again, remember the old adage: if it’s too good to be true…
Secure Your Crypto with a Digital Wallet
There are many kinds of digital wallets. There are also a number of associated schemes that are designed to let bad actors steal cryptocurrency from them.
A digital wallet will protect your digital money the same way a physical wallet protects your physical cash. A crypto wallet stores your private key so people can access and spend their digital funds.
The best cryptocurrency wallets offer features such as robust security, backup capabilities and ease of use. Also, make sure the one you choose can handle multiple currencies.
If you are a small-scale investor who only has a few hundred dollars in crypto, then a mainstream exchange platform like Coinbase will probably suffice. However, if you have a large amount of crypto, then you should store most of it in a digital wallet to keep it secure.
Crypto wallets also come in hot and cold options. Both come with risks, but with a cold wallet, it is easy to lose access to your cash for good. What could happen to make you kiss your money goodbye forever? Losing the device (it’s a physical device) or forgetting your password will do the trick.
Therefore, be sure to do market research and conduct your due diligence. Also, implement security measures and have a secure place to store your digital funds before you commit.
How do You Get Money Back from Crypto Scams?
Bank accounts for federally regulated currencies have fraud protection and FDIC insurance. Unlike banks, however, when you are swindled out of funds on the blockchain, the only way to get your funds returned is for the recipient to directly pay you back. That is going to be unlikely on a decentralized exchange.
While mainstream cryptocurrency exchanges enjoy more robust fraud security measures than some of the smaller players, there’s still no guarantee for crypto investors to get their stolen crypto back.
What to do if you’re a victim: If you have already invested in a cryptocurrency investment scheme, try to get in touch with the person who promised you the investment. If you can’t get in touch with them (that might be difficult in other countries), try to find out if there is anyone else who has been scammed by them.
The Biggest Cryptocurrency Heist Ever
That distinction goes to hackers that pulled off a cryptocurrency heist to the tune of $613 million in digital coins. It was committed against Poly Network, a decentralized finance platform that oversees and facilitates peer-to-peer transactions that enable people to swap or transfer digital currency on several blockchains.
How to Check a Cryptocurrency Transaction
If you want to monitor your transactions, the first step is to check the block explorer for your specific cryptocurrency. A block explorer is a search engine that allows you to view all the transactions that have taken place on the blockchain.
If you cannot find your transaction on the blockchain, then it is likely that it was not processed. This could be due to a number of reasons, such as an incorrect address or insufficient funds.
Also, if you are certain that your transaction should have gone through, then you can contact the customer or technical support team of the exchange or wallet that you used. They may be able to help you locate your funds.
Similarly, the blockchain at Bitcoin can be accessed on Blockchain.com’s home page. Once you are there, you can use their blockchain technology and enter your wallet or Bitcoin TxID to track any transactions. You will see a number of transaction summaries, including the number of confirmations it lists.
Confirmations are how the Bitcoin network reaches a consensus on which transactions are valid. Each transaction builds upon the previous one, creating a chain of confirmed blocks. Once a transaction has six blocks, it is considered to be confirmed and permanent.
You can also use this service to check Ethereum transactions by using their TxHash. If you are still unable to locate your funds, then it is possible that they were lost or stolen. Sadly, as we mentioned earlier, there is no way to retrieve them unless the recipient pays you back. This is one of the risks of investing in cryptocurrency.
Use Our Cryptocurrency Scams List to Avoid Being Scammed
If you come across a crypto scheme or strongly believe you are seeing suspicious activity involving cryptocurrency, you can contact and report your information to the right government agency. They are:
- The Commodity Futures Trading Commission (CFTC) at CFTC.gov/complaint
- The U.S. Securities and Exchange Commission (SEC) at sec.gov/tcr
- The Federal Trade Commission (FTC) at ReportFraud.ftc.gov
- The AARP Fraud Watch Network Helpline at 877-908-3360
If the fraud involves a criminal extortion attempt or blackmail, you can also report it to the FBI.
We hope you enjoyed reading this article and that it will help you avoid being scammed in the cryptocurrency world. After all, we all want to know instead of losing it, right?
Let us know in the comments below if you have any other tips to avoid cryptocurrency schemes, and stay safe out there!
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