A scam or confidence trick is an attempt to defraud a person or group by gaining their confidence and Cryptocurrency is a type of digital currency that generally exists only electronically. You usually use your phone, computer, or a cryptocurrency ATM to buy cryptocurrency. Bitcoin and Ether are well-known cryptocurrencies, but there are many different cryptocurrencies, and new ones keep being created. Scammers are always looking for new ways to steal their money, and the massive growth of cryptocurrency in recent years has created plenty of opportunities for fraud. cryptocurrency crime had a record-breaking year in 2021 according to a report by blockchain data firm Chainalysis, fraudsters stole $14 billion of crypto. Though cryptocurrency can be an attractive investment, it's more scams than any other payment method susceptible to. Over $1 billion has been reported stolen through crypto scams between January 2021 and June 2022, according to a report by the Federal Trade Commission. if you're interested in crypto, it's important to be aware of the risks.
TYPES
Cryptocurrency Investment Scams
Investment scams often promise you can "make lots of money" with "zero risk," and often start on social media or online dating apps or sites. These scams can, of course, start with an unexpected text, email, or call, too. And, with investment scams, crypto is central in two ways: it can be both the investment and the payment. There are many types of crypto investment scams. some of them are given below
a) Fake Websites
Scammers sometimes create fake cryptocurrency trading platforms or fake versions of official crypto wallets to trick unsuspecting victims. these fake websites usually have similar but slightly different domain names from the sites they attempt to mimic. they look very similar to legitimate sites, making it to find the difference, Fake crypto sites often operate in one of two ways:
A phishing page: All the details you enter such as your crypto wallet's password and recovery phrase and other financial information, end up in scammers' hand.
As straightforward theft: Initially, the site may allow you to withdraw a small amount of money. as your investments seem to perform well, you might invest more money in the site. However, when you subsequently want to withdraw your money, the sites either shut down or decline the request.
b) Phishing Scams
Crypto phishing scams often target information relating to online wallets. Scammers target crypto wallet private keys, which are required to access funds within the wallet. Their method of working is similar to other phishing attempts and related to the fake websites described above. They send an email to lure recipients to a specially created website asking them to enter private key information. Once the hackers have acquired this information, they steal the cryptocurrency in those wallets. Within the context of the cryptocurrency industry, phishing scams target information about 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 hackers have this information, they can steal the cryptocurrency.
c) Pump and dump schemes
Crypto can provide a new variation of the classic pump-and-dump scheme, where owners of a stock try to drive the price up before selling off their holdings at an artificial peak. In the crypto world, this is common at the ICO stage, or even beyond, whenever false claims can hype up demand and permit the originators or dominant holders of the cryptocurrency to earn massive phony profits. This involves a particular coin or token being hyped by fraudsters through an email blast or social media such as Twitter, Facebook, or Telegram. Not wanting to miss out, traders rush to buy the coins, driving up the price. Having succeeded in inflating the price, the scammers then sell their holdings – which causes a crash as the asset's value sharply declines. This can happen within minutes.
d) Fake apps
Another common way scammers trick cryptocurrency investors is through fake apps available for download through Google Play and the Apple App Store. Although these fake apps are quickly found and removed, that doesn't mean the apps aren't impacting many bottom lines. Thousands of people have downloaded fake cryptocurrency apps.
e) Fake celebrity endorsements
Crypto scammers sometimes pose as or claim endorsements from celebrities, businesspeople, or influencers to capture the attention of potential targets. Sometimes, this involves selling phantom cryptocurrencies that don't exist to novice investors. These scams can be sophisticated, involving glossy websites and brochures that appear to show celebrity endorsements from household names such as Elon Musk.
f) Giveaway scams
This is where scammers promise to match or multiply the cryptocurrency sent to them in what is known as a giveaway scam. Clever messaging from what often looks like a valid social media account can create a sense of legitimacy and spark a sense of urgency. This supposed ‘once-in-a-lifetime’ opportunity can lead people to transfer funds quickly in the hope of an instant return.
g) Cloud mining scams
Cloud mining refers to companies that allow you to rent mining hardware they operate in exchange for a fixed fee and a share of the revenue you will supposedly make. In theory, this allows people to mine remotely without buying expensive mining hardware. However, many cloud mining companies are scams or, at best, ineffective – in that you end up losing money or earning less than was implied. Platforms will market to retail buyers and investors to get them to put up-front capital down to secure an ongoing stream of mining power and reward. These platforms do not 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.
h) New Crypto-Based Opportunities: ICOs and NFTs
Crypto-based investments such as initial coin offerings (ICOs) and non-fungible tokens (NFTs) 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. The first offering of a particular cryptocurrency for sale called an Initial Coin Offering or ICO can be a means of preying on the unsophisticated. Many ICOs are completely fabricated, with phony bios of nonexistent team members and technical whitepapers copied from other, legitimate cryptocurrencies. Typically, customers are promised a discount on the new crypto coins in exchange for sending active cryptocurrencies like bitcoin or another popular cryptocurrency. Several ICOs have turned out to be fraudulent, with criminals going to elaborate lengths to deceive investors, such as renting fake offices and creating high-end marketing materials.
i) Blackmail and Extortion Scams
Another popular social engineering method that 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.
j) Rug Pulls
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 that they have contributed.
k) Social Engineering Scams
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.
How to spot cryptocurrency scams
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. So, how to spot a crypto scam? Warning signs to look out for include:
Promises of guaranteed returns: No financial investment can guarantee future returns because investments can go down as well as up. Any crypto offering that promises you will make money is a red flag.
A poor or non-existent whitepaper: Cryptocurrencies go through a development process. Before this process, there is generally a document published for the public to read, called a white paper. It describes the protocols and 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, don’t tell you how they envision the money being used or don’t generally seem like a proper white paper. Every cryptocurrency should have a whitepaper since this is one of the most critical aspects of an initial coin offering. The whitepaper should explain how the cryptocurrency has been designed and how it will work. If the whitepaper doesn’t make sense – or worse, doesn’t exist – then tread carefully.
Excessive marketing: All businesses promote themselves. But one way that crypto fraudsters attract people is by investing in heavy marketing – online advertising, paid influencers, offline promotion, and so on. This is designed to reach as many people as possible in the shortest time possible – to raise money fast. If you feel that the marketing for a crypto offering seems heavy-handed or makes extravagant claims without backing them up, pause and do further research.
Unnamed team members: With most investment businesses, it should be possible to find out who the key people behind it are. Usually, this means easy-to-find biographies of the people who run the investment plus an active presence on social media. If you can’t find out who is running a cryptocurrency, be cautious.
Free money: Whether in cash or cryptocurrency, any investment opportunity promising free money is likely to be fake. 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.
How to protect yourself from cryptocurrency scams
There are several actions you can take to avoid being scammed. If you notice any of the signs, you shouldn’t click on any links, dial a phone number, contact them in any way, or send them money. Many crypto frauds are sophisticated and convincing. Here are some steps you can take to protect yourself:
Protect your wallet: To invest in cryptocurrency, you need a wallet with private keys. If a firm asks you to share your keys to participate in an investment opportunity, it’s highly likely to be a scam. Keep your wallet keys private.
Keep an eye on your wallet app: The first time you transfer money, send only a small amount to confirm the legitimacy of a crypto wallet app. If you’re updating your wallet app and you notice suspicious behavior, terminate the update, and uninstall the app.
Only invest in things you understand: If it’s not clear to you how a particular cryptocurrency works, then it’s best to pause and do further research before you decide whether to invest.
Take your time: Scammers often use high-pressure tactics to get you to invest your money quickly – for example, by promising bonuses or discounts if you participate straightaway. Take your time and carry out your own research before investing any money.
Be wary of social media adverts: Crypto scammers often use social media to promote their fraudulent schemes. They may use unauthorized images of celebrities or high-profile business people to create a sense of legitimacy, or they may promise giveaways or free cash. Maintain a healthy skepticism when you see crypto opportunities promoted on social media and do your due diligence.
Ignore cold calls: If someone contacts you out of the blue to sell you a crypto investment opportunity, it’s probably a scam. Never disclose personal information or transfer money to someone who contacts you in this way.
Only download apps from official platforms: Although fake apps can end up in the Google Play Store or Apple App Store, it is safer to download apps from these platforms than elsewhere.
Do your research: The most popular cryptocurrencies are not scams. But if you haven’t heard of a particular cryptocurrency, research it – see if there is a whitepaper you can read, find out who runs it and how it operates, and look for genuine reviews and testimonials. Look for an up-to-date and credible fake cryptocurrency list to check for scams.
Is it too good to be true: Companies that promise guaranteed returns or to make you rich overnight are likely to be scams. If something seems too good to be true, tread carefully.
Finally, as with any investment opportunity, never invest money you can’t afford to lose. Even if you're not being scammed, cryptocurrency is volatile and speculative, so it's essential to understand the risks.
What to do if you fall victim to a crypto scam
Falling victim to a cryptocurrency scam can be devastating, and it's essential to act quickly if you have made a payment or disclosed personal information.
Contact your bank immediately if you have:
Made a payment using a debit or credit card.
Made a payment via bank transfer.
Shared personal details about yourself.
Crypto fraudsters often sell the details they have captured to other criminals. So, it’s essential to change your usernames and passwords across the board, to prevent further damage. If you are the victim of a social media crypto scam, you can report it to the relevant social media platform. Depending on where you live, you can report fraud to the relevant body in your jurisdiction – for example, in the US, that would be the Federal Trade Commission. Other countries have their equivalents.
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:
FTC fraud report
Commodity Futures Trading Commission complaints and tips
U.S. Securities and Exchange Commission fraud reporting
FBI Internet Crime Complaint Center complaint
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.