Since ancient times, scams have been around, first appearing in the form of counterfeit coins made out of base metals but closely resembling bronze or silver coins. Since then, their scope has touched every area and facet our civilization has touched upon. We’ve seen new technological innovations reach breathtaking heights that took us several decades to achieve in recent years. These technological revolutions have not gone unaffected by scammers and frauds.
What is a Crypto Scam?
A cryptocurrency scam is a fraudulent attempt to solicit investments or valuables by claiming association with a cryptocurrency project. Cryptocurrency scams often employ social engineering techniques to trick prospective victims into sending money or sharing personal information.
This article aims to cover some common Crypto Scams and frauds that victims can encounter in the crypto community. The majority of those scams are the same you can encounter when you invest in any other asset type. Those companies usually promise guaranteed high returns with little to no effort required. We’ve gathered ten scams investors should be aware of when investing in cryptocurrencies.
The Ponzi Scheme Crypto Scam
Ponzi schemes are one of the oldest and most common scams in the financial world. Named after Charles Ponzi , who orchestrated a scam in 1919 by taking advantage of the arbitrage opportunities in the new international reply coupon market, it is characterized by offering investors high returns with little risk.
The way it works is simple: investors hand over their money to a central source, which usually pays out dividends from its cash flow or the principal investments of new investors. In this case, instead of “cash flow,” there’s a blockchain-based system that rewards investors, either with tokens or another cryptocurrency.
This scam has been used to great effect in the crypto world. Onecoin was perhaps one of the most famous examples – a $ 4 billion scam that targeted investors with no experience in cryptocurrency and promised them huge returns for investing early. The company even opened up offices around the globe and held seminars to promote its services. It became apparent that Onecoin was a Ponzi scheme – and by then, it was too late for many investors.
The Scam Crypto ICO
An ICO that is created specifically to steal money from investors.
This scam is particularly common on Telegram and Twitter, where users are frequently messaged by “developers” who offer them a chance to buy into the next big ICO before the public.
The scammer claims that the ICO is so popular that there is a cap on the number of people who can buy-in in and encourages the user to send him a large amount of cryptocurrency as soon as possible.
In reality, there is no ICO. The scammer pockets the funds and leaves the victim waiting for an email that will never come.
A few years ago, a scam ICO was launched to raise money for a project called PlexCoin . The founders promised investors a 13-fold profit in less than a month, and the project raised $ 15 million.
The SEC eventually shut down the program, but not before investors lost millions of dollars.
Fake Cryptocurrency Exchange
A fake cryptocurrency exchange is a website or app that pretends to be a legitimate exchange by copying an existing exchange’s design and digital assets. These fake exchanges will often advertise themselves as an easy way for newcomers to purchase crypto assets at a discount by using credit cards or PayPal.
The exchange will appear legitimate and will likely show up on Google search results and other referral sites. However, once funds are sent through the exchange, they never reach their intended recipient and instead go straight into the pockets of scammers.
Crypto Mining scams
Mining scams can be differentiated into cloud mining, mining hardware, and mining investment.
Cloud mining scams involve a person offering shares in a cloud mining operation that doesn’t exist, usually promising a guaranteed return. In reality, the scammer simply keeps any money invested. There are many ways to identify such scams:
- If there is no physical address for the company or location for the data center.
- If there are no pictures of the data center on the website (stock images count).
- If you can find information from credible sources that say otherwise.
Mining hardware scams involve selling machines that don’t exist or never ship or accept pre-orders and never delivering. This is not necessarily a scam if a company is publicly traded, but it is still a risk.
Mining investment scams encourage investors to send coins to an address in exchange for shares in crypto mining operations. Rather than buying hardware and paying for power, investors are told that they will receive shares in return for sending coins to an address. The investor then receives nothing in return while the scammer pockets their funds.
Pump and Dump Crypto Schemes
Pump and dump scams are common in the crypto market because of the lack of regulation. Pump and dump is a market manipulation where an investor or group of investors artificially inflate the price of a security by buying large amounts of it, leading others to think it is an attractive investment.
The sudden increase in price catches the interest of unsuspecting investors, who begin buying, which pushes up the price even more. After some time, the “pumpers” sell off their holdings at a profit, causing a sharp price decline. Those who bought into the hype late lose out.
Celebrity Endorsement Crypto Scams
The celebrity endorsement scam is a common way for crypto-related scams to draw in new users. Celebrities ranging from Floyd Mayweather to Martin Lewis have had their likenesses used by scammers to lure unsuspecting victims into the crypto space.
The scammers often tweet about a new ICO, pump their product, and falsely claim that celebrities are involved with the project. Users then get fooled into investing in a bogus token sale, which leaves them empty-handed.
One notorious case of this scam was when Vitalik Buterin, co-founder of Ethereum, was impersonated on YouTube by a user named “Vitalik Buterin Live,” who ran a live-streamed interview with himself to promote an ICO called MCAP.
In addition to duping people into investing in MCAP, the impersonator also offered $ 1 million in ether to anyone who sent him 2 ETH. The scammer made $ 15,000 from the scheme before being caught and banned from YouTube.
Social Media Scam
Social media is a massive tool that scammers and hackers can use to target people.
Social media is an easy way to connect with friends, but it’s also a key tool for scammers and hackers. They can create fake profiles, posing as real people, and try to get you to invest in something that doesn’t exist by sending you a direct message or posting it on their account.
If you see someone you don’t know offering an investment opportunity on social media, do your research before responding. In most cases, the person isn’t who they say they are.
Many scams happen online, so you need to make sure what you’re seeing is legitimate. Check the person’s profile and make sure the photos match their story. You want to make sure they aren’t using stolen photos or photos that could be photoshopped. If something seems too good to be true, it probably is.
Phone Number Crypto Scam
Everyone has a phone number these days, and scammers are no different. They are buying phone numbers and then turning around and selling them to other scammers. Scammers will text or call you pretending to be a real person or an official from a business, like your bank or a crypto exchange.
They can even use caller ID spoofing, making it seem like the call is coming from someone you know or an official company. They do this to get your personal information, such as your Social Security number, bank account information, or credit card numbers. Scammers may also try to get you to give them access to your computer so they can install malware on it.
Crypto-Theft Malware
Another popular scam is attempting to steal cryptocurrency private keys, usually through phishing websites. Once scammers get their hands on an individual’s private keys, they can drain his or her di lei entire wallet.
Be extremely wary of entering your private keys into any device other than a trusted hardware wallet.
Never allow another device to remotely control your crypto wallets. The only time you should enter your private keys into a device is when you move funds from a cold storage wallet to an exchange or hot wallet.
How to report a crypto scam
If you feel like you’ve been a victim of a cryptocurrency scam, there are things you can do.
First, contact the authorities. If the scam was on an exchange, you should contact the exchange’s support staff and explain what happened. Since exchanges have lots of experience in dealing with most kinds of fraud, they will be able to help you through the process of getting your account frozen and reporting it. If you’re not sure who else to reach out to, research other cases like yours and see who customers contacted to help solve the problem.
If the scam occurred elsewhere on Reddit or another website, look for their guide on reporting scams or fraudulent activity. Reddit has a whole section dedicated to reporting crypto scams on its site.
You don’t always need to contact the police at this stage if it’s not necessary yet – but if you decide to pursue legal action against the person or company involved in your case, you’ll need a report from law enforcement before most courts take your case seriously.
How to protect yourself from crypto scams?
How to protect yourself from falling for one of these schemes? Here are a few tips:
- Do your research. Don’t believe every random tweet you read about an upcoming coin offering or new development in the cryptocurrency world. Most scam sites will have some kind of typo or grammatical error that gives them away, and a quick Google search will usually uncover the truth behind the hype.
- Be skeptical of celebrity endorsements. If you see Elon Musk (or anyone else famous) endorsing a cryptocurrency on Twitter, it’s almost certainly a scam. You can verify this by looking up their username on Twitter or reporting the post to Twitter Support and asking if the account is verified.
- T rust your gut. If something sounds too good to be true, it probably is. Scammers prey on the fact that people want to get rich quickly, so don’t let greed cloud your judgment.
- Be wary of online ads. Scammers have taken to Google and Facebook (and even the Blockchain Expo) to advertise their fraudulent offerings. If you see an ad online promoting a crypto-related business or opportunity, be sure to research them before engaging with them. In particular, be suspicious if they’re asking you to send money upfront or if they’re not willing to provide detailed information about their project.
If a claim is too good to be true, – steer clear!
Conclusion
Crypto markets are still a new frontier. While signs point to them being more mainstream than ever, there are a lot of questionable activities going on. Even if you don’t plan to invest in crypto yourself, you should know what to watch out for when others around you make the plunge. Be careful not to fall victim to the crypto scams described above, and avoid the many dangers lurking online. You can help fight against this kind of behavior by spreading awareness amongst your friends and family – especially those who may be newer to crypto. Help keep everyone honest by putting everyone on notice.