Crypto Scams

Crypto scams (Cryptocurrency Scams) are a type of investment fraud that aims to get access to private information, for example, security codes, or trick unsuspecting individuals into transferring cryptocurrencies like Ethereum or Bitcoin to a compromised e-wallet. One must avoid such scams to safeguard their digital assets.

These scams are particularly appealing to criminals who enjoy digital assets' quick transfer into fiat currency, rich obfuscation techniques, and third-party transaction apps that are ready for use. There are different types of crypto scams. Some of them are phishing, pump-and-dump schemes, fake celebrity endorsements, giveaways, and cloud mining scams.

• Crypto scams refer to frauds that involve criminals conning unsuspecting investors into disclosing their private keys or transferring cryptocurrencies to a wallet.
• There are multiple crypto scams to avoid. Some of them are cloud mining, fake celebrity endorsement, pump-and-dump scheme, phishing, and ICO scams.
• Individuals should avoid cold calls, be wary of suspicious cryptocurrency advertisements on social media, and assess the legitimacy of the crypto wallet app to avoid digital asset scams.
• Some common signs of a cryptocurrency scam are poor whitepapers, lack of information regarding team members, and excessive marketing.

Crypto scams refer to frauds that primarily focus on convincing unsuspecting users to transfer funds, obtaining login credentials, or attracting investors by posing as startups. The main goal of such scams is to manipulate the victims into transferring digital assets to the account of the perpetrator or divulging crucial information. Therefore, at all costs, one must avoid these scams to protect their non-fungible tokens or NFTs and crypto tokens or coins.

Such scams are like other financial scams. However, the only difference is that crypto scammers are after individuals' crypto assets instead of cash. Since a central authority, for example, a central bank, does not regulate cryptocurrencies' blockchain technology, scammers can easily trick hopeful investors. A few signs of these scams are excessive marketing, claims that one can earn significant returns quickly, and poor white papers.

One must note that cryptocurrency transactions are pseudonymous, which means users interact via coded addresses instead of legal names. Moreover, they are irreversible. Hence, Hence, it is highly unlikely for individuals to be able to recover funds lost to scammers.

Some common types of crypto scams are as follows: 

#1 - Pump And Dump Scheme

In this case, fraudsters hype a specific token or coin via social media (Facebook, Twitter, etc.) or email campaigns. Traders who do not wish to miss out on the opportunity rush to purchase the digital asset, thus increasing the price. Once scammers inflate the cryptocurrency's price successfully, they sell their holdings. As a result, the digital asset's price plunges, and the hopeful investors incur substantial losses. One must note that this process may happen within minutes.

#2 - Phishing Scams

This type of scam is an old favorite of scammers. Phishing involves fraudsters aiming to access an individual's account credentials, including the crypto keys. The scammers often lure persons into clicking on a link redirecting them to a fake website. On this website, the criminals steal the crucial details of the victim. The fraudsters can pose as popular companies, for example, Netflix, Amazon, or even a government agency, and post links on Facebook, Twitter, and other social media platforms. They may even contact unsuspecting individuals directly.

The links take the individuals to the perpetrator's website, which harvests their account-related information. This allows criminals to log into their accounts and steal their assets.

#3 - Initial Coin Offering Scams

An ICO or initial coin offering is a way in which startups raise funds from their future users. Generally, the startup promises investors a discount on its new crypto tokens in return for sending active digital coins like Bitcoin or Ethereum. Unfortunately, various ICOs have tricked investors. Criminals have even used expensive marketing materials and rented fake offices to deceive people.

#4 - Fake Celebrity Endorsement

This is another type of cryptocurrency scam to avoid for investors. In this case, fraudsters claim endorsements from businesspersons, influencers, or celebrities to entice potential targets. The scammers may even pose as a celebrity to get the attention of investors. Such scams are generally sophisticated; they may involve glossy brochures and websites that show endorsements from popular figures like Elon Musk, Warren Buffet, etc.

#5 - Cloud Mining Scams

Certain cryptocurrencies are created via mining, which involves people solving complicated mathematical problems utilizing their computers. One requires expensive hardware for the mining process. Moreover, mining a single token or coin involves using a lot of electricity. That said, the latest technology enables individuals to mine digital assets without using expensive computers and spending much on electricity. Scammers are trying to capitalize on this opportunity. They are developing cloud mining software applications and platforms, aiming to steal digital assets from miners.

Let us look at a few crypto coin examples to understand the concept better.

Example #1

Suppose David is an individual who wants to start investing in crypto assets. He sees an advertisement on social media that ABC coin has surged 700% in the past seven days. Not realizing it is a pump-and-dump scheme, David sees an opportunity to earn significant returns in a short duration. So, he invests $1,000. Within 3 hours, the cryptocurrency's price dropped by 800%. As a result of the crypto scam, David lost all his savings.

Example #2

On April 30, 2023, CertiK, a crypto auditing and security firm, posted a roundup of all the crypto exploits, scams, and hacks during the month. The firm disclosed that the total funds lost in April were $130.7 million. This brought the total year-to-date (YTD) loss to $429.7 million. This month was specifically marred with significant cryptocurrency exploits. For example, $25.4 million was lost owing to the exploit of various MEV or Maximal Extractable Value trading bots on 3^rd April, and the hack of the GDAC exchange led to a loss of approximately $13 million.

Let us look at tell-tale signs of cryptocurrency scams.

• Guaranteed Returns: One must remember that investments in cryptocurrency cannot offer guaranteed returns owing to market volatility. Any cryptocurrency that claims to provide guaranteed returns is a red flag.
• Unnamed Team Members: Individuals must research the project's team members before investing in a cryptocurrency. One must be cautious if they are unaware of who runs the cryptocurrency.
• Excessive Marketing: One way for scammers to entice individuals into allocating funds to a digital asset is by spending a significant amount on marketing — paid influencers, online advertising, offline promotion, etc. They do this to raise funds from as many people as possible in a short duration. If individuals feel that the marketing campaign of a cryptocurrency is making extravagant claims, they must conduct further research before parting with their savings.
• A Poor Whitepaper: All cryptocurrencies must have a whitepaper, which is an important aspect of an ICO. The whitepaper must explain how the digital asset will work and how it is developed. One must be cautious if the report does not make sense or exists.

Individuals can take these measures to avoid cryptocurrency scams:

• Ignore Cold Calls: One must ignore individuals calling out of the blue to sell crypto investment opportunities. Also, they must not disclose personal information or transfer funds to such persons.
• Download Applications From Official Platforms: Individuals must download all mobile-based cryptocurrency-related applications from the Apple App Store or Google Play Store to minimize the chances of downloading fake apps.
• Safeguard The Crypto Wallet: Individuals investing in digital assets must store their holdings in a crypto wallet with private keys. If a person asks to share the keys for participating in an investment opportunity in the crypto space, it is highly likely to be a scam.
• Check The Wallet App: One must send a small amount to check if the wallet app is legitimate when transferring funds for the first time. If persons notice anything suspicious while updating the app, they must cancel the update and uninstall the app.

Some other things one must remember to avoid scams related to cryptocurrency are as follows:

• Maintaining healthy skepticism regarding adverts concerning crypto investment opportunities on social media platforms is crucial.
• Check a credible and up-to-date list of fake cryptocurrencies to spot scams.

This article has been a guide to what are Crypto Scams. Here, we explain cryptocurrency scams in detail, including how to spot and avoid it, types, & examples. You may also find some useful articles here -

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