Although cryptocurrency is a popular investment, scams are more common than any other method of payment. According to the Federal Trade Commission, more than $1 billion was reported as stolen from crypto scams between January 2021 – June 2022.
Investment fraud can be in many forms including phishing scams and rug pullings. Bad actors are able to easily profit from hopeful investors because crypto’s blockchain technology doesn’t have a central regulator like a bank.
Also, crypto transactions are pseudonymous (users communicate through coded addresses and not legal names) so it is unlikely that you will be able recover money stolen to a scammer. These are the top crypto scams and how to avoid them. Also, what to do if you have been scammed.
Why are scams so common in crypto?
Scammers find Cryptocurrency particularly attractive because of three reasons: a lack in central authority, irreversible transactions, and almost anonymity.
Decentralized: Crypto assets and applications are part a decentralized financial system (DeFi), which is intended to be used in a way that’s independent of any government or bank. There’s no central authority that can stop transactions or flag suspicious activity.
Reversible: Due to the way the blockchain works the funds can’t be retrieved once they’ve been sent.
Pseudonymous Crypto users interact with wallet addresses, and not legal names. It’s hard to track down specific users, particularly if they want to keep their identities private.
Although crypto is more susceptible to scams than other assets,” Sol Nasisi, creator of GiftaBit, says that scams have been taking place since before cryptocurrency was invented.
Nasisi states that crypto has both high-risk and high-reward potential. “And as with all new technologies, there will always be bad actors span>
What are the various types of cryptocurrency scams that exist?
There are many scams in the crypto space. These are the most popular:
Scams involving new crypto projects are when developers promise big returns but then pocket the funds or abandon projects before investors can make a profit.
Scams of initial coin offerings (or ICOs), Also known as “pump-and-dump” schemes, occur when developers promise that their new cryptocurrency or crypto platform will produce huge returns. Investors’ funds are then lost and the tokens are sold off.
Rug pulls are a method of attracting investors to a cryptocurrency project. Usually in DeFi, they draw out investors before the project is completed, leaving them with no currency. Sometimes, these scams include a Ponzi scheme where investors make false financial promises to other users and recruit them.
This category also includes celebrity endorsements. Developers pay actors and internet personalities to promote their platform or coin, and then they pull the rug out. These scams can also be called phishing scams, where scammers make up images, videos and websites to claim public figures endorse their schemes.
Phishing scams don’t seem new. However, it is harder to track and reverse transactions with crypto. These may appear to be job offers or requests for assistance. They are usually sent via email, phone, or social media.
Requests and offers may link to a professional-looking website, or offer an “unmissable” opportunity for investment. Scammers might ask for a crypto transfer, and then stop communicating with you once payment has been received. Others may request that you share your private keys to your crypto wallet in order to gain access to your account and empty it.
Scammers might also try to make fake crypto exchanges and online wallets using similar domain names in order to get investors to log into with their credentials.
How to avoid cryptocurrency scams?
Although cryptocurrency scams can be sophisticated and involve sophisticated tactics, it is possible to stop them from reaching you. Common-sense security measures and well-proven security protections can make a big difference. These are some helpful tips:
To protect your wallet, you need some type of storage such as a wallet to keep your crypto safe. It’s almost certain that a company asking you to share your private keys in order to participate in an investment opportunity is a scam. Additional protection can be provided by using security backup methods such as a seed phrase. This is a set code words that unlock your wallet, similar to a master password.
Avoid cold calls. If someone contacts you about a cryptocurrency investment opportunity out of the blue, it is likely to be a scam. Don’t give out your personal information, or transfer money to anyone you don’t know.
Ask yourself if this sounds too good to true. Many scams involving cryptocurrency promise high returns on your initial investment. It is possible to fall for any company promising quick investment opportunities.
Crypto is high-risk and cannot guarantee high returns.
Be patient: A company that tries to get you to invest quickly is likely to scam you. Scammers may offer discounts or bonuses to convince you to invest immediately. Before you invest any money, take your time.
Avoid the hype on social media: Scammers use social media to promote fraudulent cryptocurrency investments. Others use pictures of celebrities, often without their consent, to promote their companies and make it seem legit.
Read the whitepaper: Developers publish white papers, which explain the technology and the purpose of the project or coin. These white papers are usually available online and easy to find.
“If the backers aren’t well-informed or the project isn’t solving any specific need, then it’s probably not a good idea for you to invest,” Nasisi states.
What should you do if your has been scammed
It can be very devastating to fall for a scam using cryptocurrency. However, it is important to take action quickly if you have made any payments or given your personal information. If you are a victim to a cryptocurrency scam, it is important that you contact your bank immediately.
Paid using a credit or debit card.
Submitted a bank transfer payment.
Personal information shared.
Scammers frequently retarget victims of crypto-scams and sell their information. If you suspect you have been victim to a scam, make sure you change your passwords and security details, especially online banking.
Report any cryptocurrency scams you see online or have fallen for them. It helps authorities investigate and stop other criminals from targeting others.
Some scams are not subject to U.S. law, so it may be difficult for law enforcement to enforce the consequences. However, it is still useful to report them. Report a cryptocurrency scam to: