Cryptocurrency is a relatively new type of asset that has quickly become highly valuable. Cryptocurrencies are non-fungible and they exist only on the internet. The transactions are usually decentralized and you cannot completely track the whereabouts of the tokens, making cryptocurrency one of the most targeted assets of online thefts.
If your portfolio has cryptocurrencies, you need to recognize scams and avoid them to ensure security. Here, we discuss some common cryptocurrency scams and how to avoid them. Once the scammers do manage to steal your possession, it is next to impossible to recover. So, if you believe prevention is better than cure, read on.
Common Types of Crypto Scams
Table Of Contents
As with any other online thefts, cryptocurrency thefts can be categorized into different types according to the mode of operation. The first step in spotting such scams is being aware of them. Here is a list of common types of scams and what they are:
1. Ponzi schemes
Ponzi schemes are one of the most effective and oldest tactics scammers use for looting your possessions. Here, the perpetrators promise high returns and guarantees to unsuspecting users to make them pay.
They pay early investors by taking the investments of the users who joined later, giving them the illusion that the platform is legit. However, the creators of these schemes often flee away with the investor’s money once new joinings slow down, leaving participants with significant losses.
2. Social Engineered Scams
Here, the scam artists deceive their victims and make them reveal their sensitive information such as passwords, seed phrases, and OTP. Here, scammers would disguise themselves as trusted entities such as government officials, investigation agencies, tax collecting agencies, customer support executives, or friends or colleagues.
In socially engineered scams, the scammers usually do a bit of study about yourself using your social media and other public records. They will spend as much time as it might take to gain your trust. Once, they are a hundred per cent sure that they have your trust, the scammers will ask you to send cryptocurrency or information that will give them access to your wallet. So, remember that just because a person knows your childhood best friend’s name, they might not be the person you know.
3. Romance Scams
As you might have already guessed from the title, a romance scam is a method where scammers make unsuspecting individuals believe that they are in a romantic relationship. Scammers create fake accounts on social media and dating websites and wait for someone to fall for their scam.
They initiate conversations like how a real person would. May send you pictures and some may even take your calls. However, once the relationship becomes strong, the scammer may tell you about their financial crisis, making you offer help. Once they receive your hard-earned money, you might not hear back from them again.
4. Phishing
Scammers send emails or messages to users purporting to be from reputable companies with a link to a website they have created. The website will look like the website of the company they are purporting. It will prompt you to enter the details such as private keys, which will give them access to your cryptocurrency.
Here, to prompt you to click on the link, scammers will offer unrealistic rewards such as “Bitcoin giveaway”. They will make it as realistic as possible.
5. Impersonation
Scammers pretend to be influencers by creating social media handles that look like those of the actual celebrity. These scammers then text you and ask for favours from you. They come up with elaborate stories asking for crypto transfer from you. You can see these kinds of scams every day on the internet.
Some of the influencers have addressed this issue many times and have advised their viewers to stay alert and look for the verification tick mark. Regardless, scammers are still looting cryptocurrency from unsuspecting individuals.
6. Blackmailing
If you are not careful enough with your online activities you might fall prey to blackmailing and it may cost you a fortune. Here, the scammers will find something about you that needs to be kept private such as private photos, records of adult websites, scandalous messages, etc. They threaten the victims to get them to reveal their private keys or to pay them with cryptocurrency.
7. Fake Crypto Projects
Investing early in crypto projects through ICOs (initial coin offerings) or presale can be a potentially lucrative deal. However, the projects don’t always flourish. There have been instances where scammers put up fake websites for new projects to prompt you to make payments to compromised wallets.
There also have been examples when the actual project itself turned out to be fake. The creators drive up their products through false advertisements and investors jump in without doing enough background research for fear of missing out.
8. Fake Cloud Mining Sites
Mining is the process of earning rewards for appending a new block to a blockchain. It requires a lot of computational power or hash rate to complete the process. Here is where cloud mining facilities come in. The cloud mining facilities offer you the hash rate you need in exchange for a fee.
However, some of the cloud mining websites on the internet are pure scams that just take your initial payment without providing you anything in return. So, make sure that you are using a legitimate website by doing enough research about it.
9. Pump and Dump
It is not too complicated to create a cryptocurrency/blockchain project like it used to be. The perpetrator creates a crypto project and raises its capital to create fake hype on social media. Seeing a potentially lucrative opportunity, investors buy the tokens. Once the demand increases, the creators pull the kill switch by selling all of their shares, plummeting the value.
10. Crypto Exchange Scams
Fake cryptocurrency exchanges are one of the popular crypto scams that lure in investors by promising low or no fees, exclusive deals, giveaways, etc. You’d only know you were getting played, once you create an account and make your deposit.
You will not be able to trade on the platform or withdraw your deposit. That is not to say that all crypto exchanges are scams, but you need to choose one that has proven its credibility.
Also Read: Best Practices For Securing Your Crypto Assets
How to Spot Crypto Scams?
By exercising some reasoning and research skills you can easily spot crypto scams. Here are some of the things you can do:
Find the white paper
A legitimate blockchain/cryptocurrency project publishes its white paper, which is documentation for the public to read. The white paper will explain everything related to the project including the design and working of the blockchain, its security features, what problem is it undressing, the tokenomics, and more.
So, before investing in a project, find its whitepaper and read through it to make sure the whitepaper is well thought out and without jarring loopholes.
Research About Team Members
Only a handful of open-source cryptocurrency projects will leave the real identity of the members. However, you can typically find the developers on forums such as GitHub, Discord, or Slack. They will discuss the project with the community and will answer their concerns.
If the developers are nowhere to be found and the whitepaper is not up to the market, then more than likely you are dealing with a scam.
Scrutinize Marketing Techniques
While scammers would try to lure in as many investors as they can by using all the means of marketing, a legitimate project usually spends their energy on creating a solution to an existing problem. If the project is marketed as the next big thing in cryptocurrency or as an opportunity you just cannot miss out on, it is better not to take a chance with such a project.
Instead, look for projects that have humble beginnings and aim to contribute to society with their product. These are some of the common things you should do, before investing in a cryptocurrency project to spot scams. Always remember that if someone is offering unreal rewards, it probably wouldn’t be real.
How to Avoid Crypto Scams?
We have already seen some popular scams and how you can spot them. To further protect your cryptocurrency from scams and thefts, you may exercise the below actions:
- No matter who is asking, never share your passwords, private keys, and OTPs with anyone.
- Avoid services that offer unreal returns.
- Know that no celebrity will message you to ask for help.
- If you are in a romantic relationship online, meet them in person and never give them your private keys. It is also good to not reveal about your crypto possessions.
- Check the URL and verify that you are on the official website before entering your username and password.
- Never click on suspicious links that come to your messages or email.
- If you encounter blackmail, report it and initiate criminal proceedings.
- Never fall for “free money” scams.
Explore More: Pros And Cons Of Hardware Vs Software Wallets
Conclusion
Protecting your cryptocurrency and other assets from scams and online threats is more crucial than ever. In this article, we have seen some of the most common scams, techniques to spot them, and preventive measures you can take to avoid them. With proper preventive measures, you can protect yourself from scams.
