10 Most Common Crypto Scams & How to Avoid Them

Wherever money is involved, scams are inevitable. The earliest recorded fraud attempt can be traced back to 300 BC in Greece. Since then, scams have proliferated to a greater extent. Cryptocurrency, being an investment product, is not devoid of fraud. In Q1 2022 alone, the Federal Trade Commission (FTC) reported a whopping 329 million USD as losses due to crypto scams.

The crypto ecosystem is attractive to many as it avoids displaying personal data like participants’ names, locations, etc. Moreover, the industry grew exponentially in a relatively short period due to the absence of clear market regulations.

This anonymity and freedom gave birth to scammers flocking to the crypto space and taking advantage of uninformed victims. In this post, let’s explore various crypto scams and how to spot and avoid them.

10 Most Common Cryptocurrency Scams/Bitcoin Scams?

1. Investment or business opportunity scams

In the crypto market, countless profit-seeking individuals turn to bogus websites offering so-called guaranteed returns for which investors must invest a large amount of money.

These scams include Bitcoin investment schemes, Initial Coin Offering (ICO), new NFT sales, etc. These websites might even have testimonials or celebrity endorsements that are fake.

If we take Bitcoin investment programs, scammers reach out to investors positioning themselves as seasoned “Investment experts.” As part of the scheme, these so-called experts promise their investors that they will make money with investments. To get started, scammers request an upfront fee and sensitive information like crypto wallet keys from the victims.

In the end, victims lose their hard-earned money and data to these experts. 

2. Rug pulls

Rug pull is a prevailing type of scam where developers abandon their project and disappear with the investor’s money. It is common in the decentralized finance (DeFi) ecosystem.

Malicious individuals can create and list tokens on a decentralized exchange (DEX). Then they usually pair it with well-known cryptocurrencies like Bitcoin (BTC) or Ethereum (ETH). Unlike centralized platforms, there are no audit mechanisms in DEXs, and the users can list the token for free in these exchanges.

Moreover, the developers might even create hype around the project on Twitter, Telegram, Discord, and other social media platforms. Some might go to the extent of injecting an initial amount of funds into their liquidity pool to improve investor confidence.

Once a substantial amount of uninformed investors swap their BTC or ETH for the listed token, the creators withdraw and run away with the funds, lowering the token’s price to zero. Usually, the FOMO of the investors fuels a rug pull project, driving the token price from 0 up to 50X within 24 hours.

Many of you might have seen the popular Netflix series Squid Game. How many of you are aware of Squid coin? Squid coin was a popular rug pull scam that made investors lose 3 million USD. At its peak, the price went from 1 cent to about $90 per token.

Apart from DeFi, rug pulls are also prevalent within the NFT space.

3. Romance scams

Crypto scammers and hackers are finding innovative ways to wipe out victims’ wealth. One of the ways is through the usage of dating apps. Scammers use dating apps to trap the public through false affection. After developing a relationship, one party convinces the other to give money in some form of cryptocurrency. After receiving the money or asset, the fraudsters eventually disappear. These cons are called romance scams or sometimes even referred to as pig butchering scams.

The wealth lost through these frauds can go up to a million USD. As of 2021, victims of romance scams have lost around USD 139 million, which is a five-time increase from 2020. Also, records show that people between the age of 18 to 29 fall into this trap as they exhibit high usage of dating apps.

4. Phishing scams

Phishing is a type of social engineering where a scammer sends a fraudulent message to trick people into revealing sensitive information. Its been around for some time and are among the most common attacks on users. In 2021 alone, the FBI has reported more than 323,000 people falling prey to phishing scams, accounting for 38.2% of all recorded cybercrimes.

In the context of cryptocurrency, phishing scams focus on information about crypto wallets, specifically private keys. The private key is necessary to access the digital wallets. Hence, scammers send emails containing malicious links leading to a fake website and ask the users to share their private keys. After receiving this information, the scammer can rob the user.

5. Crypto giveaway scams

Hackers target high-profile accounts on social media platforms like Twitter, Facebook, or YouTube. They lure the victims into sending cryptos to a specific payment address in return for more cryptos. Some scammers even promise twice as much in return.

Twitter, especially has been exposed to high-profile hacks in recent months. Giveaway scams have featured multiple personalities like Elon Musk, Tyler Winklevoss, etc. The scammers use these profiles to respond to tweets and promote a website that falsely claims it offers BTC and ETH for free. However, before claiming the “free giveaway,” users are told to send funds to a specific payment address for verification purposes. The scammers promise that they’ll receive twice as much back.

After losing money, hopefully, victims would have understood that folks like Elon Musk never offer free crypto. And even if he does, he wouldn’t expect someone to send some crypto to him first.

6. Ponzi schemes

A Ponzi scheme is a type of fraud that promises profits to its investors. However, it pays the older investors with the proceeds from new investors, and the cycle continues. Everyone mistakenly ends up believing the returns are generated through legitimate business activities.

With the advent of cryptocurrency, scammers attract victims to buy scam coins by paying Bitcoin. Bitconnect is a well-known Ponzi scheme that introduced a high-yield investment program. It asked the users to trade Bitcoin for Bitconnect coins to earn 1% daily compounded interest.

7. Fake cryptocurrency exchanges

Investors might come across a new cryptocurrency exchange which promises additional rewards like Bitcoin. Hence, they proceed using the platform. However, in reality, there is no exchange. The investors lose their deposits to the scammers.

Apart from crypto exchanges, crypto-oriented fake mobile applications are developed to loot money from the uninformed. In 2021, over 300,000 downloads were recorded that stole banking credentials from the users.

As a best practice, when encountering these platforms, check their sites to validate their reputation and legitimacy before entering personal information.

P.S. Don’t fall for any fake crypto platforms; download Mudrex now!

8. Cloud mining scams

Crypto enthusiasts consider crypto mining to be a lucrative opportunity. Hence, new types of scams revolving around the mining business are increasing. 

Some malicious platforms target retail investors and promise to provide an ongoing stream of mining power and rewards to the investors for an upfront cost. But these platforms don’t own any hash rate and will not send any rewards after receiving the payment.

9. Man-in-the-middle attack

A Man-in-the-Middle (MITM) attack is a cyberattack where a perpetrator secretly intrudes on a conversation between two parties to eavesdrop or capture information sent.

In the cryptocurrency context, when users utilize a public wi-fi network to log in to a crypto account, scammers can steal sensitive information like passwords, crypto wallet keys, account details, etc.

10. Fraudulent employment offers

Jobseekers are no exceptions to crypto scammers. 

Fraudsters impersonate recruiters to get access to cryptocurrency accounts. They offer a lucrative job opportunity, but it would require cryptocurrency as payment for job training.

How Do These Crypto Scams Work?

Crypto scammers generally resort to social engineering techniques to successfully conduct these activities.

They use psychology, manipulation, and deceit to gain control over the user accounts. These scams make people think they are dealing with a trusted entity such as a government agency, celebrity, investment expert, well-known business, or tech support. FOMO also plays a vital role in orchestrating these scams.

Scammers even take as much time as they require to gain the trust of potential victims and grab the opportunity to loot them when the time comes.

Who Is Most Likely to Be Scammed?

As per CNBC, crypto scams rose by 516% from 2020 to 2021. Scammers managed to steal cryptocurrency worth nearly 8 billion USD in 2021 alone.

The younger generations quickly embraced cryptocurrency more than others. Thus, unsurprisingly, they are highly susceptible to crypto-related frauds and scams. People in the 20 to 49 age group are five times more likely to lose money to cryptocurrency scams than older groups.

Observations show that scamming investors is likely possible while impersonating Elon Musk — a prominent figure in the crypto space. Victims have sent more than 2 million USD to Musk impersonators.

How Can You Spot and Avoid Being Scammed?

Cryptocurrency scams are, in fact, straightforward to spot. Legitimate projects have readily available disclosures and detailed information.

Below are the essential steps to be pursued to identify the red flags.

1. Read the whitepaper

New cryptocurrency projects emerge every single day. The project owners publish a document for the public called a whitepaper. This document ideally consists of content describing the working mechanism, formula (if any), protocols, tokenomics, etc. 

Fake projects also publish whitepapers, but they are usually poorly written. You can refer to the whitepapers of well-established projects like Bitcoin and Ethereum to understand the best practice.

2. Check the team profile

Apart from reviewing the whitepaper, it is equally important to examine the credentials of the project owners.

LinkedIn, Twitter, and Discord are some of the platforms to check whether the founders are legitimate or not.

3. Request for payment in cryptocurrency

Crypto scammers request victims to pay in cryptocurrency. 

Kindly note that crypto is yet to be widely accepted by businesses, so crypto payments must be made cautiously. Jobseekers, especially, don’t have to pay any money or crypto to take the job from an employer.

4. Get-rich-quick scheme

Irrespective of any asset class, investors have to be careful about get-rich-quick schemes.

Especially within the crypto industry, whenever any opportunity comes to you with guaranteed massive returns, it’s best to avoid them.

5. Offers from crypto exchanges

Many new crypto exchanges pop up from time to time, providing exciting offers to investors. Before depositing the money, it’s critical to vet those exchanges. Look for any previous scams or allegations and examine their policies about ICO rules, liquidity, etc. Also, it’s worth checking if the platform uses blockchain to secure your transactions.

Below are some brief guidelines to keep in mind to avoid being scammed.

• Those who have the key can access the wallet. Therefore, always ignore requests to give out your crypto wallet’s private keys.
• Ignore get-rich-quick schemes.
• Ignore platforms that promise free money or crypto.
• Do not transfer money or crypto to someone you have only met through a dating app.
• Ignore celebrity endorsements, especially those related to crypto projects.
• Jobseekers don’t have to pay money or crypto to get a job.

How and Where to Report Crypto Scams?

Unfortunately, there is no official body to complain against crypto scams in India. But one can report to the respective crypto exchanges they are using or the local Cyber-Crime Investigation Cell.

Below are the US-based institutions that can help you if you’re a victim of a crypto scam or have spotted one.

• Federal Trade Commission (FTC)
• Securities and Exchange Commission (SEC)
• FBI Internet Crime Complaint Center (IC3)
• Commodity Futures Trading Commission (CFTC)
• The respective cryptocurrency exchange

Conclusion

You would have heard the adage, “If something sounds too good to be true, it probably is.” This statement is highly applicable, especially in the crypto world.

Financial investments are a risk in themselves, considering the market dependency. Adding scammers and cyberattacks into the equation could lead to disastrous results. Hence, proper research and due diligence can save one from all types of crypto scams.

FAQs

1. Who investigates crypto scams?

Below are the official bodies that investigate crypto scams.

• Federal Trade Commission (FTC)
• Securities and Exchange Commission (SEC)
• FBI Internet Crime Complaint Center (IC3)
• Commodity Futures Trading Commission (CFTC)

2. How do you get your money back from cryptocurrency scams?

There are certain ways to potentially recover scammed cryptocurrency. You have the option to report the case to the FTC. You could also contact the crypto exchange platform you used to complete the transaction. However, there is no guarantee for getting the lost money back. 

3. What can I do if I think I’ve been scammed?

Collect necessary evidence and report the scam to the official bodies like –

• Federal Trade Commission (FTC)
• Securities and Exchange Commission (SEC)
• FBI Internet Crime Complaint Center (IC3)
• Commodity Futures Trading Commission (CFTC)

If possible, spread awareness about the fraud through social media platforms.

4. Is crypto scamming illegal?

It depends on the country in which the scam occurred. 

If we take India, cryptocurrency is neither illegal nor regulated by any specific legislation yet. The judiciary has stated that crypto transactions must comply with the general law in force in India until special legislation is passed.

If we take mature markets like the US, crypto-based scams are illegal.

5. Can you go to jail for a Bitcoin scam?

Yes. Any malicious activity leading to financial loss for the victims would land the scammers in jail when caught. A classic example is the 2016 hack of Bitfinex, a virtual cryptocurrency exchange. Ilya Lichenstein and Heather Morgan were arrested for hacking the platform and getting away with some 1,20,000 BTC.