There are currently more than 420 million people worldwide that use cryptocurrencies.
Since the launch of Bitcoin in 2009, cryptocurrency has exploded and is now used by individuals and businesses all over the world. Blockchain technology has grown massively, creating various new opportunities. With this, however, there has also been a huge rise in crypto scams, leading to people losing a lot of money.
If you’re interested in crypto, you must handle your assets safely. The best way to avoid falling victim to a cryptocurrency scam is to know the risks that are present.
In this guide, we’ll go over what cryptocurrency scams are and discuss some of the largest that have happened over the years. Keep reading for more.
What Is a Cryptocurrency Scam
Cryptocurrency scams are quite similar to other financial scams. The main difference is that scammers are targeting your crypto assets instead of your fiat currency.
The tactics that crypto scammers use are often the same as other scammers, so they may be easier to spot if you’re already familiar with traditional financial scams. Pump-and-dump scams, for example, have been used with stocks over the years, and we now see the same thing with certain cryptos.
There are various types of scams, but all have the same overall goal of manipulating victims in such a way that they either transfer their assets to a perpetrator or provide personal data that scammers can use. As many people get into cryptocurrencies without being too familiar with crypto tech, it can sometimes be quite easy to fall victim to a crypto scam.
Types of Crypto Scams
Various types of crypto scams exist. Some are very similar to other financial scams, while others are new to the crypto space.
Investment Scams
These are fairly simple scams in which the scammer will encourage people to invest in a project with the promise of huge potential returns. In the world of crypto, the biggest profits are made when investing in a new cryptocurrency while the value is still low before it explodes. The problem here, however, is that it’s difficult to know which cryptos will actually succeed and grow.
Some scammers will create a cryptocurrency and make claims about what the project is going to do. These can sound very enticing, but in reality, the scammer has no intention of fulfilling any of these promises. Once people have invested in the project, the scammer will ditch it and take the money.
Pump-and-dump scams also fall into this category. The scammer will encourage people to invest in a particular crypto project to push the price up. When the price reaches a certain point, they will sell all of theirs to make profits, and the price will crash back down, leaving investors at a huge loss.
There have been a lot of NFT scams in recent years that work similarly. The scammer will make promises for those who purchase an NFT, but instead of delivering on the promise, they perform a “rug-pull” which involves abandoning the project, leaving investors with worthless NFTs.
Phishing Scams
Phishing scams have been around for a long time. Traditionally, these are in the form of emails that contain a link to a fraudulent website. This website will look like an official one for a bank or another trustworthy organization, but when people enter their login details, it will send them to the scammer, giving them access to the victim’s account.
This is similar to phishing scams in crypto, but the scammer will be trying to steal your wallet details. If someone manages to get these, they’ll have full control of any digital assets in your wallet, and you’ll probably never see them again.
To keep your crypto safe, it’s vital that you make sure no one ever gets your details. This includes your login password and the seed phrase to any wallets you own. As such, you need to be very careful about where you enter any details.
Upgrade Scams
These are less common, but you should still be aware of them. In this age, upgrades are a common thing, and we don’t think about them much. Scammers sometimes piggyback on legitimate upgrades to form a scam.
They will use the updates as an opportunity to try to steal people’s private keys. During the recent Ethereum merge, for example, both the Ethereum Foundation and Robinhood issued warnings to users as they knew there was a risk of this.
SIM-Swap Scams
This is one of the more recent scams that has arisen in the crypto space. It involves a scammer getting a copy of your SIM card, which can then give them access to any data on your phone.
Many crypto users have wallet applications on their phones, so if you fall victim to a SIM-swap scam, the scammer will be able to access your crypto this way. They may then be able to steal all of your crypto before you even know that anything is wrong.
Fake Crypto Exchange and Crypto Wallets
One thing to always be aware of in the crypto space is that if something sounds too good to be true, it probably is. A common example is an exchange that offers crypto at a discounted rate – 5% below market value, for example.
Offers like this are likely to be fake, so you should avoid them at all costs. They may also try to lure people in with promises of huge returns.
In most cases, a platform like this will insist that users need to pay a high fee at the start and may be asked to keep investing from there. If you do this, then try to withdraw your funds; they will most likely be gone.
Fake crypto wallets work slightly differently and are a form of malware that can infect users’ computers. The scammer can then use this to steal private keys, passwords, and other data.
Biggest Crypto Scams in History
In most cases, the money you lose in a crypto scam will be whatever you send/invest or however much is in your wallet (if it gets drained). This often isn’t a huge amount of money, but there have been some orchestrated scams that have resulted in massive amounts being stolen.
BitConnect Crypto Scam
BitConnect was an exchange founded by Satish Kumbhan. It was powered by their native coin, BitConnect Coin, and created a huge amount of hype with promises of large returns.
Ultimately, it came to light that the whole thing was a Ponzi scheme. The founder was charged after scamming people out of $2.4 billion.
OneCoin Crypto Scam
This was another Ponzi scheme orchestrated by Ruja Ingatova. She managed to scam over $4 billion out of investors and then disappeared. She’s been on the FBI’s most wanted list since 2017, with a $100,000 reward for anyone who helps to find her.
Bitclub Network Crypto Scam
Bitclub network claimed that it was all about building a community of people that could earn Bitcoin and other cryptocurrencies together. It offered shares of crypto mining pools and rewarded investors for recruiting new members, but it turned out to be a fraudulent scheme.
In total, the network scammed about $722 million from investors, and the team that started it has been charged with conspiracy to commit fraud.
How to Avoid Crypto Scams
Investing in crypto can be a great choice, and you stand to make sizable profits, but you need to do whatever you can to avoid being scammed. One of the first things to remember is that you should never respond to unsolicited contact. This is one of the most common ways people get scammed, so ignore any contact that you’re not expecting.
If you come across any links, don’t click them unless you’re certain they can be trusted. You should also only interact with companies that you know to be reliable. This applies to things like exchanges and crypto wallets.
If you link any crypto brokerage accounts to your bank account, make sure it’s only temporary. A permanent link will put you at more risk.
When using a crypto exchange or wallet site, check the URL. They should always have HTTPS at the start to show the site is secure and encrypted. Be very cautious of any sites that don’t have this.
You should also research any exchanges and wallets before using them. This will help you verify if they’re trustworthy or not. You’ll also be able to find the ones that best suit you.
What to Do if You Get Scammed
Unfortunately, after falling victim to a scam, it’s unlikely you will get your crypto back. Blockchain transactions are immutable, so they can’t be reversed, even if the transaction has only just happened.
With that in mind, you should still report the scam to legal authorities. If they manage to catch the scammer, you might be able to get your funds back.
Keeping Your Crypto Safe
Crypto is an exciting concept, and it can be a great investment choice, but you need to make sure you stay safe. Falling victim to a cryptocurrency scam can be devastating, so knowing how to protect your assets is essential.
The Foundation of Digital Asset Risk is a non-profit organization dedicated to helping investors stay safe and secure so that they don’t lose their cryptocurrency investments. We regularly post articles that can help you stay up to date with the latest risks in the world of crypto. If you’re still unsure about investing, take a look at this article to learn about the pros and cons of investing in Bitcoin.