How to Avoid Crypto Scams
As is the case within any type of malicious online activity, cryptocurrency scams can be incredibly dangerous. With the potential for individuals to experience huge financial losses, it is important that anybody involved with crypto understands exactly how these scams work and how to avoid falling for them.
Regulation and Protection
Before anything, cryptocurrency investors should understand that there is a limited amount of regulatory protection available to them if they do fall victim to any scams. As cryptocurrencies are not regulated in many countries, crypto traders and investors are not afforded the same level of protection or support that they would likely receive within the traditional finance (TradFi) sector.
For example, most financial authorities do not regulate crypto, and those that lose money through crypto scams will not be able to receive compensation.
This is why it is essential that investors understand how to spot a potential scam, before falling victim to it.
Common Crypto Scams
There are a range of common cryptocurrency scams, a lot of which are similar to traditional financial scams. However, with crypto being a relatively new space, scammers are often able to take advantage of people’s inexperience, leaving greater opportunities for loss.
Fake Websites
Scammers will often try to create fake cryptocurrency-related websites. These might take the form of a cryptocurrency trading platform or a cryptocurrency wallet, and will look very similar in terms of design, domain and format to the platform they are trying to replicate.
Typically, the primary purpose of these pages is to gather personal, confidential information pertaining to an investor’s crypto wallet. This could be the wallet’s password, recovery phrase or some other, related financial information. This is also referred to as a “phishing” scam. Once a scammer has this information, they will then be able to access your cryptocurrency holdings.
Alternatively, some fake websites are used by scammers to enable outright theft. Investors will start to use the site as normal by creating an account and depositing money, but will then be denied the request to withdraw any money that they’ve deposited.
There are some things to look out for, however, that may make it easier to spot a fake website. Look for any inconsistencies in how the site’s URL is written, check the page’s SSL/TLS certificate, and use external sites to see when the website was created.
Blackmail and Extortion Crypto Scams
Some scammers will try to blackmail or extort cryptocurrency investors by claiming to have embarrassing or reputation-damaging information about them. This type of crypto scammer will often threaten to release this information to friends, family or work colleagues, unless the person in question transfers them a certain amount of cryptocurrency.
Oftentimes, the scammer will not have access to the information in question, but the idea behind this scam is that a target will panic and act irrationally.
Blockchain Job Listing Scams
This type of cryptocurrency scam will see scammers create fake job listings or send job offers to potential victims. These jobs are typically Web3, blockchain or crypto-related, and may look very legitimate. Scammers may create fake company websites or social media accounts, just to make the offer appear even more realistic.
However, victims will often be required to make a crypto payment to the “recruiter” before they can get started. Once this payment has been made, then the scammer will typically cease all communication.
Crypto Giveaway Scams
Cryptocurrency giveaway scams are some of the most prominent. Scammers will try to impersonate, or take control of, a prominent public figure or company’s social media account. This is usually followed by a post – or a number of posts – claiming that the influencer/brand in question is giving away money in the form of cryptocurrency.
To take advantage of the giveaway, a scammer will suggest that a target must first send an amount of crypto to an advertised address, often promising to send back double this amount upon receipt.
These crypto scams are often advertised on X (Twitter) or YouTube, and some scammers will use fake accounts to leave comments under the original post/video to make it look like people have already benefited from the giveaway. There have even been deep fake YouTube advertisements created, suggesting that a prominent figure within the crypto space is giving away cryptocurrencies.
Cryptocurrency Investment Scams
Crypto investment scams involve a scammer reaching out to a potential target by advertising a lucrative investment opportunity. To benefit from this opportunity, people will be encouraged to send cryptocurrency to the scammer’s wallet, or perhaps to download an application that may contain malicious software.
Oftentimes, the websites or apps advertised by the scammer will look very realistic and may contain complicated terminology in order to appear more legitimate. The scammer will either walk away with any money sent to them, although they might request that users pay a significant fee to withdraw their cryptocurrency.
Crypto Pump and Dump Scams
Cryptocurrency “pump and dump” scams involve the heavy manipulation of a crypto asset’s price. Scammers will work together to boost the price of a cryptocurrency or a crypto-company’s stock. This is usually done by releasing false or misleading information, and this price manipulation will encourage new investors to get involved. After more people have entered positions, which may boost the price further still, the scammers will sell their positions, causing the price to plummet.
Typically, scammers will have created the cryptocurrency in question, or will know somebody within an existing crypto- or blockchain-related company that can help to manipulate the price of the company’s stock.
How to Spot Cryptocurrency Scams
Although it can sometimes be difficult to spot cryptocurrency scams, there are usually some fairly obvious signs that should cause investors to question the legitimacy of a site or individual.
Guaranteed Returns
Because investments can go down as well as up, there are no financial investments that can guarantee a positive return. In fact, there are regulations in place, even within the crypto space, that stipulate that companies cannot advertise something as being a surefire win.
With this in mind, anybody promising you that you will make money should be avoided at all cost. Remember, nobody is incentivised to share the secret of “free” money!
A Poorly Written Whitepaper
Cryptocurrency projects should always offer a whitepaper on their site. A whitepaper will detail the project’s fundamentals, future plans and tokenomics. This is the perfect time for a team of developers to explain exactly how their project will work, and is a good opportunity for advertising, while demonstrating that the team has put in the necessary work and that there is a plan in place to ensure the longevity of the project.
If the whitepaper does not exist or there is a limited amount of detail contained within it, then it is likely a scam. Granted, this is not always the case, but it should encourage potential investors to tread carefully, at the very least.
Unidentifiable Team Members
If it is impossible to identify the real-world identities of a cryptocurrency project’s founders and developers, then it would be wise to proceed with caution. Legitimate sites will usually provide potential investors with easily accessible biographies of the project’s core team, often with links to social media accounts attached. Within the crypto space, investors will sometimes refer to a team as being “doxxed” or “undoxxed”.
Scammers will want to avoid being identified, for obvious reasons, so consider an anonymous team a red flag.
Being Required to Hurry
As is the case with any scam, crypto scammers will often create a sense of urgency when trying to convince people to sign up to their website or send money. This is to encourage people to make rash decisions, and not consider the dangers associated with the action in question.
Legitimate players in the cryptocurrency space will understand the importance of making rational, well-researched decisions, and conducting due-diligence before committing real money to a trade or investment. If somebody is telling you that there is a limited amount of time available, it is important to question the reasoning behind the deadline.
How to Protect Yourself From Crypto Scams
There are a number of ways that cryptocurrency investors can protect themselves from crypto scams.
Cold Storage
One of the easiest, most effective methods for protecting your cryptocurrency investments is to store them properly. Cold storage involves storing cryptocurrency offline, usually on a physical hardware wallet, while hot storage refers to storage solutions that are typically web-based or connected to the internet in some way.
Hot storage methods are easier for a scammer to access, especially if they are able to learn your private key or recovery phrase. With cold storage, scammers would often also need access to the physical device as well, making it doubly secure.
Ignore Unsolicited Messages
If somebody contacts you out of the blue, offering you crypto investment opportunities with huge potential, the likelihood is that it is too good to be true. Ignore messages or communication from people that you don’t know, or whose identity you cannot easily verify. Consider the most common cryptocurrency scams mentioned above, and stop speaking to somebody as soon as you feel unsafe or have any doubts.
Take Your Time
Do not rush into any decisions. As with any investment, cryptocurrency-related or otherwise, it is important to take time to research a project or opportunity before making the decision to spend money. Always do your due-diligence, and do not let a potential scammer put pressure on you to rush into anything.
What To Do If You Fall For a Crypto Scam
Unfortunately, there are limited protections available to those that do fall for crypto scams. This is why it’s incredibly important that you remain vigilant and conduct thorough research before sending money.
However, if you do fall for a crypto scam, there are some important steps to take:
- Contact your bank or payment provider, if your payment information is at risk
- Install anti-virus software if you believe that a scammer has access to your device
- Change any usernames or passwords that you may have shared accidentally
- Report scammers/scams to the platform that it took place on, such as X or YouTube
- Create a new, separate crypto wallet and transfer any funds from a compromised wallet
Conclusion
Cryptocurrency scams are currently more prevalent than ever. As the cryptocurrency space receives increasing mainstream popularity and attention, the likelihood of inexperienced investors falling victim to a scam grows.
Remember, opportunities that sound too good to be true probably are! Do not entrust your personal information to anybody that you do not know, do not rush into making rash financial decisions, and keep an eye out for some of the most common crypto scams mentioned above.
FAQs
Can You Get Scammed If Somebody Sends You Crypto?
It is technically possible to get scammed if somebody sends you cryptocurrency. If somebody you do not know or trust has sent you crypto, they may be trying to gain your trust or get you to send them crypto in return.
Are Crypto Scams The Same as Crypto Hacks?
Crypto scams are different to crypto hacks, although they do share some similarities. Crypto scams typically involve somebody trying to convince you to send them cryptocurrency or reveal your personal information, in order for them to access your crypto holdings. On the other hand, a crypto hack usually involves an attacker, or group of attackers, exploiting vulnerabilities in a smart contract, decentralised exchange (DEX), or something else.
What is a Crypto Romance Scam?
A cryptocurrency romance scam involves a scammer creating the illusion of a real relationship. They will build a target’s trust, emotionally manipulate them and make them a number of promises. Once the scammer has done so successfully, they will then convince the target to send them crypto or invest in a fake cryptocurrency investment scheme. Once they have received the money, they will often cut ties with the victim entirely.
