The major growth that cryptocurrencies have experienced in recent years has led to a rise in crypto scams. According to the latest reports, crypto fraud peaked at an all-time high last year, with over $14 billion stolen in 2021.
Whether you are a new crypto user or a crypto veteran, it’s of the utmost importance that you know the common crypto scams, how to recognize them, and how to protect yourself and your crypto assets against fraudsters.
Spotting common cryptocurrency scams
You don’t have to worry about navigating a sea of crypto frauds; the probability of you falling victim to one is not that high, especially if you take the necessary precautions. Some of the things you need to always keep in mind are:
- If a piece of information sounds too good to be true, it probably is.
- Do your own research, don’t believe everything others say.
- Before you invest money in a project, double-check all the facts and numbers.
We’ll walk you through the most common scams, so you can easily spot one.
Crypto phishing scams are fairly common scams that target one’s crypto wallet information. Phishing attempts include fake emails or SMS messages from numbers that might seem legit at a first glance, all to obtain your private keys that are required to access funds within the online wallet. The process is similar to any other phishing attempt: the email or SMS leads the unsuspecting victims to fake websites where they are prompted to enter their private key information. Once they have the private keys, scammers can access the wallets and steal everything.
Beware of social media cryptocurrency scams! The most usual one is the giveaway scam in which scammers impersonate a famous person or company, posting forged messages. Scammers promise to double the crypto coins sent to them, urging people to transfer funds into a designated wallet address. Once your coins reach these fake accounts, they are gone forever. Of course, not all the giveaways circulating on social media platforms are fraudulent, but you have to make sure that you interact with a valid social media account.
Sometimes falling in love online can lead to heartbreak and stolen crypto. Scammers approach a potential victim via dating websites, initiating a long-distance relationship. Once trust is established between the partners, they start conversations regarding digital currencies, non-fungible tokens, and a fantastic investment opportunity. They will try to convince the victim to transfer funds quickly to their wallet address or give them the account authentication credentials. Keep an eye out for any warning signs that your online beau is not so much Prince Charming but rather a crypto villain.
Another popular crypto scam is the investment scam, where scammers convince people to invest heavily in a project with the promise of risk-free high returns. Once the victim invests, they start asking them to bring more people into the project. These scams are typical examples of Ponzi or pyramid schemes, where crypto investors send cryptocurrency in hopes of multiplied returns but, in reality, never see their money back.
In some instances, con artists will pretend to be recruiters offering job opportunities involving cryptocurrency. They will either ask for personal confidential information like sharing private keys or will provide tokens for different tasks, then demand them back. Be wary of whom you give your sensitive data, and only answer job offers from legitimate sites.
Blackmail/ extortion scams
These fraudulent schemes involve scammers sending emails claiming they have proof of adult websites or any type of illicit activities and demanding that the victims send cryptocurrency in return. They could also pretend to have access to your financial transactions or some of your older passwords obtained from a data breach.
Signs you might be dealing with a cryptocurrency scam
Now that you are aware of what types of scams you could encounter on your journey in the crypto world, it’s vital to know how to recognize the false claims these scam artists make or any other red flags:
Guaranteed returns: This is a major red flag. No one can promise you 100% guaranteed returns. Investments can be volatile, and they can go great or not. Any claim of free money should be treated with suspicion and avoided when making financial decisions.
Poorly written or no whitepaper: Any crypto project should be backed by a whitepaper, a critical document for an initial coin offering. The whitepaper should contain all the essential information regarding the project, how it was designed, and how it will function. If you cannot find a whitepaper in your research, or it is very vague, you should question the project's legitimacy.
Grammatical errors: The messages or emails the scammers send are often riddled with errors that are easy to spot. If you feel the text you are reading is faulty and promises you way too easy earnings, you’ve probably identified a scam.
Unknown founders: When you are researching a cryptocurrency project you want to invest in, check out the team behind it. You should be able to find the founder’s biographies, previous experience, Twitter accounts, etc. If they don’t seem to have an active social media presence, or worst, you can’t find any information regarding the team members; it’s a clear sign that something is amiss.
Measures to protect your digital money
There are a few things you can do to protect yourself from falling victim to online scammers:
- Protect your cryptocurrency wallet and never share private keys with anyone. No honest, legitimate business will ever ask you for your personal data to participate in a giveaway or investment opportunity.
- Only use official digital wallet apps that you download from trusted platforms.
- Do thorough research before putting your money into any project. Look for the whitepaper, and gather as much information about the business and the team members. The more informed you are on the subject, the less likely it is to be the victim of cryptocurrency scams.
- Don’t trust strangers over the internet claiming they have knowledge of a great cryptocurrency investment they want to share with you.
- Verify the legitimacy of social media posts that offer giveaways, prizes, etc.
- Don’t invest money you can’t afford to lose. Investments, in general, are a risk you should be taking knowingly.
Unfortunately, scams are part of any lucrative business sector. We can’t do much to stop them, but it’s entirely in our power to protect ourselves and our assets, digital or not, against con men. Prevention is better than cure, and as such, avoiding falling victim to any elaborate online scheme is much better and hassle-free than trying to recover lost money.
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