What Crypto Scams To Watch Out For
Since the rise of Cryptocurrencies, scammers have followed. Here are a few of the most common scams and how to avoid them
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What are the Common Crypto Scams?
Crypto’s rise in popularity has also created a rise in financial scams. In fact, according to one fraud report by the U.S. Federal Trade Commission, over 46,000 people have reported losses due to crypto scams since the start of 2021, with over $1 billion lost.
The top cryptocurrencies used to pay scammers were Bitcoin, Tether, and Ether. These major losses and the rise of scammers make it clear that cryptocurrency users must be vigilant, and there are several scams to keep an eye out for.
Key Highlights
- Crypto scams typically focus on obtaining log-in credentials, convincing users to send over funds, or pretending to be start-ups to attract investors.
- Manipulation is a common tactic that criminals use to either entice you or cause a sense of fear, so you give into their demands.
- Use a reliable and reputable crypto wallet with robust security features to protect your assets.
- Trust your gut. If it seems like a scam, it likely is one.
Common Scams in Crypto
1. Phishing
Phishing is one of the most common schemes because it is highly effective. It typically involves tricking users into giving up their account log-in information. Usually, this is done through a fake webpage or via a false email where users enter their information that is then collected by the scammers.
In cryptocurrency, there are other types of phishing to watch out for. Seed phrase phishing involves false account recovery forms which require users to enter their recovery phrase. Unfortunately, this gives criminals complete access to users’ crypto wallets.
Ice phishing uses clickjacking to obtain user tokens. Clickjacking tricks users into clicking a false item that appears legitimate. In crypto, this usually occurs when making a transfer between accounts. The scammer intercepts the transaction and then changes the transfer information to their own.
Phishing attacks are common and frequent, so it is paramount to stay vigilant to protect your information. Watch out for poor grammar and spelling, suspicious links, incorrect URLs, and messages from unknown users.
2. Rug Pull Scams
Rug pull scams involve false start-ups and bad actors who attempt to attract investors. Once enough funds have been retrieved, the start-up is deleted or locked. In crypto, this typically occurs with new coins or NFTs.
In January 2022, a rug pull scheme led to a total loss of $1.3 million. Fortunately, the Department of Justice (DOJ) was able to arrest the perpetrators after a successful investigation.
3. Social Media Scams
There is a wide variety of crypto scams that occur through social media, such as Fake Giveaways, Impersonations, and Romance scams.
4. Fake Giveaways
“Congratulations! You won our Bitcoin giveaway!” can be exciting to read, but it is just a manipulation tactic. Criminals will then ask users to send a specific amount of cryptocurrency to confirm their wallet address. After receiving the payment, the criminals disappear with the victims’ funds.
5. Impersonation
Many scammers attempt to create a false sense of security by impersonating a trustworthy account. These accounts have very similar names with only one or two letters changed, and they use the logo of the cryptocurrency coin or wallet they are trying to pose as.
Scammers may also attempt to impersonate other trusted sources. Under this guise of credibility, criminals will attempt to trick users into offering up private information. In crypto, this is typically obtaining user account data or fooling users into transferring crypto to a false account.
6. Romance Scams
A subcategory of impersonation is romance scams. According to the Federal Bureau of Investigation (FBI), romance scams happen when someone creates a false online identity to trick strangers into romantic or close relationships. Once trust has been established, the criminal will manipulate the victim into sending them money.
In crypto, they typically have the victim purchase crypto and have it sent to them. The relationship either continues, or the victim is ghosted with no way to regain their losses.
Helpful Tips
As you can see, crypto scams come in different forms, and unfortunately, criminals use tactics that can easily confuse or entice you. They may even combine tactics to improve their chances. Luckily, there are some tips to help you avoid getting scammed.
1. Choose a credible crypto wallet
The best defense against crypto scams is choosing a crypto wallet that comes with robust security features like two-factor authentication and encryption.
Some wallets are even virus resistant because they require a hardware device like a USB drive to store the crypto. These are called “cold wallets” since they are not always connected to the internet. In some cases, wallets will have insurance in the event fraud does occur.
2. Verify the sender
If you receive a message, especially from someone you don’t know, you should verify who the sender is. As previously mentioned, impersonators will use very similar names that are only off by a character or two. If you are unsure, report the message as spam.
3. Grammar & spelling
Scams tend to have poor grammar, spelling, and punctuation. If you receive a message or email from someone new, take note of these components. If something seems fishy, it probably is a scam.
4. Watch out for manipulation
Regardless of the different manipulation strategies used, the number one thing scammers will do is try to gain your trust. But they will also employ other methods like creating a sense of urgency through excitement or threat. Offers that seem too good to be true likely are, and threats are a clear red flag.
5. Educate yourself
Regardless of your knowledge level about cybersecurity, it is always a good practice to stay up-to-date on current scam schemes. If you are new to cryptocurrency, then it is paramount that you familiarize yourself with relevant terms and concepts to ensure you understand what is legitimate and what is not. Corporate Finance Institute offers a variety of courses on the subject, which are listed below.
More Resources
Thank you for reading CFI’s guide to the Crypto Scams to Watch Out For. To keep learning and developing your knowledge base, please explore the additional relevant resources below:
