Crypto Scams: Identification, Prevention, and What to Do If You’re Targeted

Introduction

Despite the recent downturn in the cryptocurrency market, the popularity of digital tokens continues to grow. Alongside this, the number of fraudulent schemes in this sphere is also on the rise. According to the Federal Trade Commission (FTC) report for the year 2022, from January 1, 2021, to March 31 of this year, over 46,000 retail investors reported losses exceeding $1 billion in cryptocurrency. Today, we will discuss how to identify Crypto Scams and avoid becoming a victim.

Highlights and Key Takeaways

Despite cryptocurrency being a relatively new form of asset, criminals are employing well-established methods of theft borrowed from other domains. Key points of the article include:

• Vigilance and interaction with trusted resources are the keys to protection against fraudsters.

• If you are offered “golden opportunities” and unrealistic profit margins, you are likely dealing with scammers.

• Keeping track of the latest news in the cryptocurrency world is an effective way to guard against deception.

Understanding Crypto Scams

Crypto scams pose a significant threat to individuals in the digital space. This section explores the complexities of crypto scams, their modus operandi, the latest trends, and provides valuable insights to help readers protect themselves from falling victim to fraudulent schemes.

What Constitutes a Crypto Scam

Cryptocurrency fraud is deceptive schemes used by malicious actors to seize others’ cryptocurrency assets. Fraudsters take advantage of the growing consumer interest in the cryptocurrency market. Partly to blame is the overall lack of education regarding cryptocurrency, as people unfamiliar with this area are particularly vulnerable to misinformation and tend to resort to superficial investment methods in hopes of quick enrichment.

Cryptocurrency fraud is a deceptive scheme used by malicious actors to seize others’ cryptocurrency assets. These fraudsters exploit the growing consumer interest in the cryptocurrency market, capitalizing on a lack of education and misinformation. Many individuals, unfamiliar with this area, fall into the trap of superficial investment methods, hoping for quick enrichment. 

Many assume that cryptocurrency is popular among criminals because tokens move anonymously. In practice, major digital currencies such as Bitcoin and Ethereum are actually easily traceable. Each transaction is constantly recorded on a publicly accessible blockchain – essentially, a decentralized database.

One striking example of a ‘bitcoin scam’ was the company BitConnect. It ceased to exist in 2018 after absconding with a staggering sum of $2.4 billion. Fraudsters promised investors a 40% profit, but it turned out to be a Ponzi scheme in reality.

One of the well-known cryptocurrency scam schemes in 2014 was orchestrated by Dr. Ruja Ignatova, a Bulgarian with a German passport. The creators promoted OneCoin as the “Bitcoin killer,” a cryptocurrency where investors would profit not only from the asset’s growth but also from attracting new users. Experts warned that this project should not be considered a genuine cryptocurrency. OneCoin lacked a peer-to-peer network, and only the company “One Coin Limited” could engage in mining. Coin transactions were only possible through websites under its control.

The Types Of Crypto Scams

Let’s consider the most popular schemes Crypto Scams of fraud that are prevalent in the world of cryptocurrencies.

• Ponzi schemes. In this kind of investment fraud, victims are tricked into funding a fictitious business or a “get-rich-quick” plan that ultimately serves the fraudster’s financial gain. Since fraudsters sometimes produce “cutting-edge” technologies that aren’t sufficiently advanced to draw investors and increase virtual earnings, cryptocurrency is especially well-suited for this. In any case, when virtual money is involved, fabricating data is simple.

• Pump and dump. a deceptive plan to artificially raise the value of stocks, cryptocurrency, or other such assets, which would thereafter precipitously plummet. Based on misleading information, scammers persuade investors to purchase bitcoin assets in lesser-known cryptocurrency projects. The fraudster then sells their own shares, reaping a large profit and leaving the victim with worthless shares as the asset values rise.

• Fake celebrity accounts. Social media scammers either take over famous statements or fabricate reports in order to trick followers into investing in scams such as the ones listed above. In one instance, con artists stole around $2 million by using Elon Musk’s name to give the deception the appearance of legitimacy on a Bitcoin address.

• Fake exchanges. Scammers offer access to virtual money kept on a cryptocurrency exchange through emails or posts on social media. The consumer often has to pay a small upfront charge, which is the sole drawback.

• Fake applications. Phishing developers make phony bitcoin apps and submit them to app stores. Installing the fake gives it the ability to infect the device with malware or steal financial and personal information.

• Fake press releases. Even journalists can occasionally be tricked by scammers into disseminating misleading material. There have been occurrences when respectable news outlets carried stories about significant retailers getting ready to take specific cryptocurrencies. Pump-and-dump techniques were used to boost the value of the scammers’ cryptocurrency holdings, as evidenced by the fictitious news releases that served as the basis for these tales.

• Phishing. One of the most common ways con artists utilize deceit. Posts on social media, texts, and emails are falsified to appear as though they came from a reliable source. This “source” occasionally asks for bitcoin payments. It constantly aims to instill a sense of urgency in the consumer so they will respond hastily and without hesitation.

Identifying Crypto Scams

Identifying crypto scams is crucial to keeping your digital assets safe. In this section, we’ll explore common red flags that indicate a cryptocurrency scam. Learn how to recognize illegitimate investment opportunities, fake wallets, phishing attempts, and other malicious activities in the digital currency space.

Spotting Red Flags

To avoid falling victim to bitcoin scams, it is sometimes sufficient to exercise minimal vigilance and analyze incoming offers. We have compiled a list of signs that may indicate Crypto Scams:

• If you discover a new coin on the market, but there is no information about the developers on social media or the website, be cautious.

• If the price of a new currency significantly increases in less than a week, this could be a worrisome sign.

• Typically, scammers don’t bother creating a Whitepaper, so if you can’t find one on the website, avoid investing in that asset.

• Check the social media of the project you want to invest in. Look at the creation date of groups or channels. If the coin is new and the news feed is full of promises of “easy” money, it’s a sign of fraud.

There are other indicators that may suggest that the project is initially conceived as a scam. One point from this list may be a coincidence, but two or more should alert potential investors. It’s better to steer clear of such projects to avoid future financial losses:

• Guaranteed profitability.

• Excessively expensive and intrusive advertising.

• Multi-level referral program where existing investors attract new ones.

• Limited-time deals, urgent requests for investments, and assurances that the price will undoubtedly increase.

• Exclusive advantages for big-ticket investors.

• The token or coin is not available on well-known exchanges.

• Insufficient social media presence for the project team or a dearth of pertinent team members.

• The source code for the project is not accessible to the general public on GitHub, where its uniqueness can be verified.

Researching a Crypto Platform or Opportunity

We advise performing a thorough analysis before funding any cryptocurrency project, which should involve the following steps:

• Assess the startup’s demand and idea implementation readiness.

• Find out who started the project; it should be real people, and you should be able to find their information online (like social media).

• Look over and read reviews of the developers’ prior work.

• Examine the development strategies that the project’s initiators have suggested.

• Keep an eye on the anticipated profitability percentage; if it appears excessively high, proceed with caution.

• Evaluate the technical dependability of the cryptocurrency project.

• Seek information about the startup’s prospects from reliable experts and news sources.

• Determine whether a significant portion of tokens are concentrated in one or a small number of wallets; if so, it is best to stay out of the fray.

• Check if the coin is listed on the main exchanges for cryptocurrencies.

• Examine the opinions of the community.

• Be wary of blindly following opinion leaders as they can be duped by scammers.

Verifying the company’s physical and legal address is also advised. It’s probably a scam if it’s registered in an offshore jurisdiction – especially one that’s been blacklisted – or if there is absolutely no information available on the registration location. Steer clear of ventures that prioritize huge profits over high-quality products. Take care when dealing on decentralized exchanges (DEX) because there are currency “clones.” Check the liquidity volume in the pool and pay close attention to the ticker names.

Let’s also consider several services that can be used to check crypto projects for scams:

Token Sniffer: Before making an investment, you may use the token sniffer to get detailed information on a coin or cryptocurrency project. All you need to do is provide the name or contract address, and the service will compile comprehensive data into a report for you. The service’s rating is the primary indication in the report. The risk of the project being a fraud increases with rating. Contracts, holders, and even the project’s liquidity may all be examined by the service.

Etherscan, BSCscan, Solscan: You may obtain details on a certain project using these blockchain explorers for Solana, Ethereum, and Binance Smart Chain (BSC) (depending on the network). Open transactions, their status, staked assets, and related data are all freely accessible through these platforms. These platforms operate on essentially the same principle: input the contract address to get comprehensive information. These systems also provide information verification for a particular address, including transaction history.

ScamAdviser: A service that is available to the general public, ScamAdviser is updated often with details regarding new scam initiatives. This holds true for online fraud in general as well as the realm of cryptocurrency. The only need is that you must install the app on your smartphone in order to use the service, which is completely free. The service shows technical information about the project’s website in addition to data entered by users. For instance, how long ago the site was made and whether the hosting is questionable.

Certik. This service is an entirely separate undertaking. Its primary duties include evaluating the security of smart contracts and testing systems for vulnerabilities and dependability of code. Put otherwise, the service shows if there have been any security lapses in the project. For users, the primary disadvantage is that it is a paid service. Any project in test mode can, however, be checked out for free once.

Precautionary Measures To Avoid Crypto Scams

Protecting yourself from crypto scams is paramount in safeguarding your investments. In this section, we’ll discuss preventive measures to help you steer clear of fraudulent schemes. Learn about conducting thorough research, verifying the legitimacy of projects and exchanges, practicing caution with sharing personal information, and being vigilant about suspicious emails or messages. You need to stay informed and safe in the crypto world.

Secure Your Investments

Let’s consider how to securely protect your cryptocurrency, taking into account numerous attempts of fraud that we discussed earlier and the lack of protective measures for crypto investors from the government:

• Repeatedly verify the reputation of companies, individuals, and websites offering any investment activity. Never rush and carefully scrutinize any new investment opportunity in detail. Scammers often hurry their victims to prevent them from slipping off the hook.

• Disregard unexpected offers. If you come across a seemingly lucrative cryptocurrency investment offer in social media ads, emails, or messengers, the likelihood of fraud is extremely high.

• Use phishing protection on all devices. Carefully check any website to ensure its authenticity. A reliable antivirus program can do this for you, preventing visits to fake sites from both computers and smartphones. This protection is crucial for all platforms, as phishing threats are just as dangerous on Apple devices as they are on Windows or Android.

• Application behavior control.

• Password input window protection from interception (keyloggers).

• Detection of remote computer access.

• Warning about potentially dangerous applications.

• Automatic search for outdated versions of applications and their updates from official sources.

• For investors managing large sums in cryptocurrency, it is recommended to keep a small portion of savings in a ‘hot’ wallet for operational expenses and move the rest to a completely offline “cold” wallet. It resembles a USB drive and is easy to use.

• Use unique, long passwords for each website or service. It is most convenient to store them in encrypted form in a password manager with synchronization across all your devices.

• Apply two-factor authentication using a USB key or mobile app wherever possible. It is advisable to avoid SMS authentication due to its vulnerability to interception.

• Regularly check whether your credentials have been exposed on the internet due to hacking or leaks from third-party services.

Be Informed

One of the key ways to protect against crypto scams can also be called awareness in the field of cryptocurrencies. It is important not to forget to read the news, learn more about the release of new projects, study the distribution of new digital tokens, and much more. A sufficient level of awareness about what is happening in the crypto market is your guarantee that you will not miss scammers and will be able to immediately notice if someone is trying to deceive you.

What to Do If You’re Targeted by a Crypto Scam

Fraud with cryptocurrency can have catastrophic consequences for the victim. If you have made a payment or disclosed personal information, it is crucial to act swiftly.

Immediately contact your bank if you:

• Made a payment using a debit or credit card;

• Conducted a payment through a bank transfer;

• Provide your personal details.

Cryptocurrency scammers often sell the acquired data to other cybercriminals. Therefore, to prevent further damage, it is essential to change names and passwords for all accounts. If you have fallen victim to cryptocurrency fraud on social media, you can report it on the respective platform. Depending on your country of residence, you can report the fraud to the relevant authority in your jurisdiction. For example, in the United States, this would be the Federal Trade Commission (FTC). Other countries have similar organizations.

Conclusion

As evident, fraud in the cryptocurrency world is alarmingly common, with increasing numbers of individuals falling prey to deceitful schemes, resulting in significant financial losses. Therefore, if you are involved in cryptocurrency investments, it is paramount to educate yourself about the various scam methods and prioritize the security of your assets. Additionally, in unfortunate cases where you become a victim, it is essential to report the fraud promptly to the relevant authorities. By staying informed, cautious, and proactive, you can navigate the cryptocurrency landscape with confidence and protect yourself from potential scams.

FAQ

How Can You Tell if Someone Is a Crypto Scammer?

There are quite a few signs that indicate you’re dealing with a fraudster. The first thing you should pay attention to is the guarantee of enormous profits if you invest in a particular project. Cryptocurrency is quite unstable, and providing assurances that a specific token will increase in value in the near future and bring profits is simply impossible. Poor-quality websites, lack of information about the creators of a specific project, and so on, can also be indicators of fraud.

What are the Red Flags For Crypto Scams?

Anxious signals may include promises of guaranteed profits, non-substantive or non-existent technical documentation, aggressive marketing, team anonymity, and other factors.

Can I Get My Money Back from Scammer Crypto?

If the fact of fraud is proven, and the perpetrator is identified and located, you will have every chance of recovering your money or cryptocurrency assets that you transferred to the fraudsters.

Is My Money Safe in eToro?

On the eToro platform, various measures are implemented to protect clients’ crypto assets, including two-factor authentication, data encryption, and more.