5 Common Scams in the Cryptocurrency Space You Should Be Aware Of
As the number of people getting into cryptocurrency increases, scammers are becoming more confident in finding ways to steal crypto users’ private information and money. According to the FBI’s Internet Crime Complaint Center (IC3) report last 2023, around 880,418 Americans have reported falling victim to crypto scams, potentially losing around USD 12.5 billion—a 22% increase from the year before. To protect crypto users from cyberattacks, developers implement robust security features to ensure that their cryptocurrencies or wallets won’t be easily intercepted by scammers. For instance, Monero (XMR) employs advanced cryptographic techniques to obfuscate transaction details. Doing so makes it more difficult for scammers to trace the flow of funds. Indeed, most of the time, Monero wallet users can complete their transactions with peace of mind.
However, cryptocurrency developers can only do so much to protect users from scams. It’s also up to the users to exercise caution and remain vigilant against cybercrime to avoid falling victim to scammers. A great way to safeguard your crypto assets is to be aware of the following common scams in the cryptocurrency space and how you can protect yourself from them.
Phishing Scams
Phishing scams are one of the most prevalent and dangerous types of fraud in the cryptocurrency space.
They often occur through emails, social media messages, fake websites, or even phone calls that appear legitimate. Phishing scams typically work by sending a message that appears to come from a reputable source, such as a cryptocurrency exchange or wallet developer. The message is usually designed to induce a sense of urgency or it may provide a tempting offer, prompting the recipient to click on a link. This link then leads to a fake website designed to look like the real one, where users are asked to input their login credentials or private keys. Once the scammer has this information, they can access the user’s account and steal their funds.
To avoid becoming a victim of phishing scams, make it a habit to double-check the sender’s email address or the URL of the website. Fake emails and websites typically contain typographical errors, incorrect grammar, or unusual fonts. You should also avoid clicking on links in unsolicited messages at all costs. If you want to ensure that the website is legitimate, navigate to the official website directly by typing the URL in your browser.
Investment Scams
Crypto investment scams often lure victims with the promise of high returns on investments with little to no risk. These scams can take various forms, including Ponzi schemes, fake ICOs (initial coin offerings), and fraudulent investment platforms. In a typical investment scam, the scammer will create a convincing website or social media profile that promises extraordinary returns. They may use fake testimonials, celebrity endorsements, or sophisticated marketing tactics to gain credibility. When individuals invest their money, the scammer either disappears with the funds or continues to pay returns using new investors’ money in a classic Ponzi scheme until the scheme collapses.
With this in mind, you have to make it a point to conduct thorough research on the investment opportunity to ensure its legitimacy. Make sure to include checking the credentials of the company and its founders, as well as reviews and testimonials made by real users. Additionally, be wary of any investment that promises unusually high returns with little risk. Every investment carries some degree of risk, with higher returns typically involving more risk. Thus, if the deal is too good to be true, then you ought to be suspicious.
Pump and Dump Schemes
Pump and dump schemes are manipulative tactics used to artificially inflate the price of a cryptocurrency to attract unsuspecting investors, only to sell off large quantities of the asset at the inflated price, causing a rapid price drop. This scam is usually orchestrated by a group of people who coordinate their buying and selling activities to create the illusion of a price surge. A typical pump and dump scheme works in two stages. In the “pump” stage, scammers buy large amounts of low-value cryptocurrency and spread false or misleading information to create hype and drive up the price. The moment the price reaches a certain level and attracts other investors looking to capitalize on the upward trend, the scammers move to the “dump” stage, where they sell off their holdings at the inflated price. This massive sell-off leads to a sharp decline in the asset’s value, leaving new investors with significant losses.
That’s why before you invest in new crypto, investigate independently and look for credible information and developments on the cryptocurrency you plan to get into. Look at the crypto’s historical trading volume and price patterns to identify unusual spikes. Be wary of investing in low-cap cryptocurrencies that are more susceptible to manipulation. Furthermore, be cautious of investments driven by hype rather than solid fundamentals or news, as the hype could be created by scammers.
Upgrade Scams
Upgrade scams involve fraudsters impersonating legitimate cryptocurrency companies or wallet providers, claiming that a mandatory upgrade or update is required. These scams often target users through email, social media, or direct messages, instructing them to download a new version of their wallet software or migrate their funds to a new address. The message will usually contain a link to a fake website that closely resembles the official site of the cryptocurrency or wallet provider. Users are instructed to enter their private keys or seed phrases on this fake site or download a malicious software update. Once the scammer has access to these credentials, they can easily transfer the victim’s funds to their own accounts.
If you receive a message regarding a software upgrade, check the official website or social media channels of the cryptocurrency or crypto wallet company for upgrade alerts. Reputable companies will always notify their users about their system upgrades and provide a detailed summary of what the upgrades are supposed to be. Next, ensure that any software updates or wallet downloads are from the official website or trusted sources. For an added layer of protection, consider enabling security features such as two-factor authentication (2FA) and multi-signature wallets.
Giveaway Scams
Giveaway scams occur when fraudsters pose as celebrities, influencers, or reputable companies to offer free cryptocurrency in exchange for a small initial payment. These scams are frequently promoted on social media platforms and often use hacked or fake verified accounts to appear legitimate. The scam typically works by advertising a “giveaway” where participants are promised a larger amount of cryptocurrency in return for sending a smaller amount to a specified address. For example, scammers might claim that if you send 0.1 of your cryptocurrency to their address, you will receive 1 in return. However, when the victim sends their cryptocurrency, they receive nothing in return, and the scammer disappears with their funds.
Legitimate giveaways will never require you to send cryptocurrency first. As such, you should be wary of any promotion that promises a large amount of cryptocurrency for a small initial payment. If you encounter a crypto giveaway, check the legitimacy of the account promoting it. Look for signs that indicate that the account is verified, such as a badge or checkmark that appears to the right of the user’s name or profile image, and cross-check with official sources. Finally, report any suspicious giveaways to the platform where you saw them.
As the popularity of cryptocurrencies continues to rise, so too do the risks associated with fraudulent activities in the space. However, if you stay vigilant and familiarize yourself with these common scams, you can significantly reduce your vulnerability to them.
