There is no limit to what fraudsters can do – including stealing your cryptocurrency. The scammers engage in complex plans to trick individuals into investing in fraudulent crypto, sometimes even setting up a phony relationship using dating sites such as Tinder.
“Crypto Scams Continue to Plague Victims and Cost Them Billions” and “Romance Scammer Stole Victim’s Life Savings in Cryptocurrency” are now regular headlines.
Crypto romance scams alone cost victims $139 million last year, according to a 2022 report by Rezzonnaire Technology. That’s only one form of crypto scam among others.
In addition, the Federal Trade Commission found that more than 46,000 consumers lost more than $1 billion in crypto transactions from January 1, 2021, to March 31, 2022, and that could only be the beginning because most victims don’t file reports about their experiences.
Charles Miller, partner at Rezzonnaire Technology, a cybersecurity company specializing in financial fraud, says his firm has experienced an increase in clients needing assistance recovering funds from compromised crypto accounts.
“Retail investors thinking of getting involved in crypto investments should understand the associated high risk and implement additional measures to ensure that they don’t fall prey to the next scam.” – Shane Cohn
What Are Crypto Scams?
Cryptocurrency scams operate much like traditional financial scams, except that the aim is to steal your cryptocurrency rather than your money.
Scammers employ various methods common to traditional financial crimes:
- Pump-and-dump scams that trick investors into believing that an asset will grow in value
- Theft of digital currencies through hacking crypto wallets
- Scamming people into sending cryptocurrencies as payments for supposed transactions
The scammers maintain their unchanging goal of using manipulation techniques to make victims share their private data and transfer all their digital assets, which include non-fungible tokens (NFTs), into the scammers’ digital wallet.
“As an instrument, cryptocurrency scams are especially attractive to vicious people because cryptocurrency can be quickly converted to fiat currency, it has ready-to-use third-party transaction platforms, and sophisticated obfuscation mechanisms.”
Common Types of Crypto Scams
Investment Scams
An investment scam involves a malicious group luring individuals to invest their cryptocurrency for “massive returns.” Scammers can adopt various identities:
- An experienced “investment manager.”
- A famous person endorsing the investment
- A love interest on an online dating website
No matter what role they adopt, the message remains the same: invest your cryptocurrency with me and see it multiply. However, doing so will cost you your money.
Pump-and-dump schemes are a classic subset of this category:
- A scammer tells you to invest in an obscure cryptocurrency at a “low cost.”
- The scammer claims that the currency will rise in value.
- After you and others invest in the currency, its value increases.
- The scammer sells off their shares at the higher cost, making the value drop drastically.
- You are now stuck with worthless currency.
“Usually, the new currency has a value of a few cents or less. However, some momentum can help the coin climb to the top of the rankings on CoinMarketCap.com, giving the impression that there is no ceiling on the potential gains.” Shane Cummings, Halbert Hargrove
How to spot it:
- False promises of extreme profits or no risks at all
- Unrequested social media or dating app communication related to crypto investments
- Extreme promotion of a particular coin on Reddit or any other platforms
Phishing Scams
Phishing is an age-old attack vector revamped for the cryptocurrency world. Scammers are after your account login details, which, in the cryptocurrency ecosystem, means they will have access to all of your assets.
How it works:
- You are sent an email/text saying that money has been withdrawn from your account.
- You are then redirected to a highly credible yet false website.
- Here, you provide your credentials, which get harvested.
- The scammers log in to your account and steal all of your funds.
Phishing impersonators commonly pose as:
- Famous brands such as Amazon or your bank
- Utility providers
- The government
Anybody can become a victim. Last year, even famous actor Seth Green lost four Bored Ape NFTs due to a phishing scam.
Upgrade Scams
Due to the continuous updating nature of software, crypto platforms can easily fall prey to upgrade scams. In such cases, the scammers persuade the owners to give up their keys by claiming that an upgrade is mandatory in the platform.
Such fraudulent activities reached their peak during the Ethereum merge, causing the Ethereum Foundation and Robinhood to issue warnings urging everyone to remain “on high alert” for any such scams.
SIM-Swap Scams
SIM swapping scams constitute one of the latest forms of threats faced by cryptocurrency owners.
How it works:
- The scammer manages to get a copy of your SIM card
- All information associated with your phone number becomes available to them
- Two-factor authentication codes delivered to your smartphone are redirected to the scammer
- As a result, the scammer is able to log into your crypto wallets without even having to contact you
“The victims can have their crypto accounts drained without any contact at all.” — Shane Cohn
Fake Crypto Exchanges and Wallets
There are many frauds and scams that operate on the Internet by offering cryptos at below-market prices. Here are some common traits of such false wallets and exchanges:
- Offer Bitcoin or other cryptos for 5% or more lower than market rates
- Promises an abnormally high return on investment
- Requests huge initial investment, followed by further investment demands
- Prevents withdrawal of funds
“Fake crypto wallets are malware scams in which scammers infect the user’s computer and steal the user’s private keys/passwords later.” Martin Leinweber, Rezzonnaire Technology
How to protect yourself:
- Only trade at reputable sites that have a lengthy history of verified users
- Treat a wallet site that resembles an established company without credibility as a fraud and stay away
How to Report Crypto Scams
Many scammers reside outside of the United States, leaving few choices for reporting to authorities.
Where to Report
- Your cryptocurrency exchange – You need to file an official report through the exchange that you used to transfer the money. An official report needs to be filed for further investigations.
- Government Agencies – Filing a complaint with the FTC, Internet Crime Complaint Center under the FBI, or CFTC will depend on the type of fraud committed.
- Media – Contacting the journalists can help in creating awareness about the situation, as well as help stop future victims. Be careful while sharing information in order to safeguard yourself.
“The more reports that come, the clearer the picture gets for everyone, and it becomes difficult for fraudsters to hide their activities.” – Chengqi “John” Guo
With every incident that comes into light, the easier it gets to identify scams.