Common crypto scams and how to avoid them

As public interest in cryptocurrency investing has soared, so have cryptocurrency scams and bitcoin fraud.

Around £146 million was lost to crypto fraud in the first nine months of 2021, as investors’ “fear of missing out” on this new sector attracted scammers big and small.

In this article we will show you:

Related content: What is cryptocurrency and how does it work?

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Is investing in crypto safe?

Just like with any other popular investment, there are always thieves looking to take advantage of investors’ eagerness to earn and their lack of expertise.

Cryptocurrencies – particularly bitcoin – have at times produced returns that FTSE investors can only dream of. But this naturally attracts fraudsters who are eager to capitalize on the high investment returns coupled with people’s lack of knowledge.

This is because cryptocurrency is a complicated idea and much of the industry sits in a regulatory gray area.

To date, blockchain technology is one of the most secure databases created and is arguably secure. Transactions involving digital currencies are stored in blocks linked together in a chain. Once a block is added to the end of the chain, it cannot be removed or undone.

All the computers securing the network share a golden copy of the correct ledger of transactions. They are rewarded in a blockchain’s internal currency, such as bitcoin or ether, to keep it safe and up-to-date.

But that’s not the question many investors are asking. Crypto has been widely used as a payment method for scams, malfeasance and ransom demands.

The most infamous example is the NHS ransomware hack of 2017. This led to the UK’s emergency health services being brought down as part of a global cyber attack.

Clearly there are risks and dangers for the uninitiated.

Those who are new to this sector can check out our guide on cryptocurrency trading for beginners.

Spot a cryptocurrency scam

As with any investment decision, one of the best ways to protect yourself is to look out for the red flags. The following list covers some of the main types of crypto investment scams:

Never take any information at face value Stay curious and check everything. Always do your own research before making any financial transactions

Remember: If it sounds too good to be true, it probably is!

1. Coinbase Scam

Trading venue Coinbase* is one of the world’s most recognized cryptocurrency brands. The exchange went public on the Nasdaq stock exchange in America in April 2021.

But its popularity has led to its use in SMS and email phishing scams.

This type of scam aims to get the potential victim to click on a dodgy link. By visiting that shady website, thieves can plant malware or other nasty stuff on their target’s cell phone or computer to harvest their data or steal other personal information.

It’s a low-tech scam, but effective.

Wondering what an NFT is? We explain in an article about whether non-swampable tokens are a good investment here.

2. Technical support scams

When money is involved, we often want to defer to someone who knows more than we do. And this is where the crypto tech support scam comes in.

In 2018, the FBI warned against scammers posing as support staff of cryptocurrency exchanges, gaining the trust of victims and then parting with their digital currency investments.

A scammer’s goal in this case is to get you to share your private key that unlocks your digital wallet for cryptocurrency. This allows them to steal that crypto by sending it to another wallet.

The safest crypto wallet is a matter for debate. Software wallets like MetaMask are extremely popular, this one boasts five million monthly active users.

It is always connected to the Internet and usually comes as a browser extension for Google Chrome or Mozilla Firefox, or as a mobile application.

Others swear by hardware (offline) wallets like market leaders Trezor Model One and Ledger Nano that don’t automatically connect to the internet.

3. Giveaway scams

We all like to get something for free. And this is what makes gifts one of the more successful methods of theft in cryptocurrency scams.

In one common scam, victims are told that they will double their crypto if they send it to someone they know – fake, of course. In May 2021, the US Federal Trade Commission told Reuters that $2m (£1.45m) had been sent to Elon Musk impersonators in just six months.

Telegram and Twitter are notorious for hosting well-known scammers who promise crypto in “airdrops” — essentially free coins sent to your cryptocurrency wallet.

The kicker is usually that victims are forced to divulge sensitive personal information or thrown out of their own crypto.

4. Employment scams

Students and job seekers can be drawn into employment scams. They are offered bitcoin to perform tasks, and then told they now owe their new boss money.

Those who grew up in the gig economy may recognize this.

Criminals can also pose as recruiters, and social media is thick with complaints of thieves offering high-profile opportunities as a way to steal data — for example, in this Coinbase scam.

5. Crypto phishing scams

Crypto-phishing scams are much the same as spoofed emails, SMS texts from an unknown number, or any other annoying scam attempt. They are depressingly common.

6. Cryptocurrency Ponzi and pyramid schemes

But there are opportunists out there ready to steal your crypto by pulling a classic Ponzi scam.

A Ponzi scam is where, instead of being invested in assets to generate returns, the money from new investors is used to pay earlier investors what they assume are large returns – thus attracting more supporters.

In the process, the fraudsters siphon off the cash for themselves.

How do I recover my crypto scam?

Cryptocurrencies are not fully regulated in the UK. This means you are unlikely to get your money back if something goes wrong.

However, it is still worth reporting the firm to the Financial Conduct Authority (FCA) so that the organization can take steps to potentially close the company down. You can call the FCA on 0800 111 6768.

To find other ways to try to recover scam or stolen crypto, here are some tips:

File a claim with Broker Complaint Alert. The service claims to help thousands of people every year. Request a refund from your bank. If you paid for crypto with your debit or credit card, you should immediately contact your provider to see if you can claim the money back using a section 75 refund. Hire a bitcoin recycling service. As well as Broker Complaint Alert, there are several other services that can help you get your money back. Examples include Atrium Forensics and Reclaim Crypto.

What is the safest cryptocurrency?

Few had any history of ever being hacked successfully.

And there are only a handful of cryptos that have met these criteria for more than five years: bitcoin, ether and litecoin. Discover more about the alternatives to bitcoin here.

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