3 Crypto Scams That Could Cost You Thousands

Despite the recent declines in cryptocurrency prices, digital currencies are still incredibly popular. Many still see cryptocurrency as a “get rich quick” scheme, where they can deposit a few dollars and withdraw 10 or 100 times their money, preferably as soon as possible. But that mentality and many misunderstandings about how cryptocurrency works has led to scammers trying to rip off the unwary.

In fact, nearly 33 percent of respondents said they had fallen victim to a crypto scam, according to a 2021 survey by CryptoVantage, a crypto news source. So those who want to trade digital currencies should be careful – even with those who seem to give them away for free!

Here are three types of cryptocurrency scams to watch out for — and how to protect yourself.

Top crypto scams to watch out for

Crypto scams can take many forms, and it’s important to know how they work so you can recognize them when you see them. Dion Guillaume, global head of public relations and communications at Gate.io, a cryptocurrency trading platform, classifies the most popular crypto scams into three main categories: Ponzi schemes, pump-and-dumps, and kickbacks. Here’s how they work:

1. Ponzi schemes

A Ponzi scheme, also known as a pyramid scheme, is a classic scam. In this setup, you are rewarded for bringing more people into the cryptocurrency. Any money brought into the scheme is used as payouts for people higher up the pyramid. When no more victims can be found, the scheme typically collapses.

Guillaume says this type of scam is easy to spot and it’s based on how you get paid: “If a protocol promises you higher returns to bring in more people, then it’s a textbook Ponzi.”

2. Pump and shower

The evocative name of this type of scam reflects how it works and what to expect.

“In pump-and-dumps, malicious groups artificially inflate the value of a token, attracting more investors, before selling their tokens [dumping] and pocket a profit,” says Guillaume.

This scam relies on raising a coin and getting more people to buy into it. As the price rises, insiders sell out of the coin, dumping it on the public and traders are left with worthless coins. Guillaume says to watch out for coins that shoot up in price in a very short period of time.

3. Pull mat

A “retreat” is a crypto scam where the founders of a cryptocurrency basically just disappear one day and take all their tokens – your money – with them. A well-publicized retreat occurred with the cryptocurrency Squid in late 2021, and the founders walked away with millions in cash.

A rip off can be harder to predict because you generally have to trust a coin’s creator, and it may not be obvious that it’s a scam until the creator just walks away.

But one token can be a crypto-coin that limits your ability to sell it whenever you want. If you can’t get liquidity for a coin, these are some of the worst possible signs.

Also, be on the lookout for these other common crypto scams

Those first three scams are directly related to investing in cryptocurrencies, but others – like the horribly named “pig slaughter” scam – try to prey on those who haven’t even started investing in cryptocurrencies. However, they ride the mantle of popular interest in cryptocurrency.

This scam “plumps a potential victim with flashy fake direct messages, cars, houses and photoshopped bank profiles with hundreds of thousands of dollars, hoping that someone will give in and send money,” says Joshua Pardhe, a student at Arizona State University and cyber security. researcher.

These kinds of videos are floating all over social media, with scammers flashing big wads of cash and expensive cars.

“After the victim is caught and money is transferred, the scammer disappears and never communicates again,” says Pardhe.

Another type of scam involves airdropping tokens to backers of a cryptocurrency. An airdrop basically puts tokens into your crypto wallet, and the creators of a crypto project can do this to help grow a grassroots network of supporters, says Alan Eschweiler, the chief operating officer at Stacked Invest, a crypto investment platform .

But when you accept the airdrop, you can expose your crypto investments to a scammer.

“An entity will drop you a token that appears to have value, and when you go to exchange that airdrop for another more well-known token, you’re giving a protocol more permissions than you realize,” Eschweiler explains. Then the hacker gets access to the rest of your wallet, he says.

Signs that you may have been exposed to a scam

You may not be able to see how a given cryptocurrency functions, and that should be enough to make you think twice about investing your hard-earned money in it. But here are some other signs of a scam. If you see them, you should pay extra close attention to that crypto.

Promises of high returns. Pardhe says this is one of the clearest signs of a scam and gives an example of what you can see: “Give me $200 and I’ll give you back $2,000 or more, just pay a 10 percent fee.” Cars and money. Some scammers appeal to the flashiest products to attract attention. “Fire scams are projects that promise the moon and Lambos. Sorry, there are no moons or Lambos in crypto,” said Mark Fidelman, founder of SmartBlocks, a cryptocurrency marketing agency. Grammar errors. Even something as simple as poor grammar on a website or advertisement can indicate that something is a scam. “If someone is legitimate, they won’t try to market themselves on social media, they’ll have a reputable website, FINRA licenses, and will have proper grammar and no mistakes,” says Pardhe. Refusal to share contact details or website information. If a contact refuses to give you a website address or contact information, you may have a scam on your hands. Offers that are too good to be true. “One of the easiest ways to identify a scam is to ask yourself if something seems too good to be true,” says David Pigott, chief risk and security officer at Prime Trust, a fintech infrastructure company. “Are big returns on offer? Are there extended “warranties” that don’t seem reasonable? Is there an unrealistic urgency to the offer?”

These signs should let anyone know they are looking at a scam.

How to protect yourself from crypto scams

If you’re looking to invest in a particular cryptocurrency, experts recommend a number of steps you can take to avoid the scams. In fact, many of these steps only require a modest investment of time to avoid losing your entire investment to a scammer.

Do your own research. Don’t just trust a statement from someone. Go out and do your own work to find out if a project is legitimate. Pigott suggests finding reports to see if the crypto platform is working and legal, to see how developed the platform is and to find how many people are employed by the platform, as well as who the founders or executives are, amongst other things. Basic research can help you avoid some of the worst actors. Crowdsource information about the project. You have tons of resources available on the web to find out about a given coin, even to Reddit and Twitter. Fidelman suggests answering questions such as “Which reputable people have investigated this? Did they audit the code?” simply to determine whether a project might be reliable. Set up two-factor authentication. Setting up two-factor authentication or multi-factor authentication can help keep your account secure. “It’s a pain for sure, but scammers can easily take over social media accounts if you use the same password for different services, and then use your profile to scam others,” says Pardhe. “This has happened several times in my group of friends.” Invest in known, trusted cryptos. “Invest in a proven project that has been around for a while,” says Guillaume. “Or invest in protocol creators who have a track record of creating great protocols.” Work with trusted partners. “Always go through a reputable investment firm or take the advice of a trusted friend or family member,” says Pardhe. “Never send money or crypto to anyone, not even your friends, unless you check with them through another platform.” Be careful about giving permissions to your wallet. Avoid giving unknown people access to any decentralized wallets if you don’t understand what kind of permissions you’re offering, Eschweiler says. You may be giving them access to your crypto assets. Verify links for projects. It sounds like basic blocking and tackling, but just checking the links for a project can help you avoid a scam. “Scammers frequently change URLs by substituting letters to trick users into visiting illegitimate websites,” says Pigott. Find reliable media coverage. Positive coverage of a crypto project by a reputable media outlet can help establish the credibility of a crypto project.

These are some of the fundamental steps to protect you and your money from the crypto scammers.

Bottom line

While you may not be able to avoid the smartest scams, it’s important not to let your greed overtake your ability to think clearly. So it might make sense to follow the most basic rule to avoid scams: “If it’s too good to be true, it probably is.” But even taking other common sense precautions can help you avoid some of the worst aspects of the crypto world.

Editorial disclaimer: All investors are advised to conduct their own independent research on investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.