Crypto Scams 2024 – How to avoid, examples, red flags

The bright new world of cryptocurrency is full of opportunity, excitement and, unfortunately, fraud. According to the FTC, crypto scams have caused more than $1 billion dollars in reported losses since 2021 alone. The average amount lost is $2,600, and people in their 30s are most susceptible.

What are crypto scams?

Crypto scams come in all shapes and sizes, and they prey on unsuspecting investors who believe they are making legitimate investments. Basically, a crypto scam aims to trick you into giving your money or crypto to a bad guy (or girl). And there’s a good chance you won’t get it back.

Below we look at the most common types of crypto scams and how to avoid them.

Types of crypto scams

1. Investment schemes

According to the FTC, the most common cryptocurrency scam is an investment scheme. These are advertised as “investment opportunities” that promise huge returns in exchange for little to no effort. To get started, you usually need to send an amount of crypto as an initial “investment.” Of course, this crypto usually disappears, never to be seen again.

Red flags to look out for

Promises of big returns with little or no upfront risk: Every real investment involves risk – the higher the reward, the higher the risk – so beware of “riskless” investments. No required investor qualifications: To be involved in legal private investments in countries such as if the US you must be an accredited investor. Be wary of private investments that advertise, no experience necessary. Little to no information: If it is difficult to find out more information about an investment, this is a bad sign. If it’s legit, it should have a website, stakeholders, and even reviews and testimonials from previous investors.

Example: One of the most high-profile cases of crypto fraud was the “OneCoin” pyramid scheme that defrauded investors of more than $4 billion dollars. One of the co-founders of OneCoin has since pleaded guilty to the fraud, while the former face of the project, Ruja Ignatova, is the only woman on the FBI’s most wanted list.

2. Social Engineering

“Social Engineering” refers to any scam that relies on psychological manipulation to trick people into sending money or revealing information. The most common social engineering scam is the so-called “romance scam”, where an alluring online romantic interest will trick their victims into sending them crypto. In the end, of course, the romantic interest turns out to be a con.

Red flags to look out for

New Love Interests Who Want Money From You: As the old saying goes — don’t mix love and business. If an online romantic interest asks you to send or invest crypto, there’s a good chance you’re about to get scammed. They say they can’t meet in person: If someone who’s getting close to you, romantically or otherwise, wants you to send them money, but they won’t meet in person because they’re traveling/on a ship/in the military, etc. . you have to be very careful.Direct payment methods: Scammers want you to send them money in a way that makes it difficult for you to get it back. They will usually ask for money through a direct bank transfer or through gift cards rather than through protected payment methods such as PayPal.

Example: Social engineering and romance scams usually take place on a smaller scale than investment schemes. According to a 2022 news article on NBC, one man lost nearly $300,000 by sending cryptocurrency to a supposed love interest, which is unfortunately typical of this type of fraud.

3. Phishing

A “phishing” (pronounced “fishing”) scam is where a fraudulent website is carefully designed to impersonate a well-known and legitimate company in order to steal your money and information. Phishing attacks often come in the form of password reset emails, security warnings, or unauthorized purchase notifications from sites like Coinbase and Microsoft. If you click on the link, you will be taken to a website that looks like Coinbase or Microsoft, but is actually a fake.

Red flags to look out for

Fake URLs and email addresses: Well-crafted phishing campaigns can be hard to spot, but one tactic that never fails is to check the URLs and email addresses very carefully for extra letters or spelling mistakes. If a site sends you to “coinnbase.com” instead of “coinbase.com”, you can bet it’s a phishing scam. Ask for payment information: If you receive an email asking you to update your billing information for a service, or telling you that your payments are on hold, be careful – these could be scammers trying to get your payment information to get.

Example: The popular blockchain video game Axie Infinity was hacked for $625 million dollars after one of its employees was tricked into giving scammers access to the company’s computers. The scammers contacted this senior engineer with a coveted job offer that turned out to be a malicious file that, when opened, infiltrated the company’s systems.

4. Retreats

A “withdrawal” scam is one of the most common types of crypto scams. Just like the visual metaphor, a “pullback” occurs when the creators of a cryptocurrency token or project “pull the rug” out from under their investors and get away with the money. A small portion of the countless new cryptocurrencies that pop up every day are even programmed to automatically “withdraw” their investors after a while.

Red flags to look out for

Tokens are not verified: Most crypto exchanges and crypto tracking sites will have a verification process they use to make sure tokens are verified. Be very careful trading non-verified tokens as they may be scams. Rushed, unimaginative project: Most backpacking scams are modeled after successful projects — like Bored Ape Yacht Club NFTs or Doge-themed cryptocurrencies — so be careful anytime you trade new tokens that are very similar to existing collections. Unaudited contracts: On the more technical side – any time a crypto project is not audited, you should be suspicious. Code audits are independent reviews from reputable companies that ensure that the code of a cryptocurrency does not include any malicious programming or potential vulnerabilities.

Example: In late 2021, a new cryptocurrency called Squid Game (inspired by, but not affiliated with, the popular Netflix series) grabbed headlines before spectacularly crashing into a rug when its developers abruptly ended the project have given up. The coin was worth $2,861 at its peak when the developers out of nowhere drained $3.36 million dollars from the project and disappeared. Within minutes, the coin crashed to almost nothing, leaving its investors with huge losses.

How to report crypto scams

If you are the victim of a cryptocurrency scam, you may not always be able to get your money back, but you can help stop the scammers in their tracks by reporting scams to government authorities.

Report a scam to the SEC: The Securities and Exchange Commission regulates many types of financial investments, including cryptocurrencies. Report investment schemes, Ponzi schemes, false claims and other types of financial crimes to the SEC here. Report fraud to the FTC: The Federal Trade Commission has a number of programs in place to protect consumers from bad actors. You can report any form of cryptocurrency fraud to the FTC here.

How to avoid crypto scams

Crypto scams come in all shapes and sizes, but there are a few things you can keep in mind that will help you stay away from dangerous projects:

Stay away from anything that sounds too good to be true (make money fast, invest without risk, claim free rewards, etc.) Ask other investors if the project is legitimate Stick to buying verified cryptocurrencies and NFT collections Be be careful when opening unsolicited DMs. you don’t recognize Check a crypto scam database like CryptoScamDB if you’re unsure about a project

Can you get your money back?

Scammers will very rarely return your money on their own. In the cases where people got their money back, the criminals were usually arrested or charged by authorities and forced to return the stolen funds.

If you’ve lost money in a crypto scam, your best bet to get it back is to report the scam to the SEC or the FTC.

To sum it up

Crypto scams are all over the place these days. However, you can avoid most of them by staying away from anything that sounds too good to be true, not opening unknown links and sticking to verified investments.

Frequently Asked Questions

George Hristov

Contributor

George is a technology writer interested in web3 startups and communities. In the dynamic world of crypto, he stays tuned to the daily headlines, deep dives and industry commentary.

Shannon Ullman

Managing Editor

Managing editor works to make crypto easier to understand. Pair editorial integrity with crypto-curiosity for content that makes readers feel like they finally “get it.”