Which crypto scams to watch out for

What are the common crypto scams?

Crypto’s rise in popularity has also caused an increase in financial scams. In fact, according to one fraud report by the US Federal Trade Commission, more than 46,000 people has reported losses due to crypto scams since the beginning of 2021, with more than $1 billion lost.

The top cryptocurrencies used to pay scammers were Bitcoin, Tether, and Ether. These huge losses and the rise of scammers make it clear that cryptocurrency users need to be vigilant, and there are various scams to keep an eye on.

Common scams in Crypto

1. Phishing

Phishing is one of the most common schemes because it is highly effective. This usually involves tricking users into giving up their account login information. Usually this is done through a fake web page or via a fake email where users enter their information which is then collected by the scammers.

In cryptocurrency, there are other types of phishing to watch out for. Seed phrase phishing involves fake account recovery forms that require users to enter their recovery phrase. Unfortunately, this gives criminals complete access to users’ crypto wallets.

Ice phishing uses clickjacking to obtain user tokens. Clickjacking tricks users into clicking on a fake item that looks legitimate. In crypto, this usually occurs when a transfer is made between accounts. The scammer intercepts the transaction and then change the transfer information to their own.

Phishing attacks are common and frequent, so it is extremely important to remain vigilant to protect your information. Watch out for poor grammar and spelling, suspicious links, wrong URLs and messages from unknown users.

2. Back Pull Scams

Rug pull scams involve fake startups and bad actors trying to lure investors. Once enough funds are raised, the startup is deleted or shut down. In crypto this typically happens with new coins or NFTs.

In January 2022, a carpet pulling scheme resulted in a total loss of $1.3 million. Fortunately, the Department of Justice (DOJ) was able to arrest the perpetrators after a successful investigation.

3. Social media scams

There are a wide variety of crypto scams that occur through social media, such as fake gifts, impersonations, and romance scams.

4. Fake gifts

“Congratulations! You’ve won our Bitcoin Giveaway!” may be exciting to read, but it is just a manipulation tactic. Criminals will then ask users to send a specific amount of cryptocurrency to confirm their wallet address. After receiving the payment, the criminals disappear with the victims’ funds.

5. Imitation

Many scammers try to create a false sense of security by impersonating a trusted account. These accounts have very similar names with only one or two letters changed, and they use the logo of the cryptocurrency coin or wallet they are trying to impersonate.

Scammers may also try to impersonate other trusted sources. Under this guise of credibility, criminals will try to trick users into offering private information. In crypto, this is usually obtaining user account data or tricking users into transferring crypto to a fake account.

6. Romance scams

A subcategory of impersonation is romance scams. According to the Federal Bureau of Investigation (FBI), romance scams happen when someone creates a fake online identity to trick strangers into romantic or intimate relationships. Once trust is established, the criminal will manipulate the victim into sending them money.

In crypto they usually have the victim buy crypto and send it to them. The relationship either continues, or the victim is haunted with no way to recover their losses.

Useful tips

As you can see, crypto scams come in many forms, and unfortunately, criminals use tactics that can easily confuse or deceive you. They can even combine tactics to improve their chances. Fortunately, there are some tips to help you avoid being scammed.

1. Choose a credible crypto wallet

The best defense against crypto scams is choosing a crypto wallet which comes with robust security features such as two-factor authentication and encryption.

Some wallets are even virus resistant because they require a hardware device like a USB drive to store the crypto. These are called “cold wallets” as they are not always connected to the internet. In some cases, wallets will have insurance if fraud does occur.

2. Verify the sender

If you receive a message, especially from someone you don’t know, you should verify who the sender is. As mentioned before, copycats will use very similar names that are only off by a character or two. If you are unsure, report the message as spam.

3. Grammar and spelling

Scams tend to have poor grammar, spelling and punctuation. If you receive a message or email from someone new, take note of these components. If something looks fishy, ​​it’s probably a scam.

4. Beware of manipulation

Regardless of the different manipulation strategies used, the number one thing scammers will do is try to gain your trust. But they will also use other methods, such as creating a sense of urgency through excitement or threat. Offers that seem too good to be true probably are, and threats are a clear red flag.

5. Educate yourself

Regardless of your cybersecurity knowledge level, it’s always a good practice to stay up-to-date on current scam schemes. If you are new to cryptocurrency, then it is extremely important that you familiarize yourself with relevant terms and concepts to ensure that you understand what is legal and what is not. Corporate Finance Institute offers a variety of courses on the subject, which are listed below.

More resources

Thanks for reading CFI’s guide to the Crypto Scams to watch out for. To continue learning and developing your knowledge base, please explore the additional relevant resources below: