With the popularity of cryptocurrencies increasing every year, more and more scammers are emerging around them. In just the six months between October 2020 and March 2021, about 7,000 people (majority of them age 20 – 49) reported being scammed out of crypto with a median loss of $1,900 each. Below are some of the most popular scam methods along with tips on how to avoid each type of crypto currency scam.
Read our report on the biggest crypto hacks (thus far!)
Airdrops are a legitimate marketing strategy used by many companies trying to promote a new crypto token. For example, in 2021 Uniswap airdropped 400 UNI (approx. $6000) to their loyal users completely for free, just to stimulate the market for that coin. However, many swindlers impersonate these authentic companies and convince unassuming users of their credibility.
In the airdrop scam, the contact will offer to send you free coins but will ask you to cover the transaction fees, also known as “gas fees”. But remember, the sender always covers the gas fees in a crypto transaction; there is no case where the receiver would actually be made to pay for it. The scammers simply disguise a transaction as a gas fee and ask you to pay it. In reality, the transaction is just a normal transfer to their crypto wallet.
Of course, in scams like this, there is no real airdrop. The scammer will simply take your “fees” and then stop contacting you. They may also ask for other information, like your contact details. You should never provide any of this info because it will more than likely be sold to third-party sites for future malicious endeavors like phishing scams.
Examples of Fake Airdrop Scams
Airdrop Scams happen multiple times a week! $LIB, $OGN, $THNB, $FMD, and more are recent coins that were recently airdropped with the sole purpose of stealing money from crypto enthusiasts. If they get someone to pay, all of these operations keep working on them to try and squeeze even more money out of them!
Before you take part in an airdrop, it's a good idea to search Google to make sure the coin you're buying does not show up on an up-to-date list of airdrop scams.
How To Avoid Airdrop Scams
- Only accept airdrops from their official sources instead of shady chat groups.
- Do not give money to ‘receive' an airdrop, or any crypto for that matter.
- Pay gas fees only through outgoing transactions that require it.
- Do not provide any personal information unless you are dealing with a trusted site.
- If the airdrop amount seems too good to be true, it probably is. Airdrops are usually for relatively small amounts and only give away new coins, not established stablecoins.
In Crypto Ponzi schemes, scammers create a business plan in order to generate income by attracting investors. Fraudsters use the new crypto investments they get to pay their old investors and keep the operation running, so they need a steady flow of crypto investment to survive.
This gives investors the impression that they're making money off of the cryptocurrency project they funded. But in truth, they're just throwing away perfectly good crypto. In almost every industry, scammers employ this strategy, and the same methods are used to deceive people in the cryptosphere as well.
The Mining Max Scam
Nowadays, most crypto enthusiasts know that cloud mining operations, which essentially allow people to invest in Bitcoin mining technology and reap the returns, are a bad idea. But back in 2016 when Mining Max was founded, the scam that is cloud mining was a brand new idea.
Over about a year, the Mining Max team got crypto investors to put around $250 million into the venture. During that time, their investors saw a quick return on their money that came from the next round of investments rolling in. Since much of the money taken in was spent on the marketing budget, the waves of investors putting money into Mining Max's supposed mining rigs got bigger and bigger, meaning the scheme could afford to pay out big.
Like all Ponzi schemes, though, Mining Max unraveled when people started asking for their money back and realizing it was no longer there. A few of the team members were arrested, but most of them are still at large.
How To Avoid Investment Scams
The general rule of thumb for spotting cryptocurrency scams boils down to keeping an extra eye on anything too good to be true. In order to recognize such frauds, here are seven common red flags to watch for in an investment opportunity.
- Investments with little to no risk and big reward, known in the investment world as “outsized return.”.
- Projects that push you to recruit new investors.
- Organizers who rush you into investing quickly.
- Unrealistic proposals and promises.
- Unregulated business.
- Business strategies that are secretive and vague.
Believe it or not, legitimate Youtubers and live streamers have been responsible for orchestrating a lot of crypto scams lately. These manipulative scams work like a classic pump-and-dump.
Since literally anyone can make a coin in today's day and age, a number of influencers have used their outreach to reel fans into their schemes. They use their platform to advertise and hype up their coin, making sure to keep most of the coins themselves. Because of how cryptocurrencies gain value, the price of the coin climbs higher and higher the more fans buy. Once it has reached high enough, the influencer will sell all of their coins. They'll make a big profit, but the coin will crash and their fans will suffer a massive loss on their investments.
The FaZe Clan Rugpull Scam
In June 2021, four members of FaZe Clan, a hugely popular esports organization, pulled off an influencer rugpull scam. Members Kay, Teeqo, and Nikan were the ones to issue a coin called Save the Kids, claiming a portion of the sales would go to children's charities. Lots of fans bought into the coin, partially because it was for a good cause (supposedly) and partially because the FaZe clan is just so popular. Two days later, the four members began to gradually sell their shares for $0.0029. Within a week, the price had crashed to $0.0012 per coin.
Since the world of cryptocurrencies is still unregulated by authorities, the four FaZe Clan members were not arrested or made to return the money. However, the FaZe Clan organization itself saw what the four had done and suspended them indefinitely.
How To Avoid Rugpulls
- Avoid trading small coins without experience. Stick to coins you've actually heard of until you know the crypto market well.
- Be cautious of coins on the Ethereum Chain or the Binance Smart Chain (the majority of scammers choose these for their cheap cost)
- Steer clear of coins where a few wallets hold the majority of tokens.
Fake Wallets And Exchange Websites
Unfortunately, the world of crypto-related web pages is filled with fraudulent sites. Some of them even clone well-known sites to give themselves the appearance of trustworthiness. Many are disguised as Bitcoin wallets, some as exchanges, and some are a bit of both. Typically, once you're registered, they start off functioning like a legitimate site would in order to put you at ease and earn your trust. As soon as you deposit cryptocurrency, though, the scammers suddenly give up the charade and vanish with your hard-earned money.
KRX is the largest financial platform in South Korea. In 2017, BitKRX appeared. It was a new branch of KRX focused on cryptocurrency rather than fiat – or at least it claimed to be. Millions of Koreans invested their crypto in BitKRX, but when they tried to withdraw they found they could not. BitKRX had never been legitimate at all; it simply banked on the public goodwill towards KRX and used it to make people invest. The total amount lost is undisclosed, although it was likely billions of dollars.
How To Avoid Fake Cryptocurrency Websites
- Stick to reputable brands of crypto exchanges and wallets.
- Research the site you're trusting your money with.
- Download software and applications only from official providers.
- Make sure you're at the correct web address when inputting any of your information. (e.g., coinbase.com instead of c0inbase.net, binance.com instead of bimance.com)
Unlicensed Crypto Casinos
Crypto casinos are known to give the most generous bonuses of any online casino, but some offers are just too good to be true. The internet is flooded with unregulated crypto casinos that tell you all kinds of fairy tales just to get you hooked. You might not get any issues at first but once you deposit a large amount of crypto or win a jackpot, you are almost guaranteed the casino won't pay you back.
These shady sites usually fool players by using pirated games from reputable casino providers like NetEnt or BGaming. They may also claim to have casino licenses that they do not have. While popular titles on their site may appear to give them credibility, a quick look at the terms and conditions reveals the contrary: once you put your money into the casino, it becomes their property for good.
Obviously, no casino licensing agency would give the stamp of approval to a casino site with such a disregard for customer satisfaction, and no reputable developers would license their games to such a site.
How To Avoid Unlicensed Crypto Casinos
- Read the casino terms and conditions.
- Even if the casino claims to be licensed, check the site of the licensing agency to make sure it is listed there.
- Research the casino through reviews and forums.
Malware & Phishing
These scams will work as long as people use some kind of ID and password system. In this case, both malware and phishing are after your crypto wallet or exchange account information. The most common way people fall for these tricks is by clicking malicious links from something like an email.
Once you click a bad link, you will be prompted to install a program that looks legitimate. In actuality, though, the program will infect your computer with a key reader or other programs that let the hackers uncover your sensitive data. They can use the data to log into your accounts and drain your crypto.
Another way hackers phish for your info is by posing as your bank or exchange website where you'll be asked to log in. Even partial details like your social security number could be used against you by scammers. They will steal your identity and pose as a customer who lost their login credentials, reset your password, and gain access to your account or private key.
Bitcoin Scams Are Soaring
In the past year or two, the adoption of crypto, Bitcoin in particular, has grown exponentially. And with that rate, phishing scams have grown more common – over 1000% as common as they were in fall 2019, in fact. America is the region of the world most affected by this epidemic but Western European countries are close behind.
How To Avoid Malware & Phishing Attempts
- Regularly scan your computer with antivirus software.
- Only download apps from official sources.
- Be extremely cautious when opening 3rd party executable files (.exe).
- Use a hardware wallet, 2FA, multisig, or another form of added security that is resistant to phishing when dealing with cryptocurrency funds or related accounts.
P2P Crypto Scams
P2P (peer-to-peer) is when you trade crypto to others for cash or other coins. Not everyone can be trusted, though. Some shady P2P traders may try to scam you with tactics like voiding their transaction after sending you crypto or persuading you to send your crypto first and then never sending theirs in return. In fact, social media was the most common method of contact for crypto scammers in 2020.
How to Spot a Bitcoin Scammer
Unlike the other types of crypto scams listed here, P2P crypto scam artists work on an individual level and are much less likely to be discredited with a Google search. That being said, there are some red flags you should look for before making a P2P crypto transaction with a stranger on the internet. For instance:
- Check how old the person's account is. An account that is only a few days old is likely to be a scammer or a bot.
- If anything concerning crypto seems too good to be true, you can assume it is.
- In the case that the person you're talking to does not seem to understand anything about crypto, they very well may be a scammer.
- Ask the person to arrange a meeting, whether in person or over a call, before sending any money. If they refuse, they're probably a scammer.
Unfortunately, scams are still a big part of the crypto landscape. They come in many forms, but they all have one thing in common: they take advantage of unregulated transactions. The best way to avoid all of them is by sticking to reputable crypto networks like Binance or Coinbase, and don't venture into less regulated territory like airdrops and remote P2P unless you've done thorough research.
Is cryptocurrency fraud illegal?
Yes! It can be hard to trace crypto scammers because of how secure the medium is, but it's certainly worth reporting crypto scams to the police. If they have the power to take action, they will.
How to get bitcoin back from a scammer?
Most people don't realize that crypto platforms sometimes have methods to reverse or void a transaction if it is recent. If that option doesn't work, try filing a report with the police.
Can you get scammed on Binance or other huge crypto sites?
Yes, but it is much less likely than if you are using smaller sites. Even though binance and other large crypto sites have mechanisms in place to make transactions more anonymous and secure, scammers can still use third-party methods of communication like social media to get you to do dumb things with your money.
A favorite tactic of hackers is to try to lure you away from the larger and more reputable wallets or exchanges to smaller and less secure sites where they have more chance to strike. Don't fall into this trap!
What is the most secure cryptocurrency?
Bitcoin is the most secure. The network is highly trustworthy and has had a market cap as high as 1.2 trillion. That's higher than that of all other cryptocurrencies combined. Because of that, it is most stable and most highly regulated.
What is the biggest crypto scam ever?
Bitconnect was a cryptocurrency Ponzi scheme that ran throughout 2017 and part of 2018. Investors in the Bitconnect coin, which claimed it would give a 140% return to those who bought it, ended up losing $2.6 billion.
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