5 Most Common Types Of Cryptocurrency Scams & Tips to Avoid Them

Cryptocurrency compared to traditional assets, is less regulated, which increases the risk of fraud, scams, and financial catastrophe.

Due to the pandemic’s impact on traditional markets, many major investors are now turning to bitcoin as a safer alternative for future investment payouts. Bitcoin scams develop at the same rate as new technology, like any completely digital, internet-based platform. Below is the summary of 5 of top cryptocurrency scams everyone should be aware of and tips to avoid them.

What Are Crypto Scams?

By their very nature, cryptocurrencies are speculative. They don’t have the conventional fundamentals that investors may examine and value. Because of this, cryptocurrencies are often highly erratic investments; their prices can change significantly at any time.

Additionally, because crypto markets are generally less regulated, malicious players can more easily manipulate prices and take advantage of unwary investors. There are many ways to manipulate the cryptocurrency market, such as pump-and-dump operations and rug pull.

According to CNBC, scammers made a record $14 billion in cryptocurrencies in 2021, mostly as a result of the growth of decentralized finance (DeFi) platforms. Due to an increase in theft and scams, losses from crypto-related crime increased 79% from a year earlier. Of this amount, more than $2.8 billion came through a “rug pull,” a relatively new but highly well-liked sort of scam in which developers create projects that seem to be legitimate cryptocurrency ones before finally stealing investors’ money and disappearing.

By conducting due diligence before investing, investors can avoid a number of popular cryptocurrency frauds.

Types of Crypto Scams

Exchanges for cryptocurrencies provide a thrilling and financially liberating investing opportunity because they are not subject to government regulation. However, there are many crypto scams that are rampant and prospective cryptocurrency investors should exercise caution when dealing with the following scams:

Investment Scams

These schemes frequently start on social media or online dating sites, so be wary of anyone contacting you about your crypto assets out of the blue. Keep an eye out for anyone promoting a specific crypto asset on social media platforms.

Scammers approach participants in bitcoin investment schemes under the pretense of being seasoned “investment managers.” As part of the scam, the so-called investment managers make extravagant claims about their success investing in cryptocurrencies and assure their victims that their investments will be profitable.

If you comply with their request, your wallet can get empty anytime.

Fraudulent ICOs

Dozens of new cryptocurrencies launch every month, and alongside these new tokens and coins comes a series of Initial Coin Offerings (ICOs). As per Investopedia, nearly 80 percent of the ICOs are scams, and only a meager 8 percent of the floated ICOs manage to reach the trading stage on the various cryptocurrency exchanges.

The most typical fraud is creating a bogus ICO, creating marketing excitement, and convincing people to buy. That’s because ICOs are a fantastic and cutting-edge way to launch a company, and that’s the part that gets abused.

Since Ethereum is an open-source project, it is not Ethereum’s fault that it has become the breeding ground for these fraudulent ICOs. Instead, it is the naivety of inexperienced investors who HODL worthless ICO tokens in the hopes of seeing 100x profits in a couple of weeks.

Such fraudulent token sales or ICOs should be avoided.

Fake Crypto Exchanges and Crypto Wallets

It frequently occurs during the introduction of Bitcoin forks and is one of the simplest ways to con people. These wallets rob you of your BTC as well as your private or seed keys. A malware fraud involves a fake crypto wallet. It is used by scammers to infect a computer and ultimately steal the user’s password or private key.

We strongly advise against choosing a wallet at random from the Play Store because there is a potential that it could be fraudulent, and you could lose your money as a result. Never fall for these wallets without doing your due diligence, even though they can guarantee you the ownership and control of your money.

Stay with reliable exchanges and wallets with a substantial user history to avoid similar scams.

Phishing scams

When you click on a link to a bogus website created by phishing scammers, they can steal your account information. They may post links on social media or get in touch with you personally while posing as well-known businesses, banks, or even government organizations.

The scammers might send you an email or a link that takes you to a website where your login information is stolen. Cryptocurrency wallets and passwords kept on PCs being stolen through phishing attacks today. They can then gain access to your bitcoin and non-fungible tokens (NFTs) after stealing your credentials.

Just be aware that any digital asset could be the subject of a phishing scam, and anyone could become its victim.

Meme coins

Meme coins, which are digital currencies based on jokes or online memes, present another risk for cryptocurrency investors to be aware of. The Dogecoin (DOGE) spike of 2021 is the most well-known instance of a meme coin rush. It was made, at least in part, to parody Bitcoin and other cryptocurrencies.

Nevertheless, certain meme coins have a purpose, and this might make them valuable in a way comparable to other kinds of investments. However, the issue with meme coins is that they lack a use case despite not being intended to do so. The coins themselves, however, are just speculative.

Be suspicious of overly advertised products and use caution while making new investments to avoid falling victim to these frauds.

As per the “Red Collar” YouTube channel: 

With so many people investing in altcoins and crypto tokens, crypto scammers are everywhere these days! Cryptocurrency might be the cash of the future, but don’t be fooled. It’s also a haven for scammers looking to rob investors for all they have. Question is, how do you identify a real crypto investment from a fake one? Well, that’s exactly what we’re going to show you in this video.

How to Avoid Crypto Scams

Even experienced Crypto users can fall victim to frauds as the operating methods of scammers are getting more sophisticated every year. Verify the creators’ social media accounts, as well as whitepapers, patents, project schedules, and forums where users discuss their experiences. If you are uneasy in any case, you could want to think twice before dealing in the project. Follow these tips as suggested by Forbes to avoid crypto scams:

Don’t respond to unsolicited contact: The best strategy is to not reply to anyone who contacts you from your cryptocurrency brokerage—or any other financial institution, for that matter.

Check before you click: Never click on links or open attachments from unknown senders.

Place a hold immediately: Put a hold on any upcoming transactions based on fraud as soon as you become aware of suspicious activity on an account.

Keep accounts separate: Don’t permanently link your standard bank accounts with cryptocurrency brokerage accounts.

Use reputable companies: Use a wallet from a trustworthy business to protect the security of your information and cryptocurrency.

Look for HTTPS: Any URL for a cryptocurrency exchange or wallet that has HTTPS rather than merely HTTP denotes that the site’s traffic is secured and encrypted.

The Bottomline

Decentralized financial systems can present a hidden problematic situation. On the plus side, the absence of a single governing body permits decisions to affect the entire community and may present new opportunities. On the other hand, without uniform oversight, dishonest people can defraud investors in a number of ways and commit fraud.

Despite the fact that cryptocurrency-related crime may be at an all-time high, analysts point out that legitimate cryptocurrency use is expanding more faster than criminal use.

However, by being aware of these scams and taking preventative actions, cryptocurrency investors can reduce their risk of falling victim to market manipulation, much like in traditional asset markets. This entails utilizing trustworthy exchanges and conducting in-depth research before to making any financial decisions.

Frequently Asked Questions:

How do crypto scams work?

Scammers are present on social media and in dating applications. Social media ads, posts, or messages are the origin of many cryptocurrency scams. And the majority of cryptocurrency is lost to investment fraud, when scammer trick you into investing money with the promise of making you more – quickly. That is false. Your initial investment will be lost, and you won’t make any money.

How much money has been lost to crypto scams in 2022?

Over 46,000 consumers reported losing more than a billion dollars in cryptocurrency to scams since the beginning of 2021. The FTC’s new data spotlight demonstrates that cryptocurrency is a popular means for scammers to steal money. Social media ads, posts, or messages are the origin of many cryptocurrency scams.

How do I report a cryptocurrency scam?

If you encounter a cryptocurrency scam in the US, you can file a complaint with the Federal Trade Commission (FTC) at ReportFraud.ftc.gov, the Commodity Futures Trading Commission (CFTC) at CFTC.gov/complaint, the Securities and Exchange Commission of the United States (SEC) at sec.gov/tcr, or the Internet Crime Complaint Center (IC3).

What should you do if you fall for a crypto scam?

One of the first actions you should take after being a victim of a crypto scam is to keep an eye on your credit record. You’ll be able to assess the effect of the cryptocurrency scam on your credit score and identify any fake accounts formed in your name as a result.

What is crypto scam checker?

A database of cryptocurrency websites and projects and their legality status is kept by Crypto Scam Checker. You can enter a website or project here to see if it’s a legitimate business venture or not. The objective is to develop a system that assesses and decides if a cryptocurrency project is legitimate or fraudulent.