Cryptocurrency fraud has become a major means of financial crime. Only in the US, Citizens will lose over $5.6 billion in 2023According to the Federal Bureau of Investigation (FBI). Funds lost due to cryptocurrency fraud account for nearly 50% of all funds lost due to financial fraud. On the other hand, only 10% of complaints are related to cryptocurrency.
While the cryptocurrency market has been going through cycles of instability, these statistics show a steady increase in the number of scammers using cryptocurrencies to steal money.
In this article, we’ll look at the most common types of cryptocurrency scams, how to identify red flags, and how to prevent and report them.
Understand Common Types of Cryptocurrency Fraud
Although no two cryptocurrency scams are exactly the same, they can be classified into several categories. Familiarizing yourself with these categories can be a good starting point for learning how to avoid cryptocurrency scams.
Bitcoin scams come in many forms. The most common scams include phishing, social engineering, fake exchanges and wallets, pyramid and Ponzi schemes, and fake giveaways.
fake prizes
Every day, countless fake videos and social media posts impersonating famous figures like Michael Saylor or Elon Musk attempt to steal cryptocurrency from unsuspecting users. With the advent of AI deepfakes, some of these videos can look very real.
These scams often take the form of “free giveaways” that ask users to send cryptocurrency to a specific wallet address and promise to receive more cryptocurrency in return. If a user sends cryptocurrency to a scammer’s wallet, the cryptocurrency is lost forever.
fake wallet or exchange
Sometimes scammers mimic real wallets or exchanges to trick users into depositing funds. Instead of going to a legitimate wallet or exchange, the funds arrive at the attacker’s intended destination. To avoid these scams, download software wallet apps from verified providers, purchase hardware wallets directly from their manufacturers, and use well-known exchanges.
Phishing and Social Engineering
Phishing and social engineering scams are common in the cryptocurrency industry, using fake messages, websites, and emails to steal sensitive information. Phishing typically mimics legitimate platforms to trick users into sharing their credentials, while social engineering manipulates them into revealing personal information through fake support messages or emergency notifications.
Avoiding unusual links and checking URLs can help protect against these attacks. Double-check that all emails are legitimate and remember that no one from the exchange, hardware wallet manufacturer or cryptocurrency platform will ask for your login credentials or seed phrase.
Ponzi and Pyramid Schemes
Ponzi and pyramid schemes also thrive in the cryptocurrency space, promising high returns but ultimately being unsustainable. A Ponzi scheme uses funds from new investors to pay off initial investors, while a pyramid scheme entices participants to recruit others. Both lead to losses, and warning signs include “guaranteed” profits or pressure to recruit more recruits.
Pig Slaughter Scam
“Pig butchering” scams involve scammers building trust over time, often posing as friends or romantic partners before convincing victims to invest in fake cryptocurrency platforms. Once the victim “gets fat” by investing more money, the scammer disappears with the funds. Beware of unsolicited investment advice and relationships that force you to make financial decisions.
Fake customer support accounts on social media
Fake customer support accounts are rampant on social media. They often ask users to “verify” their wallet by sending them cryptocurrency. Always contact support through official website channels and not through unsolicited social media messages.
How to Identify Red Flags of Cryptocurrency Scams
Scammers often use high-pressure tactics, promises of quick returns, and deceptive communication to lure people in. Fake platforms can be trickier to spot, but they often share certain characteristics, such as a lack of transparency or issues with user reviews. Below, we’ll look at some specific red flags to help you spot fraudulent activity before it catches you off guard.
Common tactics used by scammers
Promise of guaranteed high profits and profits: Scams often promise abnormally high or guaranteed returns with minimal risk. If someone claims you can double or triple your money quickly, be wary. Legitimate investments involve risk and there is no guarantee of return.
Urgent calls to action and pressure tacticss: Fraudsters often create an emergency situation to say “act now” or risk missing out on a one-time opportunity. In true investing, decisions are rarely made on the spot, so take your time researching and verifying information.
Unusual sender address and incorrectly formatted email: Phishing emails and messages sent by scammers may contain formatting errors, such as unusual sender addresses, typos, strange punctuation, or inconsistent fonts. If you think there’s a problem, don’t click on the link or respond before checking again.
Signs of a fake platform
Here are some signs that a platform may be fake:
Lack of transparency and anonymous founders: Legitimate cryptocurrency projects usually have clear information about their team, including their names and background. If the founders are anonymous or have little information available, it could be a red flag. Research whether key team members have a verifiable track record in the cryptocurrency industry.
User reviews indicating questionable behavior: Negative reviews that mention issues such as missed payments, sudden withdrawal limits, or additional investment pressure will raise red flags. Search for reviews and feedback on external sites, and be cautious if you can’t find trustworthy third-party information on the platform.
Best Practices for Avoiding Cryptocurrency Scams
Users can take some practical steps to help prevent cryptocurrency investment scams. Many of these measures include verifying your details and practicing good personal cybersecurity overall.
Perform due diligence and verification
The phrase “Do Your Own Research” (DYOR) has become popular in the cryptocurrency industry for a reason. You can avoid many pitfalls by thoroughly researching a project, platform, or investment before getting involved. It takes some time to do so, but it’s not too complicated. You can:
- community survey: Most legitimate cryptocurrency-related topics have communities full of verified users talking about the topic. You can find this information on social media, review sites like TrustPilot, and even the organization’s own forums or comments sections.
- Confirm your email address: You can check many official emails with a simple Google search. For example, if you receive a suspicious email that appears to be from Coinbase, try searching on Google for the sender’s full email address. If you’ve seen scam-related content in the past, it’s likely to show up on the first page of search results.
- Don’t be swayed by social media: Social media can sometimes be a useful source, but it is often used as a primary manipulation tool for cryptocurrency scams. Just because an influencer hypes something or has a lot of activity around it doesn’t necessarily mean it’s legitimate. In fact, many scams start this way.
Remember to only use well-known wallets and exchanges with a proven track record.
Cryptocurrency Security Best Practices
Enacting cybersecurity best practices for your personal devices and accounts can help protect yourself from Bitcoin fraud. Here are some basic steps anyone can take today:
Enable multi-factor authentication (MFA): If possible, use MFA for virtual accounts. MFA makes it much more difficult for hackers to access your data because logins require both a predetermined password and a unique one-time password (OTP). Common targets for hackers include social media accounts, email, gaming accounts, and financial accounts. You should also use a strong, unique password for each account so that if a hacker gains access to one login, he or she cannot access the others. A password manager makes handling multiple, complex passwords much easier.
multi-signature wallet: For those holding significant cryptocurrency assets, multi-signature wallets add an additional layer of protection by requiring multiple parties to approve transactions.
Avoid using public Wi-Fi: Public Wi-Fi networks are notoriously insecure, especially if they are not password protected. Anyone can access these networks, monitor activity, and potentially steal data. To stay safe, we recommend using a personal Wi-Fi hotspot on your phone when using online outside the home. A virtual private network (VPN) can also be useful, especially when accessing or transacting financial data. A secure VPN creates an encrypted tunnel for your web traffic and routes your traffic through a VPN server, allowing you to spoof your IP address and location.
Never share sensitive information: Do not share sensitive details about your assets with anyone you do not trust. In most cases, you don’t need to share your personal financial information with anyone. Request information that could be used to allow someone to access your account; Cryptocurrency wallet seed phraseIt’s almost always a scam.
Use virtual machines (VMs): Users who want to make more efforts to protect themselves virtual machine On your personal computer. A VM creates an isolated environment on a host device – a computer within a computer. If something malicious happens inside a VM, it is very difficult for the contamination to spread to the rest of the computer. This only protects against actions such as downloading malware or other direct forms of hacking. For example, social engineering attacks can still be performed against people using VMs.
How to report cryptocurrency fraud
We hope that you will not be scammed or harmed by cryptocurrency. However, if it does happen to you, reporting the incident increases the likelihood that others will avoid the same scam and that the perpetrators will be punished.
Steps to report fraud to authorities
If you’ve been the victim of a cryptocurrency scam, reporting it can help protect yourself and others. First, report the fraud to a regulatory authority, such as the Federal Trade Commission (FTC) or your state’s financial protection agency. In these cases, there are often dedicated online forms for these cases. Next, report the scam to your service provider, including exchanges, DeFi platforms, and wallet providers.
In addition to reporting, you can take steps to protect the rest of your personal accounts as soon as possible. Fraudsters often take notice of vulnerable victims and target them repeatedly. To prepare for this, freeze your credit, change your passwords, and keep an eye out for suspicious activity.
Put an end to cryptocurrency scams
However, you can protect yourself from cryptocurrency investment scams by being aware of common schemes and remaining vigilant. This can be prevented through scams such as phishing attacks, Ponzi schemes, fake platforms, and fake giveaways (which often involve promises of guaranteed returns, high-pressure tactics, and poorly formatted communications).
Take proactive steps to stay safe by applying security practices such as two-factor authentication, thorough project vetting, and double-checking the authenticity of communications. Being vigilant and proactive about security will help you navigate the cryptocurrency space more confidently and avoid falling victim to scammers.