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Blog|Exchange|What Is a Crypto Scam and How to Identify It?
Published April 26, 2022|11 min read

What Is a Crypto Scam and How to Identify It?

From types of fraudulent activities to the most dramatic examples, this article is going to give you every answer to the “What is a crypto scam?” question.

What Is a Crypto Scam?

Nowadays, crypto scams cover a whole bunch of fraudulent activities aimed at ripping off your crypto funds one way or another. While the advantages of cryptocurrencies have recently inspired many enthusiasts, both developers and traders, it is important to understand that where there is profit, there are scammers. The experience of dealing with cryptocurrencies can be spoiled by meeting with fraudsters. That is why you should be equipped with tools to detect and avoid them. So, what is a crypto scam? Let’s sort out their most common types.

Investment or Business Opportunity Scams

Businessmen know how essential it is to contribute to the emergence of a promising project. If it is well-promoted, it will be possible to make significant profits later. Fraudsters are also aware of the importance of investing in the initial stages of project development and actively exploit this by swindling businessmen out of their money. What is a crypto scam in the investment world? There are at least five ways for an investor to stumble across them.

Cryptocurrency and ICO Scams

An Initial Coin Offering (ICO) is aimed at gathering funds for new cryptocurrency projects. And you can encounter your first-ever scammers exactly at this stage. That is why participation in an ICO could be not only speculative but also a risky endeavor.

Users can get a letter informing them about an appealing project and inviting the would-be investors to participate in it. After gathering enough investments, the scammers just disappear. Fake projects are aimed at gullible users. Sometimes, the fraudulent schemes are extremely simple and look like "transfer money to our incredibly innovative team, and we will send you incomparably valuable tokens." And as long as there are people who are ready to give away their money so easily, this type of crypto fraud will continue to work out all right.

More advanced schemes are used to lure sophisticated users. Fake channels and websites are created, sometimes mimicking web resources of respectable companies.

Fraud with ICO projects is quite widespread due to the fact that launching your own token is very simple and does not take much time or effort. If you don't know how to avoid cryptocurrency scams, decrease your risk of getting involved in a fake startup by doing the following:

  • Do not rush to participate in a seemingly alluring project. Usually, scammers use the time factor to push you into wrong investments by saying "Urgent!", "Just one day!", etc.
  • Instead, check the project team by looking at other undertakings its members have participated in.
  • Carefully study the team's previous track record.
  • Find out if the smart contract code verification was done by any third party.
  • Learn how to identify fake cryptocurrency to better protect yourself.
  • Fake Exchanges, Wallets, and Apps

    The fraudulent infrastructure is very extensive. Even if you set up a wallet in a safe place, this does not guarantee that you won’t end up on a fraudulent crypto exchange or won’t download malicious software one day. Be aware of deceptive mobile applications and stay suspicious of calls of a “personal assistant.”

    Besides that, scammers can steal users' accounts by urging them to change settings. They send a notification signed by a technical support team about blocking an account. The disappointed owner calls back to find out what can be done to unblock it. The scammers kindly give instructions that allow them to appropriate the account.

    Investment and Business Opportunity

    Scammers are haunting businessmen who could be interested in developing some crypto projects. But they do not take money by force. They simply offer attractive conditions for profitable investments:

  • They direct their money in a huge advertising campaign so that you have no doubt it is a worthwhile project.
  • To build credibility, they use an unauthorized image of any celebrity or opinion leader who is known for their sympathy for crypto in their ads.
  • They can even fake news releases where state channels allegedly broadcast messages about successful crypto investment projects supported by serious owners.
  • Cryptocurrency fraud of this kind is primarily focused on new users. And as the popularity of cryptocurrencies grows, scammers have vast opportunities to manipulate gullible investors.

    Cloud Mining Scams

    Cloud services reside out of users’ reach, so it is easy to hide fraud here. The user is offered to rent mining capacities because not everyone can afford to buy mining equipment for a number of reasons:

  • Advanced equipment is very expensive.
  • It consumes a lot of energy, which is an obstacle for regions with expensive electricity.
  • It generates a lot of heat and therefore, creates additional problems in countries with a hot climate.
  • After paying the rent, a crypto fan even receives some mining income for a while. But the whole system operates as a financial pyramid. The money of new participants is paid in the form of dividends to those who entered the scheme earlier. When the organizers collect the amount they need, they simply disappear.

    DeFi Rug Pulls

    DeFi (Decentralized Finance) platforms are very vulnerable to crypto scams since they are not regulated by some agency. That is why investors take a high risk of losing their money allocated to projects on these platforms.

    In this scheme, developers who promised unthinkable returns on initial investments suddenly depreciate their tokens and withdraw all their funds. That becomes possible due to tying their fake tokens to a valuable cryptocurrency. When trusting investors buy enough of their tokens on a DEX, the developers reap the rewards and curtail their activities. Naturally, the money is not returned to the investors, and the dishonest developers start working on a new fraudulent project. This scheme has got the “Rug Pulls” title.

    Social Engineering Scams

    Fraudsters often exploit the publicity factor in their schemes. They can promise something on behalf of a famous person or threaten to make some sensitive information public.

    Giveaway Scams

    How to lure cryptocurrency from its owners? To offer something valuable in exchange would be a great idea. The owner will gladly give their crypto to get a desirable product or attend an exciting event. Therefore, scammers promise participation in some action in return for a small crypto contribution. Typically, this happens on the eve of the launch of a new ICO since their gain is ensured by a great number of people wishing to participate in the action. Therefore, if you see something like "pay and get access" in the promotion terms, you will surely get neither access nor your money back.

    Phishing Scams

    This method exploits people's trust in media personalities and celebrities. To lure money from the crypto owner, a fake website of a famous person is created. All sorts of actions are offered on behalf of the influencer, for example, raising money for humanitarian purposes. It can be environmental protection, helping refugees, etc. The more responsive you are, the more crypto will go to scammers' wallets. Therefore, always check the authenticity of pages on social networks. By doing that, you will never have to wonder, What is a crypto scam?

    Blackmail Emails

    Blackmailing is quite a popular and typical fraudulent scheme. The only components that vary are:

  • Assets are valuable for scammers. It could be real estate, precious metals, fiat currencies, and crypto. The popularity of cryptocurrencies has provided fraudsters with a new target audience.
  • Details of confidential information. It can be something that users don’t want to make public. Since the falsification of information is facilitated with the development of digital technologies, scammers often try to achieve their goals with fake information. They know that a person will have to spend a lot of effort and resources on excuses if the information becomes public. The victims of blackmailing know pretty well what a crypto scam is.
  • Social Media Fraud

    When it comes to crafting new plots for their deceitful activities, the imagination of scammers is unlimited. They can start fundraising on a user’s hacked page. They can even create many accounts and put on an act, gradually involving the user in their network. In this case, it will seem to the victim that many independent people support the offered activity. And in the end, the person will get into the clutches of one or several swindlers.

    TOP Hacks of Cryptocurrency Exchanges

    Just as regular criminals rob banking institutions, crypto scammers encroach on cryptocurrency exchanges. These platforms attract numerous traders and investors and, therefore, become an important target for hackers. So, what is a crypto scam on crypto exchanges? Explore the examples below to learn possible scenarios.

    BitMart

    Numerous BitMart users became victims of a hacker attack at the beginning of December 2021. As the crypto exchange administration declared, scammers made a large-scale breach in the BitMart security system and withdrew assets of more than $150 mil.

    Mt Gox

    A hacker attack on the Mt Gox exchange in 2011 led to the price of Bitcoin falling by more than 1,000 times. However, the scammers did not stop there and, in fact, made Mt Gox their financial donor. As a result of their machinations, users of the exchange lost Bitcoins equal to $2.5 trillion. In 2014, the company declared bankruptcy. 7% of all the bitcoins that existed on the market at that time were lost.

    Liquid Global

    The Japanese cryptocurrency exchange was attacked in August 2021 by unknown hackers. Its “hot” crypto wallets suffered a $100 mil leak as a result of this attack. To save the situation somehow, the company has begun to transfer their users’ crypto to “cold” accounts.

    How to Avoid Cryptocurrency Scams

    The most fertile field for a cryptocurrency scam is the ignorance of users. That is why gathering all accessible information is your main protection against deceitful people.

    How to Identify Fake Cryptocurrency

    First of all, you must understand that investing in cryptocurrencies involves a high degree of risk in any case:

  • Crypto is highly volatile, and you can encounter serious losses if you invest a lot in one of its types.
  • Startups are launched almost daily. Developers are trying to raise investments for their projects via ICO. Many of these projects are fraudulent.
  • You will figure out your own answer to the “What is a crypto scam?” question if the following advice is ignored. The classical approach of “4 T” will save you from entering the deceitful ground:

  • Theme. Don’t hesitate to request official documents from startups, such as whitepapers. They should include a detailed plan of investment returns for every stage of the project implementation. Should they be unrealistic, opt for exiting from this proposition. If the project includes smart contracts, that is a positive sign. It means that investors can get their money back under certain conditions.
  • Tech. Consult technical specialists to evaluate the project’s open code. Its accessibility speaks in favor of the project. Open code can be checked by any specialist in this field. The very fact of its publication suggests that the company is not afraid to show it.
  • Team. Study the experience of team members and the history of their participation in other projects. Take enough time to collect additional information about them and browse social networks. This is a fairly effective tool that allows you to spot the most obvious crypto scams. But using it, you can discard truly promising projects. After all, some developers prefer to remain anonymous, although their projects turn out to be very successful later.
  • Token. Gather as much information as possible on the token itself. In particular, pay attention to the following indicators:
  • the number of coins emitted
  • the number of coins left for the founders themselves
  • whether it is possible to buy the coins back
  • the level of coin capitalization
  • the intensity of trading this crypto
  • Only after considering all the above-mentioned factors and, preferably, consulting with a specialist who knows how to avoid cryptocurrency scams can you make your informed decision. With all the information gathered, it will be well-grounded and potentially not harmful.

    What to Do If You Have Been Scammed

    As the popularity of crypto rises, we can observe an increase in the number of scams. But where there is high demand, there are many agencies ready to help you solve problems. Therefore, you can use different means in case of fraud.

    How to Report Crypto Scams

    Find out how to report crypto scams if you become a victim.

  • You will not be able to return your lost funds on your own. You should contact law enforcement agencies about the theft of valuable assets.
  • If you want to speed up the investigation process, contact private detective bureaus to collect additional information.
  • Also, you can appeal to anti-fraud platforms that have sufficient expertise to investigate the scam event on their own.
  • Another option is to rely on specialized companies that will track all operations conducted in the blockchain to investigate this crime.
  • Most Famous Crypto Fraud Cases

    The higher the popularity of a project is, the more scammers can earn on it. The boom around the "The Squid Game" series led to cryptocurrency fraud when thousands of its fans lost their funds due to the Squid token. The scammers swindled money, promising that the token would give access to the game. And even the warnings of well-known crypto platforms did not dissuade those who succumbed to their emotions and purchased the token.

    Another novelty of 2021 is sending fake press releases claiming that well-known brands are willing to accept certain crypto as a means of payment. When some media published this information, gullible consumers flocked to an exchange. As a result, the price of crypto soared sharply, and the scammers got rich.

    The largest theft of bitcoins in history was committed in the summer of 2021. Brothers from the Republic of South Africa managed to take bitcoins equal to $2.3 billion from a crypto exchange. They tried to accuse hackers, but when the investigation led to their trial, they simply hid the money.

    Conclusion

    Explore the rich experience of other crypto enthusiasts to protect your assets from scammers. They discuss all possible crypto scams on their forums and specialized platforms. Since innovative projects meet a lot of threats, crypto fans unite to counteract them. By joining this community, you will receive solid informational support that will protect you at all stages of your investment activity.

    Frequently Asked Questions

    What Is a Crypto Scam?

    A crypto scam is a type of fraud based on the victim's trust. As a result, a valuable asset in the form of crypto passes into the hands of attackers through sophisticated schemes rather than direct violence.

    How to Avoid Cryptocurrency Scams?

    Couple your optimistic approach towards certain startups or other investment opportunities with sufficient information. Usually, scammers thrive on people who are not used to thinking critically.

    How to Report Crypto Scams?

    You can choose among anti-fraud platforms, specialized agencies, or law enforcement bodies to report crypto fraud. It is better to contact all of them if the amount of crypto lost was big enough.