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