Scammers have no boundaries, and they will do anything to take your cryptocurrency.
Swindlers use a variety of tactics to trick victims into making false cryptocurrency investments. Even worse, they use dating applications like Tinder to enter into fictitious relationships.
News items such as “Crypto and Romance Scams Cost Victims Billions” and “A Romance Scammer Took Her Life Savings in Crypto” have become common.
According to a 2022 study by the Federal Trade Commission, victims were really duped out of $139 million last year by cryptocurrency romance scammers (FTC). But there are many different kinds of scams.
The FTC also discovered that between January 1, 2021, and March 31, 2022, more than 46,000 consumers reported losing more than $1 billion in cryptocurrency. And that may only be the tip of the iceberg; there were probably more victims who chose not to come forward.
Partner Aaron Cohn of the financial fraud-focused legal firm Weinberg Wheeler Hudgins Gunn & Dial reports a sharp rise in the number of victims contacting his office for assistance with hacked cryptocurrency accounts.
Retail investors thinking about investing in cryptocurrencies need to be aware of the increased risks and should take extra precautions to prevent becoming the next victim, according to Cohn.
Here’s a guide to popular crypto scams so you can stay away from schemes that target cryptocurrency enthusiasts.
How Do Crypto Scams Work?
Similar to previous financial con games, cryptocurrency scams target your crypto assets rather than your money.
The same methods used in traditional financial crimes, such as pump-and-dump schemes that convince investors to buy a product by inflating its value or outright attempts to steal digital assets, are frequently used by cryptocurrency scammers.
According to Shane Cummings, wealth adviser and director of technology and cybersecurity for Halbert Hargrove, this latter kind of scam may entail hacking into a person’s crypto wallet or convincing an investor to transmit a digital asset as payment for a fraudulent transaction.
It is always the intention to use extortion to get the victim to reveal personal information or send priceless digital assets, like non-fungible tokens (NFTs), to the perpetrator’s account.
According to Chengqi ‘John’ Guo, professor of computing information systems and business analytics at James Madison University, Crypto scams are especially appealing to nefarious agents who appreciate cryptocurrency’s quick conversion to fiat currency, readily available third-party payment applications, and rich obfuscation techniques.
Cryptocurrency Scams: Types
Scams involving cryptocurrency can take many different forms. Here are some of the most typical instances.
Investing fraud
Investment fraud occurs when a dishonest party offers victims “great gains” in exchange for their bitcoin.
Scammers can assume a variety of roles, including that of “investment managers,” celebrities, and even potential partners on dating websites. If you give them your cryptocurrency, they will guarantee to increase your investment.
Pump-and-dump schemes are one type of investment fraud. With assurances that the asset’s value will soon soar through the roof, a con artist persuades you to purchase an obscure cryptocurrency at a ‘cheap price.
When you purchase, the price increases. Later, the con artist sells off their holdings at the higher valuation, causing the price to drop and leaving you and any other victims in the red.
Usually, a fresh token is only worth a few cents or even pennies. But a tiny bit of momentum can push it up the charts on websites like CoinMarketCap.com to give the impression that price appreciation has no end, according to Cummings.
Some investors looking to make a quick profit are lured in by reports of triple-digit percentage gains in a digital asset over a short period of time and want to jump on the bandwagon because of the speed at which new coins are created and marketed to investors on the internet without regulation, he says.
Look for guarantees of enormous earnings or zero risks to identify investment schemes.
Be aware of anyone contacting you unexpectedly regarding your cryptocurrency holdings because these scams frequently start on social media or online dating services. Be wary of anyone praising a certain cryptocurrency asset on Reddit or other social media sites. These are referred to as social engineering frauds.
Ponzi Scheme
Scammers have long favoured phishing scams. The goal of fraudsters is to gain access to your account information, including your crypto keys. He who controls the key holds all the crypto, as any cryptocurrency user is aware.
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, and they might pose as well-known businesses like Amazon, your bank, utility companies, or even government authorities.
For instance, they might send you a text or email informing you that a withdrawal has been started and provide a link to reverse the transaction.
The link leads to a fake website where hackers may go in and take money because they have the investor’s login information, claims Cummings.
A phishing scam can target any digital asset, as actor and producer Seth Green discovered earlier this year when four of his Bored Ape NFTs were stolen. Anyone can fall victim to one.
Upgrade Scams
Software is continuously updated, and bitcoin platforms are simply one type of software. Upgrade Scams Scammers can easily con crypto holders into handing over their private keys as part of a “upgrade” because many people in the digital era are accustomed to upgrades.
The recent Ethereum merger, which worried the Ethereum Foundation and Robinhood and led them to caution clients to be on “high alert” for upgrade fraud, is one example of how upgrade fraudsters can profit from legal migrations.
Sim Swap Scams
One of the most recent types of crypto scams that exist today is the SIM-swap fraud. They take place when a con artist obtains a duplicate of your SIM card and has full access to your phone’s data.
Without the victim’s knowledge, Cohn notes, “that information can be utilised to get and use the two-step authentication codes necessary to gain access to crypto wallets and other accounts.” When this occurs, the victim’s cryptocurrency accounts may be compromised and deleted without ever getting in touch with the victim.
Fake cryptocurrency wallets and exchanges
You can find websites that promote cheap Bitcoin (BTC) if you explore your social network accounts, according to Martin Leinweber, a digital asset product strategist at MarketVector Indexes. They might claim significant savings when you purchase through the website and advertise cryptocurrencies at 5% below market value, however occasionally these platforms are selling fraudulent cryptocurrency products.
These fraudulent cryptocurrency businesses generally advertise exorbitant returns on investment, and when customers pay a hefty initial charge, they are routinely prompted to invest more money.
Additionally, you’ll probably discover that your money is missing when you try to withdraw it.
According to Leinweber, a false cryptocurrency wallet is a malware scam. The private key or password of the user is eventually stolen by scammers who utilise it to infect a device.
Stay with reliable exchanges and wallets with a substantial user history to avoid similar scams.
You should disregard a wallet’s website if it attempts to imitate a respectable company, advises Leinweber.
Reporting Cryptocurrency Scams
Our law enforcement organisations can only do so much because many of the perpetrators of cryptocurrency frauds are located outside of the United States, claims Cummings. Nevertheless, you must still report any offences.
A complaint can also be made to the cryptocurrency exchange that you used to send the money.
A formal complaint is typically necessary, according to Cohn, for your brokerage to conduct an adequate inquiry into a claim. “The investor needs to swiftly determine whether that is necessary and how to go about doing it.”
Guo advises that you can also contact the media and ask them to cover the occasion. “Doing so can increase public awareness of the crime and help to lessen future criminal activity,” the statement reads.
Just remember to share with caution to protect your own privacy, he advises.
How to Prevent Bitcoin Scams
Prudence is crucial due to the increased dangers with digital assets. Use the following advice to steer clear of cryptocurrency scams:
Never reply to unwanted mail or calls. The ideal strategy, according to Cohn, is to not reply to anyone who contacts you through your cryptocurrency brokerage—or any other financial institution, for that matter. Find the institution’s main phone line and give them a fair call.
Check before you click. Never open attachments or links from senders you don’t know.
Maintain separate accounts. Don’t permanently link your standard bank accounts with cryptocurrency brokerage accounts.
Take a grasp right now. If you learn of questionable behaviour on an account, Cohn recommends, “don’t wait to put a stop on any future transactions based on fraud.
Search for HTTPS. A crypto exchange or wallet URL that includes HTTPS rather than merely HTTP denotes that the site’s traffic is safe and encrypted, according to Leinweber.
How to Recover Money from Cryptocurrency Scams
It’s difficult to get your money back from cryptocurrency frauds. The chance of getting your funds back is slim because blockchain transactions are immutable, according to Leinweber.
Despite this, he continues to urge people to report crimes to the police. When you report a scam, the government might find the perpetrators and recover your money, he claims.
The best course of action is to be extra cautious with future assets to avoid falling victim to fraud once more.
