Since the creation of Bitcoin in 2009, cryptocurrencies have slowly gained traction among investors, culminating in a massive boom in the last few years. Cryptocurrencies such as Bitcoin and Ethereum climbed so high in value that every investor and their mother wanted a piece. All that hype has definitely died down by a lot in the current year, but this doesn’t mean that cryptocurrency is dead. Crypto still remains a fairly popular, if not very risky opportunity.
Unfortunately, this does mean that crypto scams are still a dime a dozen. The more money something makes, the more enticing it becomes for criminals to take advantage of, and crypto is no different. As the cryptocurrency market evolves, so do the strategies of scammers. In this article, we will explore some of these scams so that you will be well-equipped to spot a fraud from a mile away.
Types of crypto scams
Phishing
Phishing is a fairly common tactic utilised by scammers. This essentially involves scammers creating fake and fraudulent websites, or sending deceptive emails that pretend to be legitimate cryptocurrency exchanges or wallet providers. These fake sites or emails will often ask for personal information, investors’ private keys, passwords, and other sensitive information. Be wary as they can be quite persistent and convincing as well. A few ways to avoid phishing scams can include:
- Always verifying the authenticity of a website’s URL or an email’s address. Ensure that you are on the correct website by manually typing in the web address or using bookmarks.
- Be cautious of unsolicited emails or messages, especially those that request sensitive information.
- Use hardware wallets or offline storage solutions to protect your cryptocurrency assets. These are generally less vulnerable to online phishing attacks.
Ponzi Schemes
Named after the infamous conman Charles Ponzi, Ponzi schemes are a nefarious way for scammers to get your money. They work by promising investors significant returns on their investments with little or no risk.
However, the money they use to pay back earlier investors is usually taken from new investors, creating the illusion of a profitable venture. Using investors’ money to pay investors works, until you run out of new investors.
As such, Ponzi schemes are doomed to collapse due to how volatile the investment market can be. Spotting a Ponzi scheme can be quite tricky, but it is not impossible. In order to decrease your chances of being caught in one, you should do the following:
- Always be skeptical about opportunities that guarantee high returns with relatively little or no risk. If it sounds too good to be true, then it probably is.
- Be sure to do your own research into the company or individuals behind the investment. Keep an eye out for credible reviews, news, articles, and regulatory information.
- If you have a trusted financial advisor, then you should seek them out for advice before committing to any opportunity.
Ponzi schemes are also known as pyramid schemes.
Fraudulent ICOs
Initial coin offerings (ICOs) is a type of funding using cryptocurrencies, where companies or individuals attempt to build capital through the sale of a new cryptocurrency to investors. Scammers sometimes take advantage of this form of funding by creating fraudulent cryptocurrency projects and tokens.
They will often market these projects as groundbreaking opportunities with the hopes of drawing in as many investors as possible to purchase tokens that are worthless, non-existent, or unlikely to rise in value. Once they have collected a significant amount of funds, the scammers disappear. The infamous and memeable Bitconnect is a perfect example of an ICO scam.
Just like the Ponzi schemes mentioned previously, your best course of action to avoid ICO scams is thorough research into the background of the project, verifying the legitimacy of the ICO via reputable sources, and exercising extreme caution around projects that offer high returns for low risk. If you are not sure how to research these ICOs, you could try the following:
- Read the ICO’s whitepaper, an informational document issued by a company to promote the product. Keep an eye out for plagiarism or anonymous founders.
- Research any team members whose identity has been revealed.
- Learn about the leadership and whether or not they have a good or bad history in leadership positions.
- Get to know others in the crypto community and see what they have to say. Crypto is very much a community-driven technology.
A fraudulent ICO is also sometimes known as a “rug pull”.
Pump and dump schemes
Pump and dump schemes attempt to manipulate the value and prices of cryptocurrency through misinformation, coordinated buying activities, or straight up lies. Scammers will attempt to artificially inflate prices to catch the attention of unsuspecting investors. Once it seems like the price will hit its peak, these scammers will sell off all their holdings and make off with the profit, likely causing the value of the cryptocurrency to crash while doing so.
You should try to avoid getting caught up in any type of hype regarding cryptocurrencies, especially those that are being promoted via social media. As usual, some thorough research can also help you to spot fishy news or rumours surrounding cryptocurrencies that have rapidly increased in price. Also be cautious of any cryptocurrency that experiences drastic, unexplained price increases.
It’s not always easy to spot a pump and dump scheme because cryptocurrencies are already so volatile. Which is why you should always take extra care before buying anything.
Cryptojacking
Originating from the term “hijacking”, cryptojacking operates similarly. It is a type of scam that involves the secret hijacking of a victim’s computer or device by cybercriminals in order to mine cryptocurrencies without knowledge or consent. It essentially works by injecting a virus or malicious code into websites or applications, giving attackers an avenue to infect and utilise a victim’s computer resources for mining purposes.
In order to avoid getting hit by this malicious software, you should probably invest in a reputable antivirus and anti-malware program. You should also keep your computer and web browser up to date with the latest security measures and protocols. Also, be wary of websites or applications that consume excessive CPU power, as this could be a sign of cryptojacking.
In some cases the cryptojacking miner isn’t hidden in a website, but in advertisements that are then uploaded to networks. This allows the malware to access huge numbers of victims with very little detection.
Ransomware
Ransomware attacks involve scammers getting into your devices or computers and encrypting important files and data. This means that the victims will not be able to access their own data. The scammers will then ask for a ransom to release these files. Said ransoms can usually be paid in Bitcoin or other forms of cryptocurrency.
One major example of this can be seen with the 2021 CNA Financial cyberattack. CNA Financial is one of the most prominent insurance companies in the United States. Hackers managed to steal highly important data from the company and demanded up to US$40 million, which the company paid in Bitcoin.
As you can see, these types of attacks can be particularly devastating for both individuals and organisations. As such, try doing these to keep your data safe:
- Make regular backups of important files and data to a secure offline location such as an external hard drive.
- Install and keep up to date antivirus and anti-malware software on your devices.
- Avoid opening suspicious emails or clicking on links from suspicious senders or websites.
- Ensure your computer’s operating system has the latest security patches installed.
- If you have been compromised and a ransom is being asked for, avoid paying said ransom as it may encourage more criminal activity. Instead report the incident to the authorities and seek professional help.
Conclusion
Cryptocurrency scams remain a prevalent problem for many enterprising investors. However, through sufficient caution and awareness, you can protect yourself from falling victim to these fraudulent schemes.
Always make security a priority. There is always a risk of losing money with investments, but when done right, you can always start over. However, you may not have that chance if you get scammed.
Read More: How To Make Sure You Don’t Lose Your Cryptocurrencies
