Common Cryptocurrency Scams | How to Avoid Them? | Notum
Jan 25, 20226 min read
News is bursting with decrimes and scams issues. For instance, not long ago, in 2021, some scammers stole $14 billion, and in 2020 about $7.8 billion. The number will rise and be even bigger if we can’t be responsible for our holdings and don’t know how to secure them. That was the starting point for writing the following article to help you in protecting your crypto. As they say, “Know your enemy.”
Most Common Schemes
Let’s have a look at the “Squid Game” scam, where investors created a new SQUID token but in fact, it was just nicely crafted fraud. In the end, those lucky and witty investors disappeared but before they had cashed out about $3 million. That’s just a nice example, but there are much more we’re going to cover.
Only in crypto payments
If a person or a company claims that they accept only payments in crypto, it’s likely a scam. If they demand to pay in bitcoin (BTC) or any other asset, especially when it’s on the rise, they may try to save up and capitalize it. As it’s not an actual place, and we’re dealing with a digital economy where you can’t physically represent yourself with your ID card or any other document. That means you use your wallet only having a special key you mustn’t lose or tell anybody about.
Scammers ask people to pay with cryptocurrency. A person calls you pretending to be from the government, law enforcement, or another authority and tells you that you need to pay for something, the stories differ. If you trust the story they tell and they feel like you are ready to be involved, they’ll stay on the phone to direct you to send them your crypto. Then, they send you a QR code with their address encoded in it. You scan the code, and the money is transferred to them and gone forever.
Blockchain is public and has permanent records that are open-accessed, people can make transactions more or less anonymously, and all of those features make it possible for hackers to trick you and disappear. So never believe to any strange and unknown callers who ask you to make payments in crypto whatsoever.
ICOs and NFTs scams
Initial coin offerings (ICOs) and non-fungible tokens (NFTs) widen scammers' opportunities to get your holdings. As an example, there are scammers who create fraud websites for ICOs and ask users to deposit cryptocurrency into a compromised wallet. In other instances, the ICO itself may be at fault. Founders could distribute tokens that are unregulated by U.S. securities laws or mislead investors about their products through false advertising.
That’s why t’s so important to check the history and wallet records of a project you’re interested in. Here’s the point where blockchain’s transparency gives you a hand. NFT marketplaces show the number of transactions and buyers for the NFT collection. EtherScan helps you to see all incoming or outgoing transactions that run on the Ethereum blockchain.
It would also be quite right to follow the project on Twitter and join its Discord channel. If it’s a really nice project worth investing in, there should be a good number of engaged investors and collectors and a lively community where people talk, engage and share information.
DeFi rug pulls
The latest type of scams. DeFi platforms developers conduct some fake work on a blockchain, such as launching a new application and carrying out social media marketing, then they issue a token and list it on a decentralized exchange (DEX).
After that, investors buy the scam projects’ tokens waiting for a price’s growth, and provide liquidity to those projects on DEXs. The liquidity is provided in the tokens of whichever blockchain that project is built on and runs into millions of dollars.
It’s usually ended up with the project lives for a few hours or days. That is exactly the moment where a scammer strikes in and takes all liquidity away from the DEXs getting all the money away. The rug pull is complete. A round of applause. The curtain comes down.
Please, check the liquidity and the amount of tokens locked in a pool. Another good thing to note is if a price of a coin/token grows rapidly within hours. It’s done to drive FOMO that makes more people invest in the token. Plus, this site could be really helpful once you need to check if the project is fake or not — Token Sniffer.
- FOMO — when you’re afraid of missing something out.
Cloud mining scams
Platforms will market to retail buyers and investors to put upfront capital down to secure an ongoing stream of mining power and reward. These platforms do not actually own the hash rate they say they do, and will not deliver the rewards following your downpayment. While Cloud Mining in itself is not necessarily a scam, thorough due diligence must be conducted on the platform prior to investment.
Some scammers introduce themselves as famous people, crypto trendsetters, and influencers. They do it to draw the attention of potential targets by promising to match or multiply the cryptocurrency sent to them. That’s called a giveaway scam. They do everything to ensure you that this is a one-of-a-kind chance, so desperate but confiding people transfer their holdings in hopes of a quick return.
Scammers love dating apps and websites, that’s why about 20% of cryptocurrency was stolen from there. Such impostors build long-distance or digital relationships and then start pressing and convincing “beloved” ones to buy or give money for some new crypto, but that’s, of course, just a way to deceive, a big confidence game.
The previous one could lead to the following. Scammers can threaten you that they have a record of adult websites as if you’ve visited, and scare you till you don’t share your private keys or send money to the scammer.
It’s a fact that there are a lot of currencies that are minted almost every day, maybe even now while I'm writing this piece, and then they go through the so-called ICO (acronym for initial coin offering) algorithm. That’s a perfect opportunity for scams. So the point is that a person is offered to participate in a unique program of investing in a new cryptocurrency with a 100% return. The same people can ask you to deposit your newly bought into a crypto wallet that was compromised
Maybe the oldest one but with crypto, it’s a bit different. Just as a “usual” phishing attack, some fake people send emails attempting to make recipients click links and give their personal details, such as crypto wallet key info. The trick is that you only get one private key to your crypto wallets, and as they say — “Not your keys, not your coins.” It is part of blockchain’s decentralized concept, ensuring that no one can control your personal data but you.
Something You Should Pay Attention To
There are some evident signs of a scam you’d better watch out for:
- free crypto
As you know, “Nothing is free; everything has a price.” Promising free money is another trap to catch you.
- payouts with guaranteed returns
it always sounds like a scam, be attentive once you are guaranteed to get returns.
- great promises and huge plans
false projects tend to use a very specific language, so they promise you a fortune and, to the top of that, underline that you’ll gain piles of coins. They just speculate on our desire to be prosperous and wealthy, so don’t believe in that trick.
- assurance you’ll make big money
nothing can be guaranteed in this life, especially when we talk about money. Be aware of such promises.
Tips to Protect Yourself
- Don't invest your money in a digital currency or cryptocurrency if you aren’t sure how it works. Do research, first.
- Don't invest in or trade cryptocurrencies based on somebody’s advice online. It’s your money, your own decision. You should be responsible for your holdings.
- Be extremely attentive while managing media posts about cryptocurrency giveaways.
- Don't share your "private keys" with anybody in the world, they are only yours. Try to keep them in a highly secure place, that would be better if it’s an offline place. Always remember about Balin’s case who lost $2.5 million when a hacker found his wallet key in his private Evernote account.
- You should report about cyberattacks and scams, and to do that, please have a look at the following resources:
- the FTC at ReportFraud.ftc.gov;
- the Commodity Futures Trading Commission (CFTC) at CFTC.gov/complaint;
- the U.S. Securities and Exchange Commission (SEC) at sec.gov/tcr;
- the cryptocurrency exchange platform you used to send the money;
- a nice community of crypto enthusiasts who found out a scam or a thing that reminds it — Token Sniffer.
There is no surprise that for many cryptocurrencies is a kind of Klondike, but it doesn’t necessarily mean that we need to go mad and forget about simple but effective ways of protecting our money. It’s not that different from the actual funds you keep an eye on. It seems we have to be more serious, focused, and attentive once we are talking about any kind of money, both digital or physical. How to avoid being scammed? Simple. You need to know about all possible schemes and follow the tips we’ve mentioned here.