HomeCryptocurrencyResources10 Common Cryptocurrency Scams and How to Avoid Them

10 Common Cryptocurrency Scams and How to Avoid Them

Keith Hodges
Keith Hodges
16th Feb 2023

Disclaimer: The text below is an article by PrivacySavvy and was not written by BanklessTimes journalists.

The global cryptocurrency industry is valued at slightly over 1 billion dollars and is projected to exceed 5 billion dollars by 2030. Although this market is highly volatile, it is proliferating and attracting investors to capitalize on cryptocurrencies like Bitcoin, Ethereum, etc.

Moreover, governments and financial institutions like banks do not regulate digital currencies. This has attracted scammers that are stealing hard-earned money from innocent people. Worse yet, cryptocurrency transactions are irreversible, making it impossible to get your money back if anything bad happens.

Read on to know the common crypto scams, how to avoid them to have a safer crypto trading and transactions experience, and more.

The Most Common Crypto Scams

Cryptocurrency scams exist in many forms. We cannot exhaust all of them in this article. However, we gathered the top 10 most common ones.

1. Phishing Scams

Criminals widely use this scam online, and you may be familiar with it already. You receive an email that looks like it is originating from a trusted source like a crypto exchange provider. Usually, the email will contain a link redirecting you to a site identical to your crypto exchange or wallet. However, this is a scam site created explicitly by fraudsters to collect your login credentials, giving them access to your real account.

The best way to evade phishing scams is to avoid clicking on links on suspicious emails. Also, always verify the authenticity of the URL to ensure you are visiting a genuine site. More importantly, you should never disclose your crypto wallet's private key to anyone.

2. DeFi Rug Pulls

In this scam, criminals create a DeFi project (Decentralized finance) and invite interested investors with a promise to earn considerable interest. However, the owner of the project cash out and disappears once the investors pull together enough money. Besides the financial loss, the victims also lose their personal information, which can be used for identity theft.

A recent example is when criminals introduced a crypto coin-themed around the Squid Game, a popular Netflix show. As a result, the coin's value shot to $2861 before dipping to zero, where the scammers made over $2 million.

The rug pull is a relatively new phenomenon that is affecting NFT more than crypto. However, cybercriminals used to steal over $8 billion in 2021, an 81% jump from a year earlier.

The best way to avoid the scam is by doing proper due diligence on the project. This includes checking the documentation, accuracy of the codes, and estimating the developer's percentage of control.

3. Fake Wallets and Exchanges

Many crypto exchanges and wallets may look genuine, but they are merely fronts to steal your hard-earned money. Some can entice you to sign up to get promotional offers, while others can pressure you to create an account with bonuses for larger deposits. However, they will either steal your money or charge exuberant fees, making it impossible to cash out.

In the same breath, scammers are creating fake crypto wallet apps to steal crucial account details. Unfortunately, some of these apps have found their way into legitimate app stores like Google Play.

To avoid getting caught up, only use well-known and trustworthy crypto exchanges. Also, do thorough research on any exchange or wallet before creating an account or depositing funds.

4. Bitcoin Blackmail Scam

A classic scam example is when fraudsters impersonate tax office agents to extort money from victims. Also, they pretend to be hackers claiming to have incriminating evidence.

For example, you can receive an email where the sender indicates that they are hackers with access to files on your computer. Then, they will threaten to send the implicating data to your email or social media contacts unless you send Bitcoins.

This is an empty lie, and the fraudster doesn’t have the purported evidence. So, nothing will happen if you don’t make the payment.

One of the most effective ways to avoid this scam is using a virtual private network (VPN). It will encrypt your connections and conceal your actual IP address so you can access the internet anonymously.

5. Fake ICOs

The astronomical price rise of cryptocurrencies like Bitcoin and Ethereum has seduced many people to join the digital currency bandwagon. They intend to invest in new coins and make a fortune as the value increases.

One of the most accessible options is buying tokens and coins through ICO (initial coin offering). There is high demand for new cryptocurrencies as ICOs raised over $11 billion in the first half of 2018 alone. Unfortunately, scammers are taking advantage of the new investor’s limited knowledge of the crypto market to steal from them.

Also, there has been a rise in fake ICOs. Fraudsters convince people to buy coins that don't even exist with little hype and marketing. 78% of ICOs in 2017 were scams.

Thankfully, you can avoid fraudulent ICOs by doing thorough research. Check on the team involved, the whitepaper, technology used, the purpose of the coin, and specifics of the sale.

6. Ponzi/Pyramid Scheme

A Ponzi scheme is an old scamming trick that has found its way into the cryptocurrency industry. A fraudster will create a crypto investment idea and lure in new investors with a promise of high returns. However, these returns are the money deposited by more recent investors. After the initial payout, the investors will be convinced that the scheme is legitimate and pump in more money. They may even persuade other people to join in the scheme.

In due course, it becomes difficult to lure in more investors, and the promoter disappears with the money, which collapses the scheme.

One of the prominent red flags of a Ponzi scheme is a crypto investment that promises bigger profits if you invite more investors. Also, be cautious with projects that assure high returns that sound too good to be true.

7. Malware

Malware is a weapon that online fraudsters frequently use to achieve various purposes. For example, a fraudster can install malware on your computer to access your crypto wallet and empty your account. Also, malware can enable the hacker to monitor your online activities and replace your crypto addresses with illegitimate ones.

Ensure your antivirus software is up-to-date to stay safe from malware. In addition, avoid downloading or installing programs carelessly without verifying their authenticity.

8. Romance Crypto Scam

Scammers use social engineering tactics to steal money from their victims in romance scams. Usually, the fraudster will pretend to love the victim and gain their trust. Eventually, they will make up a bogus story and ask the victim to come to their aid. It can be a one-time occasion or prolonged for a long time, but the fraudster will pocket the funds and disappear.

Romance cryptocurrency scam follows the same script, but the criminals request the funds in cryptocurrency, which is irreversible.

When you meet a person online, do a little research to find out who they are. Also, take it slow and avoid sharing personal details or sending money to anyone you have never met in person.

9. Pump and Dump Scam

Pump and dump is a popular scam where cyber criminals invest in an altcoin with a small market cap to raise the value. This attracts new buyers fuelled by the fear of missing out. Then, the fraudsters sell the coin and capitalize on the massive price increment.

This practice is outlawed in the traditional security markets but thrives in the unregulated cryptocurrency industry. Actually, multiple online forums and groups exist to ease this scam.

Therefore, be cautious with crypto coins with low market cap and trading volume, but their value rises suddenly. Also, do due diligence on the credentials of any coin before investing your money.

10. Crypto Mining Scam

Mining Bitcoin is costly and requires a lot of resources. However, you can rent server space to mine coins from a cloud mining service at a fee. Also, you can invest in a Bitcoin mining company and get dividends when they make a profit.

Unfortunately, there are many crypto mining scams. Some promise huge returns but fail to disclose a myriad of hidden fees, while others are classical pyramid/Ponzi schemes.

However, keep in mind that cloud mining or leasing any mining equipment is a poor investment decision compared to buying cryptocurrency. Regardless of the Bitcoin price, buying the equivalent coins makes more economic sense than investing in a mining scheme. So, the best way to avoid crypto mining scams is to avoid cloud mining or investing in a rent-a-miner scheme.

Wrap up

Cryptocurrency is a new concept, and most people are yet to grasp it. Also, the value of Bitcoin and other altcoins has increased tremendously, attracting scammers who want a piece of the pie. As you can see above, cryptocurrency scams exist in many forms. Understanding the tricks online fraudsters use to steal money will help you spot the scams early and stay safe.

Author Bio
Keith Hodges
Keith Hodges
Keith is a finance SEO specialist, having worked previously as a journalist in the industry. He is currently the Head of SEO at BanklessTimes and is based in London. Keith has written and worked extensively in the personal finance and investment industries, with particular focus on international and digital currencies.