Cryptocurrencies have become increasingly popular over the years, with many investors seeing the potential for high returns. But as usual, where there is opportunity, there is also a risk. As the popularity of cryptocurrencies has grown, so too has the number of scams and frauds associated with them. In this article, we will examine some of the most common crypto scams, how they work, and what you can do to protect yourself from falling victim to them.
Ponzi Schemes
Ponzi schemes are one of the oldest and most well-known scams, but they are still effective today, particularly in the world of cryptocurrency. A Ponzi scheme is a fraudulent investment scheme where returns are paid to earlier investors using the capital of newer investors. The scheme relies on a constant influx of new investors to pay returns to earlier investors. Eventually, the scheme will collapse when it becomes impossible to find new investors to pay returns.
Ponzi schemes are often disguised as investment opportunities in new and promising digital assets. These schemes often promise high returns on investments and rely on social media to attract new investors. In many cases, the people running the Ponzi scheme will use fake names and identities to avoid detection.
Onecoin is perhaps the crypto industry’s longest-running Ponzi scheme. Onecoin, which was started by the Bulgarian scammer Ruja Ignatova, aka Cryptoqueen, was successful in luring investors between 2014 and 2019. The Ponzi scheme was alleged to have defrauded investors of more than $4 billion during this time by promoting Onecoin as a “Bitcoin Killer” and the newest and hottest advancement in the cryptocurrency space.
Unfortunately, Onecoin was not the first nor was it the last ponzi scheme. We can also remember the Bitconnect case, which led investors to lose over $2.4 billion, the BitClub Network that stole $722 million in Bitcoin, the Pincoin scam that got away with $660 million, and the list can go on further.
To protect yourself from Ponzi schemes, be wary of any investment opportunity that promises high returns with little or no risk. Also, be cautious of investment opportunities that rely heavily on recruiting new investors to join the scheme. Always research the investment opportunity and the people behind it before investing any money.
Phishing Scams
Phishing scams are a type of scam that targets individuals by tricking them into providing personal information such as passwords or login credentials. In the cryptocurrency space, phishing scams are prevalent because hackers can use stolen information to access and steal cryptocurrency from victims’ wallets or accounts.
Phishing scams can take many forms, but they usually involve sending a message or email that appears to be from a legitimate source, such as an exchange or wallet provider. The message will typically ask the recipient to provide personal information, such as a password or login credentials, by clicking on a link or visiting a website that appears to be legitimate.
To avoid falling victim to phishing scams, individuals should never provide personal information to unknown sources or click on links in unsolicited messages or emails. They should also use two-factor authentication and strong passwords to protect their accounts. So always double-check the links you’re clicking on, and in some cases it is better not to open emails from unknown senders at all.
Pump-and-Dump
Pump-and-dump schemes are another common type of a crypto scam. In a pump-and-dump scheme, a group of investors works together to artificially inflate the price of a particular cryptocurrency. Once the price significantly rises, the group will sell their holdings, causing the price to crash, leaving other investors with losses.
Pump-and-dump schemes typically rely on social media and online chat groups to hype up a particular cryptocurrency. They often use fake news or other misleading information to convince investors to buy in, driving up the price of an asset. Once the price has reached a certain point, the group will sell their holdings, causing the price to drop rapidly.
To protect yourself from pump-and-dump schemes, be cautious of any investment opportunity that relies heavily on social media hype. Also, stay away from so-called “signal” groups that can be found in Telegram and Discord that promise you huge returns. In pump-and-dump schemes, only those who are behind such groups make profit, while others are always in the red.
Rug Pulls
Rug pulls are a relatively new type of scams that have emerged in the world of decentralized finance (DeFi) and especially decentralized exchanges.
Rug pulls refer to a type of scam in which the creators of a cryptocurrency project or token exit the project by suddenly and unexpectedly removing all liquidity from the project, causing the value of the tokens to plummet. This type of scams is prevalent mostly in the DeFi space, since anyone can launch a new token or project there with little to no regulation or oversight.
The creators of the project typically market their token as a legitimate investment opportunity with the promise of high returns. They may even use tactics such as fake partnerships, endorsements from popular figures, and other manipulative methods to build hype around the project.
Once the token gains traction and the price starts to rise, the creators sell off a huge amount of their tokens, causing a sudden drop in price, and making a profit while leaving investors with worthless tokens. This process is called a rug pull because it pulls the rug out from under the investors.
Every active investor has probably gone through rug pulls at least once, since it’s a quite common scam in the crypto space. Perhaps the most efficient way to avoid rug pulls is to stick only to reputable and reliable centralized exchanges and invest only in those projects that already have gained trust from investors.
However, if this kind of approach is not for you, then consider investing only a small sum from your funds into risky projects and always do your own research.
Social Media Giveaway Scams
Social media platforms are also becoming a hotbed for cryptocurrency scams. One of the most prevalent scams in this category is the social media cryptocurrency giveaway scam. In this scam, fraudsters create fake social media profiles, impersonating celebrities, legitimate cryptocurrency personalities or even companies, and then promote cryptocurrency giveaways. These giveaways are usually presented as an opportunity to win a significant amount of cryptocurrency by sending a small amount of cryptocurrency as an entry fee.
The truth is that these giveaways are nothing more than a ploy to steal cryptocurrency from unsuspecting victims. Once the victim sends the cryptocurrency, they never receive the promised giveaway and are left with nothing.
Social media cryptocurrency giveaway scams involve scammers posing as popular cryptocurrency figures, such as Elon Musk or Vitalik Buterin, and offering to give away cryptocurrency to individuals who send a certain amount of cryptocurrency to a specific wallet address.
It’s really simple to not be a victim of such scams: just do some simple math. No one will ever gain anything if he or she gives away a sum that is bigger than an entry fee. If someone is telling you otherwise, then you can be sure that you’re about to get scammed.
NFT Scams
Non-fungible tokens (NFTs) have exploded in popularity recently, with digital artwork and collectibles fetching millions of dollars at auctions. However, the hype surrounding NFTs has also attracted scammers looking to make a quick buck.
A common NFT scam involves fraudsters creating fake NFT marketplaces and then selling non-existent NFTs to unsuspecting buyers. Another scam involves creating fake NFT collections and then convincing buyers to invest in them, only to disappear with their money.
The recent case of “Evolved Apes” is perhaps one of the best examples of such NFT scams.
Buyers could invest their money in a NFT collection that was funding a play-to-earn game that was supposedly in the development stages.
However, the developer, who went by the pseudonym “Evil Ape” disappeared shortly after selling the NFTs. By committing this scam, he had earned 798 Ethereum (around $2.7 million at the time). The investors also soon found out that there was no game either, and they were left with merely a JPG as a souvenir of their investment.
To avoid falling victim to NFT scams, it’s essential to conduct a thorough research of the marketplace or collection before investing any money. Look for reviews and feedback from other buyers, and always double-check the authenticity of the NFT before making a purchase.
Fake airdrops
Airdrops are promotional events where cryptocurrency projects distribute tokens or coins to individuals who complete certain tasks, such as following the project on social media, joining their Telegram group, or referring new users to the project. Airdrops are a way for projects to promote their tokens or coins and increase their user base.
However, scammers have started to create fake airdrops to trick people into giving away their cryptocurrency or personal information. Fake airdrops can take different forms, but they usually involve promising a large amount of tokens or coins in exchange for completing certain tasks, such as sending a small amount of cryptocurrency to a specific wallet address, providing your private keys or seed phrases, or downloading a wallet app from an unverified source.
Once the scammers obtain your cryptocurrency or personal information, they disappear, leaving you with no tokens or coins and potentially compromised security.
Again, just like phishing and giveaway scams, you should never send your funds, information or click suspicious links just because some unknown party promises you free cryptocurrency. Remember, nothing is free.
Cryptojacking
Cryptojacking is a type of cyber attack in which a hacker hijacks someone’s computer or mobile device to mine cryptocurrency without their knowledge or consent. The goal of the hacker is to use the victim’s computing power to generate cryptocurrency for the hacker’s own benefit.
There are several ways that a hacker can conduct a cryptojacking attack. One common method is through malicious software, or malware. The malware is typically hidden in a website, a software download, or an email attachment. Once the victim clicks on the link or downloads the software, the malware is installed on their computer or mobile device.
The malware then runs in the background, using the victim’s processing power to solve complex mathematical problems that are required to mine cryptocurrency. The cryptocurrency generated by the mining process is then transferred to the hacker’s cryptocurrency wallet.
Another way that a hacker can conduct a cryptojacking attack is through browser-based mining. In this method, the hacker embeds a script on a website that the victim visits. The script runs in the victim’s browser and uses their processing power to mine cryptocurrency. Because the script is running in the browser, it can be difficult for the victim to detect that their computer or mobile device is being used for cryptojacking.
To prevent cryptojacking, it is important for individuals and organizations to keep their software and operating systems up-to-date with the latest security patches. Additionally, it is advised to use reputable antivirus and anti-malware software to detect and remove any malicious software that may be present on their devices. Finally, be wary of clicking on links or downloading software from unknown or suspicious sources.
Final thoughts
Сrypto scams have become increasingly prevalent in recent years, and it’s essential for investors to be aware of the various types of scams that exist. Each of these scams has unique characteristics, but they all share the common goal of separating investors from their funds.
To avoid falling victim to crypto scams, investors should exercise caution when investing in new cryptocurrencies, always do their due diligence, and never invest more than they can afford to lose. Additionally, it is better to use reputable exchanges and wallets, keep private keys secure, and be wary of unsolicited investment opportunities. By being aware of the different types of scams and taking the necessary precautions, investors can protect themselves and their investments in the world of cryptocurrency.
FAQ
What is a Ponzi scheme?
A Ponzi scheme is a fraudulent investment scheme where returns are paid to earlier investors using the capital of newer investors.
What is a Rug Pull?
Rug pulls refer to a type of scam in which the creators of a cryptocurrency project or token exit the project by suddenly and unexpectedly removing all liquidity from the project, causing the value of the tokens to plummet.