Some technology experts consider cryptocurrencies the future of money. It might be. There are millions of crypto users worldwide, and the number is increasing with every passing day. Besides benefits like fast and low-cost international payments, cryptocurrencies can also yield high returns to investors. But as it usually happens, where money flows, scams will follow.
Hence, before you use or invest in cryptocurrency, you must learn how to spot crypto scams to avoid being the victim of cyber-thieves. In this article, we review some of the most common Bitcoin scams. We use Bitcoin as an example because of its superior popularity. However, most scams described below apply to other digital coins.
What Is a Crypto Scam?
A crypto scam is a fraudulent scheme aiming to steal cryptocurrency from unsuspecting users. Crypto scams can take many forms. But even though cryptocurrencies are relatively new assets, thieves often use old methods to steal. Hence, to protect your digital assets, it is better to know how and when crypto scammers can target you.
Common Bitcoin Scams
Rug Pulls
This scam occurs when malicious players posing as developers raise capital to fund a crypto project. After investors give money, the scammers remove all of the liquidity and disappear with the raised funds. The project is abandoned, and investors lose the money they contributed.
Phishing Scams
Phishing scams are usually conducted via email. Scammers send the potential victim an email with a link to an apparently legit site. In reality, the link directs the unsuspecting victim to a fake website that gathers personal information, such as a crypto wallet’s private key. Unlike a password, a private key cannot be changed. So, if your wallet’s private key is stolen, you must create a new one.
Investment Fraud
In this scam modality, scammers pose as seasoned investment managers. These scammers often claim to be successful investors who have made millions with cryptocurrency investments. So, they promise their victims that they will also make a lot of money investing in cryptocurrency with zero risk. The scammers usually back their claims with social media profiles where victims can read dozens of fake testimonials from satisfied “clients.”
Once the victim is convinced of the legitimacy of the proposed investment, the scammers request an upfront fee to get started. Once the fee is paid, the thieves disappear with the money. In other cases, the scammers request sensitive information from their victim (like a wallet's private key), claiming it will be used to transfer or deposit funds. However, it will be used to steal the victim’s cryptocurrency.
Romance Scams
This scam has been around for many years on dating websites and apps. But more recently, it involves cryptocurrency. The mechanism is as follows. A scammer creates a fake profile on a dating site or app to develop an online relationship with the victim, typically a long-distance relationship. The malicious party patiently gains the other party’s affection and trust over time. Eventually, the scammer convinces the victim to give money in cryptocurrency. The scammer can claim the funds will be used to pay for medicines, language lessons, or a flight ticket to meet in person. After getting the money, the dating scammer vanishes.
Blackmail Scams
Blackmailing has also existed for many years, but more recently has involved cryptocurrency. In this scam, a malicious actor claims to possess a record of adult websites (or other illicit sites) visited by the victim. The scammer threatens to expose the record unless the victim sends cryptocurrency to them. In other cases, the scammer asks for the private key of the victim’s wallet.
Cryptocurrency Scam on Social Media
Social media has become fertile ground for crypto scams. It is common to find fake Bitcoin giveaways on Facebook, Instagram, and other platforms. The scammers usually show off fake messages from companies or celebrities promoting the giveaway on a phony website. When the scammers convince you to go to the fake site, you will only need to complete your “address verification” by sending Bitcoin to the fraudulent giveaway’s blockchain address. After sending the verification payment, you will get nothing in return.
Bitcoin Man-in-the-Middle Attack
The man-in-the-middle (MITM) attack usually occurs when you use a public Wi-Fi network (for example, at the airport or a restaurant). In this attack, a hacker intercepts the data between your device and the Internet router. Hence, the hacker can read the sensitive information you type, such as passwords and private keys. So, avoiding logging into a Bitcoin app or wallet is good practice when you connect via public Wi-Fi networks. However, this attack could happen on a trusted network if a hacker is close enough to intercept the signal from your Wi-Fi. Hence, the best way to protect yourself from a MITM attack is by using a VPN, which encrypts all data from your device.
Phone Scam (SIM Spoofing Scam)
This scam is relatively new and occurs when a scammer gets access to a copy of your smartphone’s SIM cards. When this happens, the scammer can access your phone’s data, including two-step authentication codes often required to access crypto wallets.
Fake Crypto Exchanges and Crypto Wallets
Fake exchanges often advertise “cheap” Bitcoin for trading, usually 5% below market value. A victim usually falls for the perspective of obtaining enormous returns on investment. However, to purchase Bitcoin at such a profitable price, the fake exchange requests the victim to pay a high initial fee. But when the victim tries to withdraw their funds, there are no funds. So, the victim loses all the “investment,” including the initial fee. Likewise, a fake crypto wallet is malware that infects a computer and allows a scammer to steal the victim’s private key.
Impostor and Giveaway Scams
In this type of scam, the scammer poses as a celebrity or a cryptocurrency influencer. The scammer promises to match or multiply the cryptocurrency sent to them. To create a sense of urgency, the scammer warns this “once-in-a-lifetime” opportunity will expire soon. The unsuspecting victim sends funds immediately, hoping for an instant return. The victim will never see the funds ever again.
New Opportunities Based on Cryptography: ICO and NFT
Initial coin offerings (ICOs) and non-fungible tokens (NFTs) are crypto-based investments that can yield good returns. Unfortunately, scammers also use these avenues to steal cryptocurrency from unsuspecting victims. For example, scammers can create fake websites for ICOs. Investors unknowingly deposit cryptocurrency into a compromised wallet. When the fake ICO is over, the founders of the supposedly new cryptocurrency vanish with the collected funds.
Cloud Mining Scams
Cloud mining platforms allow investors to partake in profitable mining by putting up-front capital. But some of these platforms still need to own the hash rate they claim to have. As a result, they cannot deliver the rewards they promise. Hence, before investing in cloud mining, ensure you deal with a reputable platform.
How to Spot Cryptocurrency Scams
From the above descriptions, one can see that scammers are using old tactics to steal money from unsuspecting victims. The only difference is that now they demand payment in cryptocurrency. So, use common sense to spot a crypto scam. If an investment is too good to be true, it is most likely a scam. Legitimate cryptocurrencies disclose detailed information to potential investors, including the identities of the development team and how to reach them.
How to Protect Your Bitcoin and Cryptocurrency
Since crypto transactions take place online, you must adopt good digital security habits to protect your wallet and cryptocurrency. Firstly, create strong passwords, and use 2-step authentication whenever available. Use secured connections only and safe storage systems. Connect to the Internet via a VPN. Refrain from keeping your cryptocurrency stored on exchanges. The web wallets offered by exchanges are the most vulnerable to hacking attacks. Use a hardware wallet and a non-custodial exchange service like LetsExchange.io. Our platform provides a non-custodial exchange service without registration, keeping your personal information safe.
How to Avoid Cryptocurrency Scams
In light of the many crypto scams out there, here is a list of some actions to avoid being the victim of a scam:
- Never give your private crypto wallet’s private key to anyone. No one needs the private key in a legitimate cryptocurrency transaction.
- Ignore promises that you will make a lot of money through crypto investments.
- Ignore messages from celebrities or investment managers who contact you to offer “once-in-a-lifetime” opportunities.
- If you are dating online, meet your romantic interests in person before giving them money.
- Ignore text messages and emails claiming your account is frozen and you need to send crypto to remedy it.
- Do not accept “free” money or cryptocurrency.
How to Report Crypto Scams
If you are the victim of a crypto scam, contact the crypto exchange you used in the first place. Alternatively, other organizations in the United States that could help are FTC, SEC, and the Commodity Futures Trading Commissions. Some scams like blackmail represent a criminal extortion attempt and should be reported to an enforcement agency such as the FBI.
Conclusion
The increasing use of cryptocurrencies for payments and transactions will continue attracting scammers. However, if you understand the common methods scammers use to steal your digital assets, you will likely spot scams in time to prevent them from happening to you.
FAQ
Can you get scammed using Bitcoin?
Yes. Bitcoin-related scams are some of the most common ones in the crypto sphere.
How do cryptocurrency scams work?
Most crypto scams use old tactics but now request cryptocurrency as payment.
What are fake crypto apps?
They are malware designed to steal cryptocurrency from unsuspecting users. Fake crypto apps are disguised as legit software like crypto wallets.
How can you tell a fake crypto exchange?
Usually, the URL of a fake crypto exchange begins with HTTP and not with HTTPS. Moreover, crypto exchanges do not have any way to contact them.
Stay tuned for further updates, crypto guides, and market insights from LetsExchange. You can also follow us on Twitter, Facebook, Reddit, Instagram, LinkedIn, Medium, Quora, Telegram, Steemit, and Bitcointalk for first-hand information from our team.