Cryptocurrency scams have become increasingly common as the popularity of digital assets continues to rise. With the potential for significant financial losses, knowing how to help avoid falling victim to these scams is crucial.
This blog covers the most prevalent crypto scams and provide tips on helping protect yourself.
The Basics on Cryptocurrency
What is Cryptocurrency?
Cryptocurrency is a type of digital currency that only exists online. It uses encryption to control how much is created and to verify transactions without a bank or middleman.
How Do People Use Cryptocurrency?
People can use cryptocurrency in different ways, such as buying and selling it on online exchanges, purchasing goods and services, investing in it for the long term, sending and receiving money without intermediaries, and making international money transfers.
How Do You Get Cryptocurrency?
There are several ways to get cryptocurrency, including:
- Exchanges: You can buy cryptocurrencies online, such as Coinbase, Binance, and Kraken. These exchanges allow you to purchase cryptocurrencies using traditional currencies such as USD, EUR, or GBP.
- Apps: Some mobile apps, such as Robinhood and Cash App, allow you to buy and sell cryptocurrencies directly from your smartphone.
- Websites: Some websites allow you to purchase cryptocurrencies directly, such as LocalBitcoins and Paxful.
- Crypto ATMs: Crypto ATMs are physical machines that allow you to buy cryptocurrencies using cash. These machines are becoming more common in major cities around the world.
- Mining: Cryptocurrency mining involves using specialized computer software to verify transactions on the blockchain and earn new cryptocurrency units. However, mining can be complex, requiring expensive hardware and significant energy consumption.
Where and How Do You Store Cryptocurrency?
Cryptocurrency is stored in a digital wallet, a software program allowing you to store, send, and receive digital assets. There are different types of digital wallets, including:
- Online wallets: These wallets are hosted on the internet and can be accessed from anywhere with an internet connection. They are convenient but may be less secure than other types of wallets.
- Desktop wallets: These wallets are installed on your computer and provide a higher level of security than online wallets. However, they can be vulnerable to hacking and malware attacks.
- Hardware wallets: These wallets are physical devices that store your cryptocurrency offline, providing the highest level of security. They are more expensive than other types of wallets but are recommended for those holding a significant amount of cryptocurrency.
How is Cryptocurrency Different From U.S. Dollars?
Cryptocurrency is different from U.S. dollars in several ways. First, a government does not back cryptocurrency accounts, and their value can change rapidly and significantly.
Second, cryptocurrency operates on a decentralized network, whereas the Federal Reserve regulates U.S. dollars. Finally, transactions with cryptocurrency can be anonymous or pseudonymous, while U.S. dollar transactions are often subject to government regulation and oversight.
What Are Cryptocurrency Scams?
Cryptocurrency scams are schemes that aim to steal digital assets. Scammers use various methods like phishing, fake ICOs, and fake exchanges.
Victims can lose their entire investment, so conducting the proper research before investing in crypto is crucial.
Types of Cryptocurrency Scams
Social Engineering Scams
Social engineering scams are a type of cryptocurrency scam where scammers use deception to obtain vital information related to user accounts. For example, they may create fake websites or social media profiles or use phishing emails or phone calls to trick victims into giving away sensitive information.
Once scammers have this information, they can gain control of the victim’s cryptocurrency accounts and steal their digital assets.
Romance scams are a type of cryptocurrency scam where scammers use dating websites to gain the trust of unsuspecting targets. They may ask for small amounts of money to deal with an emergency or financial problem and eventually request larger sums or convince the victim to invest in fake cryptocurrency opportunities.
As a result, victims may lose a significant amount of money or their entire investment.
Imposter and Giveaway Scams
Imposter and giveaway scams are a type of cryptocurrency scam where scammers pretend to be legitimate individuals or companies and promise to match or multiply the cryptocurrency sent to them. They use fake social media profiles or websites that appear to be from reputable sources to lure victims.
Once the victim sends the cryptocurrency, the scammers disappear, leaving the victim with nothing.
Phishing scams are a type of cryptocurrency scam where scammers create fake websites or emails that look like legitimate companies or online wallets. Then, they try to trick users into giving up their login credentials or other sensitive information, which scammers use to access the victim’s online wallet and steal their cryptocurrency.
Blackmail and Extortion Scams
Blackmail and extortion scams involve scammers threatening to expose embarrassing or sensitive information about the victim unless they share private keys or send cryptocurrency. Additionally, scammers may claim access to personal information and use fake emails or messages to intimidate their targets.
Investment or Business Opportunity Scams
Investment or business opportunity scams promise high returns on investment or business opportunities that sound too good to be true. Instead, they use false advertising to lure victims and request a large investment.
Once the investment is made, scammers disappear or ask for more money, making it difficult for victims to get their money back. These scams can lead to severe financial losses.
In a rug-pull a scam, scammers raise money for a project, then suddenly disappear with the funds by removing all liquidity. This can cause investors to lose all their money without any way to recover it.
To help avoid rug-pull scams, carefully research any investment opportunity and be wary of projects that promise guaranteed returns without a clear plan.
Cloud-mining scams are a type of cryptocurrency scam where scammers offer to mine cryptocurrency on behalf of investors using equipment located in remote data centers. They promise high returns, but in reality, they have no mining equipment, and they simply take investors’ money and disappear.
This type of scam can be challenging to detect because scammers often use legitimate-looking websites and may even pay out small amounts initially to gain trust.
A man-in-the-middle attack is a scam where a hacker can secretly intercept information transmitted over a public network, such as passwords, cryptocurrency wallet keys, and account information.
How to Avoid Cryptocurrency Scams
To help avoid crypto scams, follow these tips:
- If you notice unusual activity on your account, put a hold on it immediately.
- Use well-known and reputable companies for all cryptocurrency transactions.
- Look for “HTTPS” in the URL of crypto exchanges and wallets to ensure a secure connection.
- Never give out your private cryptocurrency keys.
- Beware of promises of guaranteed profits and celebrity endorsements.
- Avoid mixing online dating with investment advice.
- Ignore job listings for cash-to-crypto conversion or crypto mining.
- Do not respond to blackmail threats and report them to the Internet Crime Complaint Center.
- Be cautious of “free” money or crypto offers.
- Consider signing up for identity theft protection. IdentityIQ identity theft protection provides real-time fraud alerts and credit monitoring to help protect you and give you peace of mind.
Crypto Scam FAQs
What Do I Do If I Get Scammed on Crypto?
You can report the scam to the Federal Trade Commission (FTC) or to the Internet Crime Complaint Center (IC3).
Can A Crypto Scammer Be Traced?
It is possible to trace a crypto scammer, but it can be difficult due to the anonymous nature of cryptocurrency transactions.
Can Scammed Crypto Be Recovered?
Once cryptocurrency is sent, it cannot be reversed or canceled. Unfortunately, this means that scammed cryptocurrency cannot be recovered in most cases.