The American attorney and former judge, Louis Freeh, once said, ‘the fraudster’s greatest liability is the certainty that the fraud is too clever to be detected.’ While these reflections suggest the average person can identify any scam, it may be too late by the realization time.
In the process, thousands of people may have already been stripped of their hard-earned money. Con artists have performed their criminal activities for years in various means through several financial instruments.
Cryptocurrencies are still a relatively new and hot topic for the average person, making this market a hotbed for threat actors to develop inventive methods of defrauding people.
Cryptocurrency scams come in various forms, from imposter websites, cloud mining, mobile apps to legit-looking, heavily-promoted coins.
Most scams nowadays attempt to do one of two things, either gain access to your digital wallet or lure folk to directly transfer their funds to some account, company, or individual.
Whenever presented with any crypto transaction, ask yourself which action is likely to be compromised to assess the level of risk. We’ve outlined the common scams within cryptocurrencies and a few quick-fire red flags to identify so you can prevent yourself from being scammed.
While somewhat of an old-school cyberattack, phishing is a severe problem in financial transactions and is increasingly becoming more common.
Phishing is a fraudulent act where criminals send emails under the guise of a seemingly legitimate company or trusted source, convincing unsuspecting users to reveal sensitive personal data.
In the context of cryptocurrencies, these are typically the private wallet keys to access someone’s holdings. Like any deception, scammers need a ‘hook’ or something to entice people to divulge such information.
This is usually an email suggesting you have won some crypto and must enter your personal details to claim the reward. The main way to shield yourself from phishing is to understand no credible company will ask you for any upfront payment from an email.
If you do happen to click on any links, you can regard them suspiciously if the URL does not begin with ‘HTTPS’ or there is no small lock icon near it. Moreover, if one is urged repeatedly to make a payment, consider it an equally strong warning sign.
Impersonation con tricks share similarities with phishing as they are based on social engineering. The main distinction is they come in various types, occurring via email and social media accounts.
Like phishing, the purpose is for people to part with their money or give up their passphrases or private keys on the promise of an enticement. Here are a few examples of such scams:
- Scammers have been identified posing as technical staff from actual exchanges.
- Criminals play the role of internet love, creating enough trust in the ‘relationship’ for the victim to send funds to them.
- Fake unverified celeb and influencer social media accounts where followers are pledged to send money with the hope of receiving twice back
- Phony recruiters target students and job-seekers to send them money to perform specific tasks or pay for training
Similar to phishing, never part with your tokens when dealing with strangers in exchange for doing something. You should only partake in a cryptocurrency transaction with a reputable business or someone you know.
Bogus app scams
It’s only natural for malicious actors to try their luck with mobile apps because of the digital nature of cryptocurrencies. As expected, oblivious users download such applications and are lured into sending payments through them.
Fortunately, these shouldn’t be too difficult to spot as several often have grammatical errors in their names and descriptions, along with sham branding overall. Google Play and Apple’s App Stores have verification features to protect users from harmful third-party apps.
Moreover, always perform due diligence for any app and ensure it’s from a known and esteemed brand in the industry to provide a safe user experience.
Investment opportunity scams
Investment opportunities in cryptocurrency take several forms, from multi-tier funding programs, multi-level marketing, new coins, initial coin offerings, and NFTs (non-fungible tokens). Ultimately, many of these scams are based on some type of Ponzi and pyramid schemes.
A typical example is a trader or investor purported as wildly successful, promising attractive daily payouts. Alternatively, it may be a new open-source cryptocurrency attached with a high-yield investment program.
Regardless, these scams thrive off hype and mass marketing to attract a substantial pool of investors. It’s a classic case of paying new investors with old investors’ money.
One of the leading red flags is unjustified promises of guaranteed returns. Overall, you never want to invest directly with individuals, particularly if they are not licensed to handle money from individual clients.
For more crowd-based projects like the launch of a new cryptocurrency or initial coin offering, one needs to perform thorough research and fully comprehend the underlying value.
One tip is to see if any reputable exchanges have endorsed such projects. Legit investments exist in cryptocurrencies, though you should invest for the long-term instead of observing ventures which seem like get-rich-quick schemes.
Cloud mining apps
A cloud mining firm is a remotely-based center offering shared computer power, enabling users to mine cryptocurrencies without personally owning the hardware. Such facilities provide value in that they are much cheaper cost-wise than purchasing mining equipment yourself.
Sadly, this subset of the crypto industry is as murky and risky as many, meaning only a handful of legitimate cloud mining companies genuinely exist. Technically, no mining company can commit to any return over any period.
Yet, unscrupulous companies offer guaranteed returns with attractive price packages, unverified fictitious earnings activities, and convincing sales pages. Hence, these are the primary red flags. Once people have paid such companies, no mining takes place.
Similar to multi-level schemes, again, it’s generally a case of new investors being paid with old investors’ money until the entire operation collapses, leaving thousands drained off their wallets.
Your best bet is thoroughly researching any mining company by understanding how their service works and paying close attention to the overall consensus in user reviews.
For all the wonders of blockchain technology, the cryptocurrency industry is akin to the internet’s Wild West. We can categorize virtually all scams as either social engineering or so-called investments.
When presented with any opportunity related to cryptocurrencies, understand what’s really going on behind the scenes to stay on the safe side. As the industry is largely unregulated, it means your hard-earned money is always at risk with slim chances of recovery should things go south.
If ever you are unsure whether something is a scam or not, always remember the good old age; if it sounds too good to be true, it usually is. This is usually your best line of defense.