Recognising common crypto scams and how to avoid them
Academy
Jan 8, 2024

Recognising common crypto scams and how to avoid them

The surge in popularity and value of digital currencies like Bitcoin and Ethereum has, unfortunately, also attracted the attention of scammers. These fraudsters are continually developing new methods to exploit the relatively unregulated nature of the crypto market. 

Crypto Investment Schemes

In these schemes, fraudsters pose as investment managers and contact potential investors with promises of high returns on Bitcoin investments. They often ask for an upfront fee or personal identity information, claiming it's necessary for transferring or depositing payments. However, instead of investing the funds, they steal these upfront payments

Rug Pull Scams

This type of scam is particularly common with new cryptocurrency projects, tokens, or non-fungible tokens (NFTs). Scammers create hype around a new crypto asset to attract investments. Once they have collected a substantial amount of money, they disappear, leaving investors with worthless assets. The Squid coin scam, where the token’s value rose dramatically before plummeting to zero, is a notable example.

Phishing Scams:

A longstanding method where scammers use fake emails and websites to extract personal information. These scams are carried out through emails containing malicious links to fake websites that resemble legitimate ones. The goal is to trick victims into entering sensitive information like crypto wallet keys. Once scammers have this information, they can access and steal cryptocurrency from the victim's wallet.

Fake Websites and Apps

Scammers set up counterfeit cryptocurrency trading platforms or wallet applications. These fake websites and apps often mimic the appearance of legitimate ones to trick users into depositing funds or revealing sensitive information. The scammers then use this information for unauthorized access to the victim's funds or identity theft.

Giveaway Scams

In these scams, fraudsters impersonate celebrities or well-known figures in the crypto community, offering to match or multiply cryptocurrency sent to them. They use convincing messaging and social media profiles to create a sense of legitimacy and urgency. Victims are lured into sending their cryptocurrency with the false promise of receiving a larger return, only to have their funds stolen.

Social Engineering and Romance Frauds

Scammers manipulate victims through emotional connections, typically on dating platforms, leading to financial exploitation.

Pump and Dump Schemes

Here, scammers artificially inflate the price of a token through misleading information, then sell their holdings at the peak, causing the value to plummet. They are seperated into two phases; the pump and the dump:

The Pump

This phase involves artificially inflating the price of a cryptocurrency. Fraudsters achieve this by spreading misleading information, often through social media platforms or through coordinated group efforts. The misinformation is designed to create a buying frenzy, leading unsuspecting investors to believe that they are investing in a promising asset.

The Dump

Once the price of the cryptocurrency has been pumped up and reaches a peak, the fraudsters sell off their holdings of the currency at this inflated price. This selling spree happens rapidly and results in a sudden supply spike.

The Aftermath

 As the scammers sell their holdings, the price of the cryptocurrency plummets, leaving new investors with devalued or worthless assets. These investors, who were led to believe they were making a sound investment, are the ones who suffer the most in this scheme.

The world of cryptocurrency, despite its potential for innovation and profit, is fraught with risks due to the prevalence of scams. It is essential for individuals to be vigilant, conduct thorough research, and practice safe online behaviors. Recognizing the common types of scams, understanding their methods, and knowing how to protect oneself are key steps in safely navigating the crypto landscape. Remember, if an opportunity seems too good to be true, it likely is. Stay informed, stay skeptical, and prioritize your security in the digital currency realm.

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