- Along with crypto investment, crypto scams are also the hot topic in the investment arena.
- Red flags should be looked out for scams including theft by hacking, fake crypto investments, and fake crypto wallets etc.
Cryptocurrency investments are one the latest rage worldwide, and so are crypto scams, which are hitting an all-time high in 2021. According to FTC, crypto scams were 12 times higher in 2020 as compared to 2019. Cryptocurrency exchanges, such as Coinbase, are used by the investors to purchase digital currencies like Bitcoin, Ethereum, and Dogecoin etc., which can be sold for profits later.
Cryptocurrency investments are legitimate, but highly speculative and risky as well. There are high risks associated with cryptocurrency scams, just like other online scams, and investors may lose all their crypto assets due to a range of scams, including theft by hacking, fake cryptocurrency exchanges, and fake crypto wallets etc.
The common warnings or red flags associated with crypto scams include promises of huge returns, offers of free money, and lack of details. Investors should be cautious if a legitimate source, like a government official, demands for payments via email in cryptocurrency, or if they’re approached with a crypto investment opportunity they didn’t ask for.
Crypto scams do happen despite replying on blockchain technology, which is considered quite safe. Let’s briefly look at 7 crypto scams that investors should watch out for.
Investment or business opportunity scams
These types of scams usually start with an unsolicited offer to become a cryptocurrency investor, and entice people to visit fake and fraudulent websites to get more information about the tempting opportunity. With an incentive to make money quickly, you’ll start investing on the fake website, which may appear to be quite legitimate due to false celebrity endorsements or testimonials. However, after completion of your transaction, the offer is never realised and in turn you tend to lose all your invested money.
These kinds of crypto scams can be compared to multi-level marketing schemes or Ponzi schemes. The red flag to be considered are that the offer seems too good to be true, which are accompanied with promises of getting rich quickly.
Trusted source or influencers
In these scams, cybercriminals pretend to be a trusted source to persuade the victims for cryptocurrency transaction. According to FTC, 14% of all reported losses to imposter scams are in cryptocurrency. The trusted source may be a disguised bank, government authority, or credit card provider, or even a fake celebrity! The Financial Conduct Authority (FCA) has issued a fresh warning on 'pump and dump' crypto scams, referring to a recent promotion by Kim Kardashian to millions of her Instagram followers. The sources should thus be double checked as crypto isn’t regulated by the UK government. Red flags include an urgent payment request or a website’s address bar not beginning with HTTPS.
Blackmail or extortion cryptocurrency scams
This is one of the oldest scamming techniques in which you will receive an email which would contain your confidential information that has been compromised, and you’ll be given a choice to pay or else the information would be leaked. This has become a new crypto scam since payment is being asked in crypto assets. Thus, the red flags for this scam include intimidating messages and payment requested in cryptocurrency.
Social media cryptocurrency scams
As the name suggests, these are crypto scams that take place over social media. Crypto payments are requested through a fake social media post or advertisement by a hacked account. You may see other user commenting or leaving reviews on the post, but those could be bots. Influencer cryptocurrency scams are becoming quite popular nowadays as social media influencers are promoting potentially fake cryptocurrency, which persuades users to send them payments. A lot of enthusiastic reviews on the post may be considered a red flag.
Giveaway cryptocurrency scams
Combining the social media and impersonation scams, the giveaway scams are when the victims are tempted to send money to scammers impersonating a celebrity’s social media account, in hope of multiplying their crypto payments quickly. A recent major example is over US $2 million in cryptocurrency being stolen from Elon Musk impersonators. It is a red flag if the offer appears too good to be true and payment is requested on social media in cryptocurrency.
Thousands of people download fake cryptocurrency apps as the cybercriminals are proficient in making a replica of them. Once these fraudulent apps are downloaded by the users, they start sending cryptocurrency directly to the scammers. It sure therefore be ensured that the apps are legit while considering red flags such as inauthentic branding and the app name or description being misspelled.
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Romance cryptocurrency scams
The social engineering technique used in romance scams is mainly a cybercriminal faking his/her identity for an online love affair, gaining the trust of the victim, and then asking them to send money, including cryptocurrency. According to FTC, 20% of all romance scam victims lose their money in the form of cryptocurrency. A common red flag is the request for urgent payment by a person you’ve never met.
Cybercriminals have been trying to capitalise on crypto, focusing on the young investors as they are more vulnerable to crypto scams. The FCA doesn’t regulate crypto, neither is it covered by the Financial Services Compensation Scheme. The financial regular has issued a fresh warning on crypto scams as the tokens are becoming mainstream. Thus, it is important to invest safely and research meticulously, resist urgent requests, not believe in guarantees, and immediately report suspicious activities.