The cryptocurrency sector is no stranger to scams and fraud. Even though cryptocurrencies are a relatively new concept in finance, many scams involving cryptocurrencies rely on old ways of trickery and deceit. These can take many forms, including fake exchanges, social engineering scams, NFT scams, and much more.
Whether a Bitcoin scam or a more traditional phishing attempt, the ability to trick someone into giving over their personal information is at the heart of every fraud. As a result, many people considering investing in Bitcoin or any other digital asset need to be on their guard against the hype and con artists that prey on them. In this article, we discuss what to look out for and how to proceed if you fall prey to a cryptocurrency scam.
What are the latest scams?
In 2022 alone, the cryptocurrency market lost more than $4.3 billion to scams and frauds. This loss was reportedly a 100% increase from the sum lost to scams in 2021. Before delving into the anatomy of cryptocurrency scams and cons, let’s look at some of the most notable events.
Bored Ape Theft
Some Bored Ape Yacht Club NFTs have sold for over $2 million, making them one of the most valuable and successful collections of crypto NFTs to date. Celebrities like Jimmy Fallon, Paris Hilton, Steve Aoki, and Seth Green, among others, all have digital apes in their cryptocurrency wallets.
In May, actor Seth Green made headlines when he revealed that he had lost his prized BAYC original (number 8,398 out of a total of 10,000 unique digital assets in the collection), two rare NFTs of Mutant Apes, and one Doodle.
According to Green, he fell for a phishing scam on a site that was a knockoff of the Gutter Cat Gang, an NFT collection that was also quite popular. The lost NFTs were worth $400,000 at the time.
Scam Promoted by BBC
The BBC published an article in February about Hanad Hassan, a cryptocurrency investor from Birmingham. According to the post, Hassan put fifty pounds into cryptocurrencies in 2019 and made a fortune. Of course, there is more to it than that. Also discussed in the piece was how Hassan planned to put his newfound wealth to use for charitable projects.
However, the BBC was unaware that several individuals on the internet claimed that Hassan had defrauded several users.
Reportedly, in April of 2021, Hassan introduced a “charity token” called Orfano, looking to raise funds. The project claimed the funds would be invested in cryptocurrencies, with 3% of the funds set aside to aid charities. These charitable claims are a common tactic for cryptocurrency fraudsters to make their victims believe their investments are safe and secure. Later, Orfano unexpectedly shut down, taking everyone’s money with it.
Hassan recreated Orfano a month later under OrfanoX and pursued the same tactic with new token backers. To top it all off, the BBC had decided to report his “good fortune,” further propagating the scam. While Hassan’s scam transpired in 2021, he still managed to dupe the BBC just a year later.
Fake Sam Bankman-Fried Scam
In November, a fake video of Sam Bankman-Fried, the former CEO of cryptocurrency exchange FTX, emerged on Twitter, aiming to defraud investors affected by the business’s bankruptcy.
The “deepfake” video, which was generated using software to mimic Bankman-Fried’s look and voice, was an effort to trick visitors into visiting a malicious website by claiming there would be a “giveaway” that would “double your cryptocurrency.”
The video employed a voice emulator to make it sound like Bankman-Fried was saying, “as you know, our F-DEX [sic] exchange is going bankrupt, but I hasten to inform all users that you should not panic.”
The phony Bankman-Fried then linked to a webpage that claimed FTX had “prepared a giveaway for you in which you can double your cryptocurrency.”
Monkey Drainer
In October, a suspected phisher named Monkey Drainer stole almost $1 million worth of Ether via fake NFT minting websites in a week. The scam involved sharing links to fake cryptocurrency websites mimicking legitimate projects or firms to trick people into handing over sensitive information by promising a profitable buying opportunity or free promotion for NFT creators.
How do cryptocurrency scams work?
Scams come in many shapes and forms, and the events mentioned above are just some of the forms in which these scams can transpire. While it is impossible to categorize every possible form of deception, let’s look at some of the most common ones and how to spot and avoid them.
Phishing
Phishing is one of the most widely used scams because of its success rate. It usually entails luring victims into disclosing sensitive credentials. The scam typically unfolds by sending a victim to a fraudulent website or a fake email, where they get tricked into divulging personal information, often resulting in massive losses.
There are various kinds of phishing to be aware of with cryptocurrencies. Phishing attacks that target users’ “seed phrases” typically take the shape of fraudulent account recovery pages that ask for the user’s recovery phrase. Once the private keys are entered, hackers can access customers’ entire cryptocurrency holdings.
Meanwhile, the ice phishing technique relies on clickjacking to get user tokens. Users fall for a malicious link because it seems to originate from an official platform. This typically transpires while moving funds between wallets. By intercepting online payments, scammers can alter the transfer details to their advantage.
Social Engineering Scam
Social engineering is a phrase used by crypto investigators. This is a fraud from the get-go, but the target does not realize it since the con artist has spent so much time earning their confidence. Social engineering uses a false persona to defraud someone out of their money.
This con artist fabricates an online identity for their victim(s), typically taking on the persona of a famous figure. That’s because the victim is likelier to continue interacting with the fraudster in cyberspace. Scammers socially engineer their victims into believing they can trust them so that they send them money for “help,” “investment opportunities,” or “business ideas.”
The scammer will send phony links to potential cryptocurrency investors as part of the social engineering fraud. These bogus links frequently lure victims with false promises of profit in the cryptocurrency market.
Romance Scams
In a romance or cryptocurrency dating scam, the con artist obtains the victim’s trust by seeming to care about them deeply. There are several ways of doing this, including online dating and social networking. Once the victim falls for it, the con artist will create a fictitious financial emergency or investment opportunity.
The target is duped into thinking they are supporting their “newfound love” but are ultimately adding to the scammer’s wealth by sending them cryptocurrency or cash payments. This romantic fraud can even go as far as stealing family inheritances and ruining a person’s life by stealing their life savings. When a scam begins with online flirtation, the target is often a trusting individual who the con artist hopes to manipulate into giving over personal information.
Recovery Scams
As the name suggests, these companies come to the rescue when someone can no longer access their cryptocurrencies due to lost private keys or passwords or even a hacker stealing funds. These fake companies demand up-front payment and guarantee to “hack” your wallet or recover your cryptocurrency assets from a hacker’s wallet.
In most cases, when a scammer claims they can hack into a scammer’s wallet, they are counting on the fact that the victim does not understand blockchain technology and the fact that it is impossible to hack a blockchain. This decentralized technology exists precisely to safeguard assets from theft. Scammed victims have reported paying upwards of $10,000 to these bogus recovery firms.
SIM Swapping
SIM card swapping, often known as cell phone identity theft, occurs when con artists use a victim’s personal information to get access to their mobile banking and other financial apps. The con artist then has a direct line to your mobile network operator or even, if you can believe it, an insider at your carrier who is aware of the crypto on your device.
The attacker will utilize the victim’s mobile phone number to contact the victim’s wireless service provider and seek a replacement sim card or phone. The consumer’s data, including any applications the victim has already installed, may be downloaded onto the fraudster’s new sim card. Once the money is transmitted via cryptocurrency, it cannot be retrieved.
Rug Pull Scams
False startups and criminal actors that try to lure investors are at the heart of rug-pull scams. Once the necessary monies have been raised, the startup is either erased or locked. These are usually advertised as brand-new currencies or new NFT projects in the crypto world.
The scammers promise a solid cryptocurrency project or a popular NFT collection. Some even use influencers and celebrities to promote fake projects and coins, convincing even more people.
A rug pull scam resulted in a total loss of $1.3 million in January 2022. Thankfully, the culprits were apprehended following a thorough investigation by the Department of Justice (DOJ).
Fake Projects and ICOs
The term “ICO” will likely seem familiar to anyone who has invested in a company through an initial public offering. For those unfamiliar, an “initial coin offering” (ICO) is a type of public offering of a cryptocurrency. It is the point when a brand-new digital currency or coin is introduced to the trading public.
The following is an example of a possible ICO or cryptocurrency investment scam: A fraudulent ICO is teased, urging investors to pay a fee to join in early. Investors’ funds are taken, but they never get any return on their investment because the ICO never takes place.
Scams like this one happen frequently, so much so that the Securities and Exchange Commission (SEC) established a website that simulates them but leads you to educational tools when you try to participate.
How do you identify a scam in cryptocurrency?
As was previously indicated, most cryptocurrency scams rely on tried-and-true techniques that have been employed in many other sectors of the financial industry for decades. Therefore, it is crucial to be aware of certain typical red flags.
Research the White Paper
Cryptocurrencies develop over time. In the lead-up to this, a document known as a white paper is often made available to the public, defining the protocols, blockchain, algorithms, and overall operation of the network. On the other hand, the creators of fake cryptocurrencies often provide “white papers” that are poorly written. These fishy documents contain figures that do not add up, fail to describe how the money will be employed, or give the impression of being a legitimate white paper in some other way.
Run a Background Check on Team Members
The cryptocurrency’s white paper must include a list of its contributors and creators. Open-source crypto projects may not always disclose who contributed code for privacy concerns. This is quite common in open-source environments. However, in such cases, most of the project’s source code, discussions, and discussions can be found on GitHub and GitLab. Otherwise, research who the founders and developers are and check their past track records.
Avoid Big Promises
You should be wary of any project or cryptocurrency that promises exceptionally high returns on investment. This is also true for other sorts of scams, but the scammer has to capture people’s attention by making huge promises to come up with a vast pool of potential schemes. Be cautious if they do.
Con artists frequently demand immediate cryptocurrency payments
Paying with cryptocurrencies in advance for a product or service is unusual. Consequently, this is a typical tactic used by con artists. And if they disappear with your funds (or cryptocurrency), you have few options. To sum up, be wary of anyone who asks you for cryptocurrency without showing any working product.
Emotional appeals
Scammers frequently employ emotional appeals, which helps explain the prevalence of dating scams. Another red flag is if you start a close relationship with someone (or at least you think you do) and they suddenly want you to transfer cryptocurrency.
How do you avoid cryptocurrency scams?
Increased risks linked with digital assets call for extra precautions. To avoid falling victim to cryptocurrency scams, do consider the following:
- You should never respond to a message that you did not first send. You should hang up immediately if you get a call from a crypto brokerage or other financial institution that you have not contacted. Cryptocurrency exchanges don’t call you unless you call them first or request support. Always verify contact details from a platform’s main website.
- Make sure you have double-verified everything before you click. Do not open attachments or click on links from strangers.
- Keep your money separate. Refrain from making the standard error of permanently associating your cryptocurrency brokerage account with your bank account.
- If you detect anything fishy in your account, immediately contact the exchange or the platform you use via their official channels.
- Pick a vendor you can depend on. Always use a reputable wallet service to protect your private information and cryptocurrencies. Some popular providers include Exodus and MetaMask for hot wallets and Ledger, Trezor, or Bitbox for cold storage options.
- Make sure the URL starts with the secure HTTPS protocol. If a cryptocurrency exchange or wallet URL begins with HTTPS instead of HTTP, it indicates that the site has secured and encrypted traffic.
Conclusion
Cons involving Bitcoin and other cryptocurrencies are common. They may also come in many shapes, from simple rug pulls to bogus initial coin offerings. However, there are things you can do to safeguard yourself, such as learning to spot a scam when you see one. If something seems too good to be true, it probably is. Although there are risks associated with trading cryptocurrencies, this should not deter you from doing so, as this market has the potential to yield significant profits with even limited due diligence.
Important Disclosures:
Certain statements in this document might be forward-looking statements, including those identified by the expressions “anticipate”, “believe”, “plan”, “estimate”, “expect”, “intend”, “target”, “seek”, “will” and similar expressions to the extent they relate to the material produced by Bytex staff member. Forward-looking statements are not historical facts but reflect the current expectations regarding future results or events. Such forward-looking statements reflect current beliefs and are based on information currently available to them. Forward-looking statements are made with assumptions and involve significant risks and uncertainties. Although the forward-looking statements contained in this document are based upon assumptions the author of the material believes to be reasonable, none of Bytex’s staff can assure potential participants and investors that actual results will be consistent with these forward-looking statements. As a result, readers are cautioned not to place undue reliance on these statements as a number of factors could cause actual results or events to differ materially from current expectations
The commentaries contained herein are provided as a general source of information based on information available as of MMMM DD, 2022. Every effort has been made to ensure accuracy in these commentaries at the time of publication; however, accuracy cannot be guaranteed. Market conditions may change investment decisions arising from the use or relevance of the information contained here. ByteX. makes no representation or warranty to any participant regarding the legality of any investment, the income or tax consequences, or the suitability of an investment for such investor. Prospective participants must not rely on this document as part of any assessment of any potential participation in buying and selling of virtual currency assets and should not treat the contents of this document as advice relating to legal, taxation, financial, or investment matters. Participants are strongly advised to make their own inquiries and consult their own professional advisers as to the legal, tax, accounting, and related matters concerning the acquisition, holding, or disposal of a virtual currency. All content is original and has been researched and produced by ByteX.