5 Cryptocurrency Scams to Watch Out for – Forbes Advisor

Scammers know no bounds. This also applies to stealing cryptocurrencies.

Scammers exploit various schemes to lure victims into fraudulent cryptocurrency investments. They even form fake relationships through dating apps like Tinder.

Headlines such as “Cryptocurrency and romance scams continue to cost victims billions of dollars” and “Romance scammers took their life savings in crypto” are becoming commonplace. Masu.

In fact, crypto romance scammers defrauded victims of $139 million last year, according to a 2022 report from the Federal Trade Commission (FTC). But that's just one type of his scam among many.

The FTC also revealed that from January 1, 2021 to March 31, 2022, more than 46,000 consumers reported losing more than $1 billion in cryptocurrencies. And this may be just the tip of the iceberg, as there may be many more victims who were not affected. Not reporting their incidents.

Aaron Cohn, a partner at Weinberg Wheeler Hudgins Gun & Dial, a law firm specializing in financial fraud, seeks help with hacked cryptocurrency accounts after his law firm He says the number of victims is increasing significantly.

“Retail investors considering investing in cryptocurrencies should understand the increased risks and take better precautions to avoid becoming the next victim,” Cohn said.

To help you avoid schemes preying on cryptocurrency enthusiasts, here is a guide to common cryptocurrency scams.

What is crypto fraud?

Crypto scams are similar to other financial scams, except the scammers are after crypto assets instead of cash.

Cryptocurrency scammers are used in other financial crimes, such as pump-and-dump scams, where they try to lure investors into buying assets with false claims about value or steal digital assets outright. Use many of the same tactics as you do.

The latter type of fraud can involve breaking into an individual's cryptocurrency wallet or tricking investors into sending digital assets as payment for fraudulent transactions, according to Hulbert Hargrove & Co. said Shane Cummings, wealth advisor and director of technology and cybersecurity.

The goal is always to manipulate victims into divulging personal data or transferring valuable digital assets such as non-fungible tokens (NFTs) to the perpetrator's account.

“Cryptocurrency fraud as an instrument is particularly attractive to nefarious agents who enjoy the rapid conversion of cryptocurrencies to fiat, ready-to-use third-party transaction applications, and a wealth of obfuscation techniques.” said Chengqi “John” Guo, professor of engineering information systems. He studied business analysis at James Madison University.

Types of cryptocurrency scams

Cryptocurrency scams come in many forms. Here are some of the most common examples.

investment fraud

Investment scams involve bad actors who lure people into transferring cryptocurrencies to scammers by promising “huge profits.”

Scammers can play a variety of roles, including “investment managers,” celebrities, and even lovers on online dating sites. No matter what role you play, they promise to grow your investment if you send them cryptocurrencies.

If you comply with their demands, kiss cryptocurrency goodbye.

Investment fraud includes pump-and-dump schemes. Scammers lure you into buying unknown cryptocurrencies at “low prices” by promising that the value of your assets will soon go through the roof.

When you buy, the price increases, at which point the scammer offloads his holdings at the new higher valuation. This causes prices to plummet, leaving you and other victims underwater.

“Typically, a new token is worth a few cents, or even a fraction of a cent. But with a little bit of momentum, it can push it up the charts on sites like CoinMarketCap.com, and the sky is the limit for price appreciation.” “You can make it look like it's the case,” Cummings said.

“Given the speed with which new coins are created without regulation and sold to investors over the internet, reports of digital assets rising by triple-digit percentages in a short period of time are tempting for a quick profit. Some investors want to jump on the bandwagon,” he says.

To find investment schemes, look for promises of excess returns or zero risk.

These schemes often start on social media or online dating sites, so be wary of anyone contacting you out of the blue about your crypto assets. Also be wary of people talking about specific crypto assets on Reddit and other social media platforms. These are known as social engineering scams.

Phishing scam

Phishing scams have long been popular among scammers. Fraudsters are looking to gain access to account details, including encryption keys. As any crypto user knows, whoever holds the key holds all the crypto.

Phishers often trick you into clicking a link to a fake website, where they steal your account details. They may post links on social media or contact you directly, impersonating well-known companies such as Amazon, banks, utility companies, or even government agencies.

For example, you may receive an email or text message informing you that a withdrawal has been initiated and provide a link to cancel the transaction.

“The link leads to a fraudulent website that collects the investor's account credentials, allowing the thief to log in and withdraw funds,” Cummings said.

As actor and film producer Seth Green discovered earlier this year when four of his Bored Ape NFTs were stolen, anyone can fall prey to a phishing scam, and any digital asset can be stolen. You may be the target of such scams.

upgrade scam

Software is constantly being updated, and a cryptocurrency platform is just one type of software. With many people accustomed to upgrading in the digital age, scammers can easily trick crypto holders into handing over their private keys as part of an “upgrade.”

Upgrade scammers can take advantage of legitimate transitions, such as the recent Ethereum integration, and both the Ethereum Foundation and Robinhood are concerned enough to issue warnings for users to be “highly vigilant” against upgrade scams. Ta.

SIM exchange scam

SIM swap scams are one of the newer crypto scams happening right now. These occur when the scammer gains access to a copy of her SIM card and has access to all the data on her phone.

“That information could be used to receive and use two-factor authentication codes needed to access cryptocurrency wallets and other accounts without the victim's knowledge,” Cohn said. “When this happens, a victim’s cryptocurrency account can be hacked and wiped without contacting the victim.”

Fake crypto exchanges and crypto wallets

“If you browse any social media handle, you will come across sites promoting cheap Bitcoin (BTC),” says Martin Leinweber, digital asset product strategist at MarketVector Indexes. They may advertise cryptocurrencies at prices as low as 5% below market prices and promise big savings when you purchase through their site, but in some cases, these platforms may also be fake crypto products. there is.

These fake crypto products often quote exorbitant returns on investment, and users are typically required to pay high initial fees and are often asked to increase their investment further.

And when you try to withdraw your funds, you may find that they are gone.

“Fake crypto wallets are malware scams,” Reinweber said. “Crooks use this to infect computers and ultimately steal users' private keys and passwords.”

To avoid such scams, try to use reputable exchanges and wallets with long user history.

“If a wallet website tries to look like a reputable brand, consider it a scam and move on,” Reinweber says.

How to report a cryptocurrency scam

“Many of the perpetrators of crypto fraud are outside the United States, so our law enforcement agencies are limited in what they can do,” Cummings said. However, if a crime occurs, you must report it.

You can report cryptocurrency scams to:

You can also file a complaint with the cryptocurrency exchange you used to send the money.

“Typically, a formal complaint is required for an insurance claim to be subject to proper investigation by an intermediary,” Cohn says. “Investors need to quickly decide if and how they need to do that.”

You can also contact the media and invite them to cover your event, Guo said. “Doing so will increase public awareness of crime and reduce future criminal activity.”

But share with discretion to protect your privacy, he added.

How to avoid cryptocurrency scams

Given the increased risk of digital assets, prudence is essential. Follow these tips to avoid cryptocurrency scams.

• Please do not respond to unsolicited communications. “No matter who contacts you from a crypto brokerage, or even a financial institution, the best practice is not to respond,” Cohn said. “Find out the agency’s official number and initiate your own correspondence.”
• Please check before clicking. Do not open hyperlinks or attachments from unknown senders.
• Keep your accounts separate. Do not permanently link your cryptocurrency brokerage account with your traditional bank account.
• Please put it on hold immediately. “If you receive a notification of unusual activity on your account, don't wait to put a hold on future transactions based on fraud,” Cohn says.
• Use a reputable company. To ensure the security of your information and cryptocurrencies, use a wallet from a trusted company,” says Reinweber. He cites Exodus and MetaMask as reputable hot wallets, and Ledger, Trezor, or Bitbox as reputable cold wallets.
• Look for HTTPS. HTTPS (rather than just HTTP) in a cryptocurrency exchange or wallet URL indicates that the site secures and encrypts your traffic, Leinweber says.

How to get your money back from cryptocurrency scams

Recovering money from cryptocurrency scams is difficult. “Transactions on the blockchain are immutable, so the chances of getting your coins back are pretty low,” Reinweber said.

That being said, he still recommends reporting crimes to legal authorities. “Reporting a scam may help the government track down the criminals and get your funds back,” he says.

Ultimately, your best bet is to take extra precautions with your future assets to avoid becoming a victim again.