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Scammers know no bounds – and that includes stealing your cryptocurrency.
Fraudsters exploit various schemes to lure victims into fake crypto investments. They even go as far as entering into fake relationships through dating apps like Tinder.
Headlines like “Crypto and romance scams continue to cost victims billions” and “A romance scammer killed himself in crypto” are becoming commonplace.
In fact, crypto-romance scammers conned victims out of $139 million last year, according to a 2022 report by the Federal Trade Commission (FTC). But that’s just one type of scam out of many.
The FTC also found that more than 46,000 consumers reported losing more than $1 billion in crypto between January 1, 2021, and March 31, 2022. And that may just be the tip of the iceberg—there are likely more victims out there who didn’t report their incidents.
Aaron Cohn, a partner at Weinberg Wheeler Hudgins Gunn & Dial, a law firm focused on financial fraud, says his practice has seen a sharp increase in victims seeking help with hacked crypto accounts.
“Retail investors considering crypto investments need to understand the elevated risk and should adopt increased security measures to ensure they don’t become the next victim,” says Cohn.
To avoid schemes that prey on crypto enthusiasts, here’s a guide to common crypto scams.
What are crypto scams?
Crypto scams are like any other financial scam, except the scammers are after your crypto assets instead of your money.
Crypto fraudsters use many of the same tactics used in other financial crimes, such as pump-and-dump scams that lure investors into buying an asset with false claims about its value or outright attempts to steal digital assets.
This latter type of fraud can involve breaking into a person’s crypto wallet or getting an investor to send a digital asset as a form of payment for a fraudulent transaction, says Shane Cummings, wealth advisor and director of technology and cybersecurity for Halbert Hargrove.
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.
“As a tool, crypto-fraud is particularly appealing to malicious agents who like cryptocurrencies’ rapid conversion to fiat money, ready-to-use third-party transaction applications, and rich obfuscation techniques,” says Chengqi “John” Guo, professor of computer systems. and business analytics at James Madison University.
Types of Crypto Scams
Crypto scams can take many forms. Here are some of the most common examples.
Investment scams involve a bad actor luring people to send their cryptocurrency to the scammer with promises of “big wins.”
Scammers can play many roles, such as an “investment manager”, a celebrity or even a love interest on an online dating site. Whatever role they assume, they promise to increase your investment if you transfer your cryptocurrency to them.
If you follow through on their request, you’re kissing your crypto goodbye.
Investment scams include pump-and-dump schemes. A scammer lures you into buying an obscure crypto at a “low price”, with promises that the asset’s value will soon go through the roof.
When you buy, the price rises, at which point the scammer dumps his inventory at the new higher valuation, causing the price to collapse, leaving you and any other victims underwater.
“Typically, the new token is worth a few cents, or even fractions of a cent. But a little bit of momentum can propel it up the charts on sites like CoinMarketCap.com to make it look like the sky’s the limit for price increases, says Cummings.
“Given the speed at which new coins are created and marketed to investors on the internet without regulation, some investors looking to make a quick profit are drawn in by reports of triple-digit percentage gains in a digital asset over a short period of time and want to jump on the bandwagon, he says.
To spot an investment scheme, look for promises of excessive profits or zero risk.
These schemes often begin on social media or online dating sites, so be wary of someone contacting you out of the blue regarding your crypto assets. Watch out for anyone talking about a particular crypto asset on Reddit or other social media platforms as well. These are known as socially engineered scams.
Phishing scams are an old favorite among fraudsters. Scammers aim to gain access to your account details, including your crypto keys. As any crypto user knows, whoever has the key holds all the crypto.
Phishing scammers often trick you into clicking a link to a fake website, where they can steal your account details. They may impersonate well-known companies, such as Amazon or your bank, energy companies or even government agencies, and may post links on social media or contact you directly.
For example, they may send you an email or text message that a withdrawal was initiated and provide you with a link to cancel the transaction.
“The link leads to a fraudulent website and obtains the investor’s account credentials, allowing the thieves to log in and withdraw assets,” Cummings says.
Anyone can fall victim to a phishing scam, and any digital asset can be the target of such a scam, as actor and film producer Seth Green realized earlier this year when four of his Bored Ape NFTs were stolen.
Software is constantly updated, and cryptocurrency platforms are just one form of software. Since many people have become accustomed to upgrades in the digital age, fraudsters can easily trick crypto holders into giving up their private keys as part of an “upgrade”.
Upgrade scammers can piggyback on legitimate migrations, such as the recent Ethereum merger, which had both the Ethereum Foundation and Robinhood concerned enough to issue a warning that users are on “high alert” for upgrade scams.
SIM swap scam
SIM swapping scams are among the newer crypto scams taking place today. They occur when a fraudster gains access to a copy of your SIM card and gains access to all of your phone’s data.
“This information can be used to receive and use two-step authentication codes required to access crypto wallets and other accounts without the victim’s knowledge,” says Cohn. “When this happens, the victim’s crypto accounts can be hacked and deleted without the victim themselves being contacted.”
Fake crypto exchanges and crypto wallets
“If you scroll through your social media handles, you’ll come across sites advertising cheap Bitcoin (BTC),” says Martin Leinweber, digital asset product strategist at MarketVector Indexes. They may advertise cryptocurrencies at 5% below market value and promise huge savings when you buy through the site – but sometimes these platforms are fake crypto products.
These fake crypto products often quote outrageous returns on investment, and users are usually required to pay a high initial fee and then often asked to invest more and more.
And when you try to withdraw your funds, you’ll likely find they’ve disappeared.
“A fake crypto wallet is a malware scam,” says Leinweber. “Fraudsters use it to infect a computer and eventually steal the user’s private key or password.”
To avoid such scams, stick to reputable exchanges and wallets with a long user history.
“If a wallet’s website tries to look like a reputable brand, consider it a scam and move on,” says Leinweber.
How to report crypto scams
“Since many of the perpetrators of crypto fraud are outside the United States, our law enforcement agencies can only do so much,” Cummings says. But you should still report any crimes.
You can report crypto scams to the following places:
You can also file a complaint with the crypto exchange you used to send the money.
“Typically, for a claim to be subject to proper investigation by your brokerage, a formal complaint is required,” says Cohn. “The investor must find out if it is necessary and how to do it, and quickly.”
You can also reach out to the media and invite them to cover the event, says Guo. “Doing so can increase public awareness of the crime and help reduce future criminal activity.”
Just be sure to share with discretion about safeguarding your own privacy, he adds.
How to avoid crypto scams
Given the increased risk of digital assets, caution is imperative. To avoid crypto scams, follow these tips:
- Do not respond to unsolicited contact. “No matter who contacts you from your crypto broker—or any financial institution, for that matter—the best practice is not to respond,” says Cohn. “Look up the official number of the institution and initiate independent contact.”
- Check before you click. Do not open hyperlinks or attachments from unknown senders.
- Keep the accounts separate. Do not permanently link crypto brokerage accounts and traditional bank accounts.
- Place a hold immediately. “If you receive notice of unusual activity on an account, do not wait to stop any future transactions based on fraud,” says Cohn.
- Use reputable companies. To secure your information and crypto security, use a wallet from a reputable company, says Leinweber. He points to Exodus and MetaMask as recognized hot wallets or Ledger, Trezor or Bitbox as recognized cold wallets.
- Check for HTTPS. HTTPS — as opposed to just HTTP — in a crypto exchange or wallet URL indicates that the site has secured and encrypted traffic, Leinweber says.
How to get money back from crypto scams
Getting your money back from crypto scams is difficult. “Since transactions on a blockchain are immutable, the probability of getting your coins back is quite low,” says Leinweber.
That said, he still recommends reporting crimes to legal authorities. “When you report a scam, the authorities can track down criminals and get your money back for you,” he says.
Ultimately, the best course of action is to take extra precautions with your future assets so you don’t become a victim again.