Author: Edith M.

Ten years into their existence, cryptocurrencies are still confusing to users. Combine this with the fact that some smart investors who got in early made a lot of money during the 2017 crypto boom. This has earned the asset class some allure, making them highly lucrative to investors. Also, cryptocurrencies are still largely unregulated. This combination makes them a ripe target for opportunists and fraudsters who have perfected the art of certain scams.

In this article, we describe the most common cryptocurrency scams, so you always know what to watch out for and hence protect yourself and your funds.  

1. Hardware Wallet 

A hardware wallet is one of the safest places you can store your private key. These wallets constitute a device that resembles a flash drive and offer a safe and secure way for crypto holders to avoid online transactions which are susceptible to hacking, malware, and other vulnerabilities. 

Scammers know that hardware wallets are the go-to safest option for the majority of crypto holders, and are exploiting that by creating hardware wallets that have inbuilt vulnerabilities that make it easy for your crypto to be targeted. Some scams include making hardware wallets with a ‘pre-configured’ seed phrase hidden under a scratch card. The user will be instructed to scratch the card and set up the compromised seed phrase. Once you set up the seed phrase, it’s easy for hackers to siphon your funds. 

While this scam is really efficient, it’s also easy to avoid. Always purchase wallets from trusted sources. A quick search through the internet should show such wallets. For example, wallets that are written about by legitimate websites are good examples. 

2. Exchange Scams

Crypto exchanges are sites where crypto traders can purchase and sell cryptocurrency. However, most crypto exchanges have no regulatory authority overseeing their operations. This has led to the emergence of fake exchanges that are solely out to scam unsuspecting crypto investors. Many traders have been left in the dust after putting their funds in exchanges that turned out to be traps. 

One way to avoid such scams is to only sign up with trusted exchanges. Also, watch out for exchanges touting unrealistically high prices or big discounts. Also, look at the exchange’s URL. A legit website address should begin with HTTPS, signaling that the website is encrypted and thus safe. If an exchange website seems to have a shady-looking address, or there are some grammar errors, chances are it’s a scam.

3. Fake ICOs

ICOs are like IPOs, only this time for crypto. ICOs are a way for new cryptocurrency projects to raise capital. Through ICOs, users can back and participate in crypto projects they’re interested in. However, with a new ICO happening every other week, fraudsters are now using them as conduits for scamming unsuspecting investors.

One way fraudsters do this is by creating fake websites that are purportedly for ICOs and instructing the public to send coins to a fake wallet. Other times, the ICO itself is a gimmick. Unlike some other scams, this kind of scam might be a little harder to detect. However, it’s not entirely possible to avoid one. If you’re interested in a particular ICO, start by picking apart its white paper. Also, do a search on the team behind it. Are they open and with an online presence, or are they shadowy? Do they have relevant experience in the cryptocurrency, finance, or tech industry?

4. Cloud Mining Schemes

What’s the other way to acquire cryptocurrencies if you don’t want to buy or exchange them? Mining. 

However, mining isn’t cheap. It’s very resource-intensive in terms of mining technology, electricity, and time. Some companies have seen a business opportunity out of this, and are now offering users server space to mine coins at a certain rate, for a fee. 

But just like anywhere that money is involved, scammers have now set their eyes on this venture. Some companies are offering what they call “lifetime contracts” that purportedly keep mining costs the same, with lucrative returns. But you’ll notice as the mining difficulty increases, the returns will decrease. Other companies will promise outstanding returns without really disclosing the true costs going into the process, and the diminishing returns occasioned by the increase in mining difficulty. 

5. Multi-Level Marketing (MLMs) 

Multi-level schemes are not just limited to the ‘real-world.’ They’re also well and alive in the digital world. MLMs are schemes that look legit on the surface; they offer huge returns while also taking more money from naïve investors with the promise of even higher profits.

OneCoin is one company that played this game very well. People all over the world were encouraged to sign up and get their friends and family to sign up with the promise of perks and massive earnings. However, it all turned out to be a scam when the leader of the whole set up disappeared, and several members of the scheme were implicated for shadowy operations. 

Always look for information about a company before committing in any way, especially where money is concerned. Read the fine print and establish, if at all, their claims hold any water and are indeed feasible. 

6. Blackmail

This is a scam in which strangers will threaten to release information that you don’t want others to know about, or claim that they’ve hacked your computer and can access it using a remote desktop protocol (RDP). They might claim to have used your webcam to record you doing something that you wouldn’t want others to know about.

They will then demand that you send Bitcoin or another cryptocurrency in return for them to suppress or discard the material or send nothing and see the information sent to colleagues, friends, and family and your social networks. Scammers like these usually steal email lists and other information and attempt to dupe thousands of people using that info.

7. Ponzi Schemes

These are offerings of handsome returns when you deposit a particular amount of money. When you see an offering such as this, know it’s likely to be a Ponzi scheme. A Ponzi scheme is a one where money from the latest rung of investors is used to pay off earlier investors. In the end, a lot of people will lose a lot of money in the process.

8. Free Giveaways

This is a scam in which scammers will take advantage of the viral way in which information spreads online. They will claim to offer free giveaways of cryptocurrency to people who send a small amount of crypto if they register or provide personally-identifying information. In truth, they will use that information in some other sort of exploitation.

9. Phishing Emails

Be wary of emails from services that you apparently use requesting you take a particular action, such as resetting your password or requiring you to interact with your account in any way. Usually, these scams intend for you to reveal or compromise your personal information.

When you get a request like this one, try to establish its legitimacy by calling your company or reaching out to them via their social media accounts.

10. Phishing websites

These scams usually go hand in hand with phishing emails. Usually, you’ll receive a phishing email that links to a replica website. This website will then prompt you to enter your information through a login or prompt you to install malware. These websites may also sometimes appear as sponsored results on search engines or in-app download sites.

You can avoid that scam by not installing any suspicious software or logging to a website unless you’re absolutely certain it’s not a fake one. Also, don’t download any app whose authenticity you’re not sure about. 

11. Impersonation

Some con artists have also mastered the art of impersonation. One way they will pull an impersonation plot is by taking the content of the person they’re impersonating and then publishing it in an account that looks exactly like the original poster. They will then add a follow-up message or some call to action, which is a ploy to acquire people’s information and use it for some swindling scheme.

Also, impersonators will sometimes use these fake accounts to trick followers into taking action, which is also intended to get them to reveal some sort of information.

You can avoid this kind of scam by never responding to any request emanating from a questionable social media account, or one that’s not straightforward with its intentions. Always seek to establish the authenticity of such a request by cross-checking such an account across multiple social platforms.

12. Malware

Use of Malware is another tactic that scammers use to fleece cryptocurrency out of unsuspecting people. This calls for you to be ultra-vigilant whenever you’re sending cryptocurrency. Confirm more than once that you’re sending to the right address.

Some malware can cause you to send funds to the hacker’s address instead of the right one. When you paste the address from your PC’s click board, the malware changes the address, so the funds are unknowingly sent to the hacker’s address. When you realize this, it’s too late, since cryptocurrency transactions are irreversible. Thus, be extremely cautious about what kind of software you install on your PC. A quality security scanner might also help, but it’s not 100% foolproof.

13. Meet in Person

You might come across someone offering to sell or buy crypto from you, and they will ask that you meet in person to conduct the exchange. If it’s not a trusted person that you already know, it’s a good idea to not entertain the proposition. You could end up being robbed or harmed.

Also, cons are known to exchange fake Fiat money for crypto in such meetups. If you must conduct a one-on-one exchange that way, consider asking them to put the money in a peer-to-peer escrow account. But, remember crypto exchanges exist for this purpose. Better to pay the extra transaction fees and stay safe than get in a potentially dangerous situation.

14. Money Transfer Fraud

These are scams in which fraudsters and con artists will send you an email telling you they need help moving money in exchange for a portion of the funds. These are scams geared toward getting you to reveal your identifying information one way or another.

15. Pumps and Dumps

In a pump and dump scheme, an individual (or individuals) usually goes on a hype campaign -on social media platforms -about a cryptocurrency in order to artificially drive up (pump) it’s the price, and when it reaches a certain price, they’ll sell (dump) their holdings for a profit. Usually, it’s inexperienced investors who fall for this ploy, thinking the coin in question is the next big thing. Most of the time, it will be a valueless coin that might never see the light of day, and you’re stuck with it since you’re unlikely to find a willing buyer anytime soon.

When making any crypto buying decision, always rely on your own research and bear in mind that no one knows what value any coin is going to be in the future, so don’t believe anyone who says otherwise.

16. Pyramid scheme

This is a scam where-in a fraudster will promise handsome returns to participants when they recruit a certain number of other participants. This enables the scheme to grow virally and quickly, but the whole thing crumbles soon when there are no more people to recruit. Also, members, or the ones they’ve recruited, will not realize any meaningful returns during the whole debacle.

Never be duped to recruit your network into a scheme with the promise that you (and them) will accumulate some sort of returns. Also, never contribute your money into such a scheme at the behest of any person.

17. Ransomware

This is malicious software that partially or completely blocks your access to your PC or another device. The malware will only grant you access to the device once you have paid a cryptocurrency in ransom. In such a situation, consult a professional to help you remove the malware rather than pay the ransom. Also, be careful about the kind of programs you install in your device. Always make sure that a program is not a fake one impersonating one that you’ve used in the past.

18. Scam Coins

Be careful what cryptocurrency you invest in. Some altcoins (cryptocurrencies other than Bitcoin) are scam coins. Scam coins usually entice investors to put money into a project via a private sale with the promise of high returns to those who get in early.

Scam coins may have a very flashy website and create a climate of fear-of-missing-out (FOMO) to trick people into investing. Other scam coins will offer airdrops (giving away free coins) to potential investors in exchange for investing in the project or joining their community. Also, watch out for cryptocurrency projects that invoke Bitcoin a lot. This is a ploy to trick people into thinking that it is a legitimate project.

Cryptocurrency scams are not going anywhere, and fraudsters are always looking for new ways to perpetrate them. But one scam is usually a variation of another, and knowing what to look out for can help protect you. This comprehensive list should help you avoid being duped and losing your funds.