What to Know About Common Crypto Scams and How to Avoid Them

By Philip Hoey
Updated 23 May 2024

What are Cryptocurrency Scams?

Fraudsters are always finding new ways to take people’s hard-earned money, and with the rise of cryptocurrency in recent years, they have more opportunities than ever. Unfortunately, 2021 was a record-breaking year for cryptocurrency crime and financial fraud, with scammers stealing an incredible $14 billion in digital currency through common scams.

Like other financial scams, crypto scams aim to deceive you, but instead of taking your cash, they’re after your cryptocurrency assets. These scammers use a range of tactics, such as the “pump-and-dump” scam that encourages people to invest in a digital asset based on false promises about its value or more direct attempts to steal your digital assets.

Cryptocurrency investment is a high-risk and volatile game, with the value of your investments able to rise or fall rapidly and with no guaranteed returns. If you fall victim to a crypto scam, your money will likely be gone forever. That’s why it’s important to only invest what you can afford to lose into your cryptocurrency accounts.

Key Takeaways

  • Thieves and scammers have several ways to take your cryptocurrency or deceive you into giving it to them.
  • Crypto scams usually target sensitive information like security codes or trick unsuspecting people into sending cryptocurrency to compromised digital wallets.
  • There are various types of scams, such as giveaways, romance scams, phishing, extortion emails, fake company alerts, blackmail, rug pulls, initial coin offerings (ICOs), non-fungible tokens (NFTs), and fake mining apps or networks.
  • Watch out for scams that promise you will make money quickly, have poorly written white papers, or have excessive marketing.
  • If you think you’ve been a crypto scam victim, contact federal regulatory agencies and your crypto exchange for help.
  • Cybercriminals exploit the lack of understanding surrounding this digital asset to lure in investors and steal their money.

What are Cryptocurrencies?

Cryptocurrencies are digital currencies that use advanced technology to ensure security, prevent fraud, and guarantee authenticity. They rely on blockchain technology, which allows them to be stored and managed through digital wallets.

Unlike traditional currencies, such as cash or bank money, central banks or government entities do not back cryptocurrencies, and other institutions do not regulate them. With cryptocurrencies, transactions can be made without intermediaries, making them quicker and more efficient.

However, once a transaction is made, it cannot be reversed or altered, as blockchain technology ensures that all data in its records are permanent. And this is why if you fall for common crypto scams, you can’t undo the transaction, so it’s crucial to be vigilant and cautious when investing in cryptocurrency.

Learn more: What is a Blockchain?

Why is Crypto Prone to Scams?

Scammers find cryptocurrency particularly appealing for three reasons: the lack of a central authority, irreversible transactions, and the ability to remain anonymous.

  • Decentralized: Cryptocurrency operates within a decentralized financial system without oversight from a bank or government. With a central authority, transactions can be stopped or flagged as suspicious.
  • Irreversible: A crypto transaction cannot be undone, thanks to the blockchain technology that underpins it once a crypto transaction is sent.
  • Anonymous: Crypto users interact through wallet addresses rather than legal names, making it challenging to track down specific users, particularly those who want to remain anonymous.

Read More: Decentralized Autonomous Organization.

Types of Cryptocurrency Scams

There are many types of crypto scams. Some of the most common include:

Pig Butchering

Pig butchering scams originated in Southeast Asia but have now spread globally, thanks to cryptocurrency scammers who prey on unsuspecting victims. These romance scams are typically carried out by con artists who use online dating apps and social media sites in search of targets.

They create fake profiles and reach out to potential victims through social media, WhatsApp, Tinder, or other dating sites. They may even use random texts, posing as an old acquaintance or a wrong number. The goal is to establish a friendly conversation with the victim and gain their trust, often by pretending to be a new friend or romantic interest.

Although pig butchering scams usually involve romance as a tactic, scammers can also use other types of relationships, personal or professional. The scammers are skilled at manipulating their targets, making it easy for someone to fall victim to this scam.

How Pig-Butchering Works

Scammers often use dating apps or social media platforms to meet potential victims and gain their trust by building personal relationships. They suggest investing in cryptocurrency and convincing the victim to set up an account on a reputable trading platform such as Coinbase.

However, the scammer then directs the victim to transfer their crypto to another investment platform, a fake one with fake accounts run by the scammer. The scammer encourages the victim to invest more, and once they make a sizable amount of money, the scammer steals the crypto and disappears.

The victim has little recourse to get their money back since these scammers typically operate in China and Southeast Asia, where U.S. authorities have little jurisdiction.

Cloud Mining Scams

Cloud mining is a way to get ahold of the best cryptocurrencies to mine without buying your hardware. You pay a company to gain access to their mining hardware, and in exchange, they take a cut of the profits you’re supposed to earn.

Unfortunately, some of these cloud mining platforms are not real. They will take your money but won’t deliver any rewards. Doing your research before investing in any cloud mining platform is important because many are scams or just ineffective.

Read More: How to mine cryptocurrency.

Giveaway Scams

Giveaway scams involve scammers promising to match or multiply any cryptocurrency sent to them, creating a false sense of legitimacy through clever messaging from what appears to be a valid social media account. These scammers create a sense of urgency, claiming that it is a ‘once-in-a-lifetime’ opportunity, which can lead people to transfer their funds quickly in the hope of an instant return of free money.

While these crypto scams can appear convincing, exercising caution and doing thorough research before investing money is important. Many of these so-called opportunities are fraudulent and can result in significant financial loss.

Phishing Scams

Phishing scams are a common tactic used by scammers to get access to your personal account information, including your crypto keys and other digital assets. Crypto users know that whoever holds the key holds all the cryptocurrency.

Phishing scams work by sending fraudulent emails that lead victims to a fraudulent website designed to look legitimate. Once there, victims are asked to enter their private key information, which the scammers then steal.

This allows the fraudsters to access the cryptocurrency in the digital wallet and steal it. It’s important to be cautious and verify the legitimacy of any emails or websites before entering sensitive information or send money.

In May 2022, OpenSea’s Discord was hacked with the hacker trying to redirect anyone who clicked a link to the fake NFT drop Youtube video to a phishing website. Fortunately, only around ten people followed the link and were scammed before it was picked up with less than 10 ETH stolen.

Blackmail and Extortion Scams

Scammers often use blackmail emails as another popular social engineering method. In these emails, fraudsters claim to have evidence of the victim visiting adult or illicit websites and threaten to expose them unless the victim shares their private keys or send cryptocurrency to the scammer.

It’s important to note that this is a criminal extortion attempt and should be reported to law enforcement agencies such as the FBI.

Sim-Swap Scams

SIM-swap scams are a newer common cryptocurrency scams that is becoming more prevalent. In this type of scam, the fraudster obtains a copy of your SIM card, giving them access to your phone’s data and personal information.

With this information, they can receive and use the two-step authentication codes required to access crypto wallets, your private key and other accounts without the victim’s knowledge. As a result, the victim’s crypto accounts can be hacked and emptied without their knowledge.

Fake Website Scams

Scammers create fake cryptocurrency trading platforms or fake versions of official crypto wallets to deceive unsuspecting victims. These fraudulent websites often have similar domain names but differ slightly from the sites they are copying.

A scam site is designed to look almost identical to legitimate sites, making it hard to distinguish them. These fake crypto sites operate in two ways:

  • Phishing Scam Pages: If you enter details like your crypto wallet’s password, recovery phrase, and financial information on these sites, scammers can get their hands on them.
  • Straightforward Theft: These sites may initially allow you to withdraw a small amount into your bank account. You might invest more money in the site when your investments perform well. However, when you try to withdraw your money, the site either shuts down or denies your request.

Investment Opportunity Scams

Investing in cryptocurrencies can be risky. Unfortunately, scammers take advantage of this fact, and one of their tactics are investment scams where they contact people out of the blue, posing as “investment managers.” They promise significant returns if you invest in cryptocurrency and transfer it to their online account, essentially a ponzi scheme.

This investment scam might direct you to a fake investment website that looks convincing, but it’s all a trap. Once you gain access to your “investment account,” you will find that you can’t withdraw your money or have to pay high fees. You should be careful of unsolicited investment offers and always do your research before investing.

One of the biggest crypto scams in history is the BitConnect Crypto Scam that defrauded investors of over $2 billion. The founder was charged in February 2022 with the orchestration of a global Ponzi scheme and added to a Bitcoin Scammer list.

Fake Celebrity Endorsements Scams

One trick crypto scammers use is to impersonate or falsely claim endorsements from famous people, business leaders, or influencers. They do this to grab the attention of potential victims. However, legitimate celebrities are not contacting you through social media to offer an investment opportunity.

If you click on a link sent by a scammer or send cryptocurrency to a QR code of a supposed celebrity, your money will go straight to the scammer, and you will lose it. These scams can be sophisticated, with glossy websites and brochures that seem to have celebrity endorsements from famous scams like the deep fake Elon Musk Youtube video in 2022 that endorsed users to send crypto to an anonymous wallet with a promise o double returns. .

Pump and Dump Schemes

Pump-and-dump schemes involve scammers using email blasts or social media like Twitter, Facebook, or Telegram to lure investors and excite a specific coin or token. Fearing they’ll miss out, traders quickly buy the coins, increasing the price. Once the price has inflated, the scammers sell their holdings, causing the asset’s value to crash.

This can happen extremely quickly, sometimes within just a few minutes. So, it is essential to do thorough research before investing in any asset and not fall for the fear of missing out on tactics used by these scammers.

Rug Pull Scams

This type of scam is when a developer convinces people to invest in a new cryptocurrency project, often in DeFi, and then disappears before completion. As a result, investors are left with worthless cryptocurrency. These rug pull scams can also involve a variation of Ponzi schemes, where investors earn money by recruiting others with false promises.

One of the most infamous crypto scams to hit the crypto world was the SushiSwap rug pull in 2020 by its anonymous creator, Chef Nomi. Around 2.5 million Suhsi and 20,000 ETH tokens were taken out of the liquidity pool and cashed out. The community accused the owner of scamming which he denied and claimed it was not an exit scam.

Learn More: What are DeFi Loans?

Fraudulent ICOs (Initial Coin Offerings) Scams

An initial coin offering or ICO is a way for start-up crypto companies to raise money from future users. Typically, customers are promised a discount on the new crypto assets in exchange for sending active cryptocurrencies like Bitcoin or another popular cryptocurrency.

Continue Reading: What is an IDO?

How to Spot Common Cryptocurrency Scams

Cryptocurrency scams are widespread, but there are ways to protect yourself from falling victim to them. By implementing practical and reliable security measures, you can significantly reduce the likelihood of becoming a target. Here are a few useful tips:

Unnamed Team Members

Most reputable investment companies have well-known individuals leading them, and you can easily find information about them online. Look for bios of the team members and an active social media presence. Beware if you can’t find information about the people running a cryptocurrency.

Promises of Guaranteed Returns

No investment can guarantee profits since risks are always involved, and investments can go up and down. If a cryptocurrency offering promises you guaranteed profits, it’s a major red flag and a possible Ponzi scheme.

Pressured to Take Action

One common tactic of cryptocurrency scammers is to pressure potential victims into taking immediate action. These pressures could include urging you to transfer crypto from your crypto wallet and invest through the scammer’s site.

Using crypto to pay an individual or for a financial service, downloading an investment app not listed on the Google Play Store or Apple Store, depositing money into different bank accounts, paying tax, or investing more to access their funds. It’s essential to take the time to investigate any investment opportunities thoroughly and never make decisions under duress, especially to help avoid phishing scams.

Excessive Marketing

Cryptocurrency scams often rely on excessive marketing to attract people. They invest heavily in online advertising, paid influencers, and offline promotions to reach as many people as possible in the shortest time possible.

Legitimate cryptocurrency projects won’t make extravagant claims or use heavy-handed tactics to get you to invest. If you feel that a crypto offering’s marketing seems too good to be true, pause and do some research to see if it is an investment scheme or another scam.

Read the White Paper

One way to evaluate a cryptocurrency’s legitimacy is to read its white paper. This document describes the cryptocurrency’s protocols, blockchain, formulas, and how the network will function. Legitimate cryptocurrencies will have a well-written white paper that outlines how they envision the money being used.

On the other hand, fake cryptocurrencies will have poorly written white papers with figures that don’t add up or do not seem like proper white papers, a great way to spot cryptocurrency scams.

Learn more about the difference between Proof-of-Work and Proof-of-Stake.

How to Avoid Cryptocurrency Scams

Protecting yourself from cryptocurrency scams involves being informed about scammers’ tactics and staying vigilant. It is important to recognize the warning signs of scams and to keep your keys in cold storage, separate from your wallet. Scammers are constantly coming up with new schemes to steal your cryptocurrency in the crypto industry. Here are some key things to remember to avoid being taken in by these cons.

  • Beware of crypto scams: Legitimate businesses won’t ask you to make payments in cryptocurrency upfront, whether it’s for buying something or protecting your money. If someone does, it’s a red flag for a scam.
  • Be cautious of unsolicited messages: If you receive a message from your crypto brokerage, investment manager or any financial institution without prior contact, it’s best not to respond. Look up the official contact information of the institution and initiate independent contact instead.
  • Keep your accounts separate: It’s important not to permanently link your crypto brokerage accounts and traditional bank accounts together.
  • Use reputable companies: To ensure the security of your crypto and personal information, use a wallet from a reputable company. Consider Exodus or MetaMask for hot wallets; for cold wallets, Ledger, Trezor, or Bitbox are reputable options.
  • Look for HTTPS: Always check for HTTPS in the URL of a crypto exchange or wallet website. This indicates that the site has secured and encrypted traffic.
  • Act quickly if you suspect fraud: If you notice any unusual activity in your account, act fast and place a hold on any future transactions to prevent fraud.
  • Be cautious of links and attachments: Don’t open hyperlinks or attachments from unfamiliar senders. Ignore cold calls, and if someone contacts you out of the blue to sell a crypto investment opportunity, it’s likely a scam. Never disclose personal information or transfer money to someone who contacts you this way.
  • Keep your private keys private: Your private keys control your crypto and wallet access, and no legitimate transaction requires you to give them away. Be wary of any requests for your private keys.
  • Double-check before taking action: If you receive an email, text, or social media message from a government agency, law enforcement, or utility company claiming that your accounts or assets are frozen and you need to send crypto or money, contact the agency directly and ignore the message. Always verify the authenticity of the message before taking any action.

You can learn more with a complete guide on how to trade cryptocurrency.

What to Do if You Have Been Scammed

If you fall victim to a cryptocurrency scam, it can be devastating. Acting quickly is essential to minimize the damage. Here’s what you should do if you have made a payment or disclosed personal information:

  • If you made a payment using a debit or credit card, contact your bank or card provider immediately to report the scam. Ask them to stop any transactions.
  • If you paid via bank transfer, report it to the wire transfer company or bank you used.
  • If you share personal details, let your bank, or your financial service provider know. Check that you haven’t used the same password before. If you have, make sure to update it there too.

It’s important to note that crypto fraudsters often sell the details they have stolen to other criminals. So, you need to be careful and on the lookout for any suspicious activity.

Here is a list of who/where you can report your fraudulent cases to:

All scams Federal Trade Commission scam reporting — so they can warn others
Banking and credit card scams Your bank or financial institution
Fraud and theft Contact your local FBI Office

Securities and Exchange Commission fraud reporting

Financial and investment scams

Including those involving superannuation, managed funds, financial advice, financial products, and insurance

Commodity Futures Trading Commission tips and complaints
Crypto-asset scams Commodity Futures Trading Commission tips and complaints
Tax-related scams IRS
Superannuation scams Federal Trade Commission fraud reporting

IRS fraud report

Social media scams The social media platform — to help prevent others from being scammed

Watch out for Follow up Scams

It’s important to be aware of follow-up scams that may target you if you have fallen victim to a scam. Suppose someone contacts you and offers to swap your investment for another one to recover your losses.

In that case, if it tells you to wait for your investment to increase in value, offers to buy your shares at a premium but asks you to pay a fee to have restrictions lifted, or asks you to pay for a fake share certificate or to cover travel costs to find the scammer who stole your money, be suspicious.

These are all tactics scammers use to try and extract more money from you. It’s best to hang up the phone or block emails and texts from these individuals to protect yourself from further harm.

Final Thoughts About Common Crypto Scams and How to Avoid Them

The cryptocurrency world can feel like the Wild West, especially for those new to it. Unfortunately, as the industry grows, it will attract more scammers. Crypto scams will try to trick you into giving away your account or security information and convince you to send cryptocurrency to a fraudulent digital wallet.

Knowing the common tactics scammers use to steal your money and information and ensuring that you have one of the best crypto wallets available, will make you better equipped to spot and avoid crypto scams.

Frequently Asked Questions

How are Crypto Scams Done?
A scammer may offer to help you set up a crypto account and then provide you with a website or wallet address to transfer funds for an investment opportunity.
Can a Crypto Scammer be Traced?
Yes, through a process called crypto tracing. This can help locate stolen assets or aid in financial crime investigations.
What Happens if a Scammer has Your Email Address?
They could hack into your other online accounts by requesting password resets or entering leaked passwords. They may even be able to break into your email account.
Will my Bank Refund me if I get Scammed?
Most banks will reimburse you if you have been scammed and have transferred money to someone. Contact your bank immediately to report the scam and ask for a refund.
Can Someone Steal Your Identity From Crypto?
Cybercriminals may create fake websites and apps that look like real cryptocurrency services to steal personal or account information. Be cautious when entering information online, and make sure you are using a trusted and legitimate service.
Common Crypto Scams

Common Crypto Scams

By Philip Hoey - min read
Updated 23 May 2024
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