CRYPTO SCAM 101: The Ultimate Guide for Beginners

What Are Crypto Scams?

Crypto scams are similar to other financial frauds, except cryptocurrency scammers target your crypto assets rather than your money.

Scammers use many tactics in other financial crimes, like pump-and-dump scams that attract investors to buy an asset with phony claims about its value or outright attempts to loot your digital assets.

Types of Crypto Scams

Cryptocurrency scams can take many forms. However, here are some of the most famous examples:

Investment Scams

Investment scams include a lousy actor luring people to send their cryptocurrency to the cheater with promises of “huge gains.”

Scammers can pose as a variety of people, including an “investment manager,” a celebrity, or even a romantic interest on an online dating site.

Whatever role they play, if you transfer your investment to them, they promise to grow it.

If you follow their request, you can forget about your crypto.

Investment scams include pump-and-dump schemes. For example, a fraudster entices you to buy indistinct crypto at a “low price” with promises that the asset’s value will soon hit the roof.

When you buy, the price rises; simultaneously, the scammer sells their holdings at a higher valuation, causing the price to fall and leaving you and any other targets sunken.

Experts say that you need to spot promises of excessive profits or zero risks to spot an investment scheme.

These schemes frequently start on social media or online dating sites, so be cautious of anyone contacting you about your crypto assets out of the blue.

Also, keep an eye out for anyone promoting a specific crypto asset on Reddit or other social media platforms. These are referred to as socially engineered crypto scams.

Phishing Scam

Scammers have long taken advantage of phishing scams. Fraudsters want access to your account information, including your crypto keys. As any crypto user knows, whoever holds the key controls all cryptos.

Phishing cryptocurrency scams frequently trick you into clicking on a link that takes you to a fake website where they steal your account information. They can enact popular firms like Amazon or your banking service, utility firms, or even government agencies and post links on social media or contact you directly.

For e.g., they may send you an email or text informing you that a withdrawal has been initiated, thereby providing you with a link to cancel or stop the transaction.

A phishing scam can affect anyone, and any digital asset can be the target of one, as actor and film producer Seth Green discovered earlier this year as four of his Bored Ape NFTs were stolen.

Upgrade Scams

Software is continuously updated, and cryptocurrency platforms are just one type of software. Unfortunately, because many people have grown familiar with upgrades in the digital era, scammers can easily trick cryptocurrency holders into handing over their private keys as part of an “upgrade.”

Upgrade scammers can capitalize on legitimate migrations, such as the recent Ethereum merge, which prompted the Ethereum Foundation and Robinhood to warn users to be on “high alert” for upgrade scams.

SIM-Swap Scams

SIM-swap scams are one of the newer cryptocurrency scams taking place today. They happen because the scammer gets access to your SIM card copy and can, thus, access your phone’s data.

Experts say that victims’ information could be used to attain and use their two-step authentication code numbers required to gain access to crypto wallets and other accounts without the victim knowing. When such an event occurs, the victim’s crypto accounts can get hacked and wiped out without the victim even being contacted.

Fake Crypto Exchanges and Crypto Wallets

Experts and strategists say that if you look up on your social media account, you may come across sites that promote cheap Bitcoin (BTC). They may announce cryptocurrencies at 5% below market worth and guarantee huge savings when you buy through the site, but sometimes, these platforms are forgeries of crypto products.

These bogus crypto products frequently advertise ridiculous returns on investment, and users are often required to pay a high initial fee before being asked to invest more and more. You’ll likely find they’ve vanished when you try to withdraw your funds.

Another expert stated that a fake crypto wallet is a malware scam. Swindlers use it to infect a computer and eventually get the user’s private key or password.

Stick with reputable exchanges and wallets with an extended user history to avoid scams.

Experts further state that if a wallet’s website seems to be resembling a reputable brand, you can consider it a scam and move on.

How to Avoid Crypto Scams

Prudence is essential given the heightened risks with digital assets. Follow these guidelines to avoid crypto scams:

• Do not respond to unsolicited exchanges or experts reaching out. No matter who it is contacting you from your crypto exchange—or any bank or financial institution, the best practice is not to respond. Try to look up the official number for that institution and initiate independent contact.
• Before you click, always double-check. Do not access any hyperlinks or attachments from unknown senders.
• Do not link crypto brokerage accounts and traditional bank accounts forever. Keep your accounts separate.
• Immediately place a hold. If you receive notifications of unusual activities on your account, do not wait back and put your fraudulent future transactions on hold.
• Choose reputable companies and their services. To ensure that your information and crypto is secure, choose a wallet from a reputable company. For instance, you can consider Ledger, Trezor, and Bitbox as reputable cold wallets or Exodus and MetaMask as reputable hot wallets.
• Look for HTTPS instead of just HTTP. HTTPS in a crypto exchange or wallet URL implies the site has secure and encrypted traffic.

How to Report Crypto Scams

Since many of the faces behind these crypto scams are outside the U.S., our law enforcement institutions can only do so much. But you should still report any crimes.

You can report cryptocurrency scams to the following groups:

• Federal Trade Commission
• Securities and Exchange Commission (SEC)
• Commodity Futures Trading Commission (CFTC)
• Internet Crime Complaint Center (IC3)

You can also report the cryptocurrency exchange through which you sent your money.

Usually, to ensure that your claim can be subjected to proper investigation by your brokerage, a formal complaint is required. The investor/victim needs to figure out what is required to file a complaint and how to do it speedily.

Further, you can also contact the media and invite them to cover the event, exposing the scammer. Such a move can raise the public’s awareness of these crimes and assist them in mitigating future criminal activities.

Make sure that when you share any information, you do it at the discretion of safeguarding your privacy.