How Do Cryptocurrency Scams Work?

With cryptocurrency slowly gaining mass adoption, many bad players have now come into the picture. The rise in crypto scammers led to crypto being called “The Digital Wild West".

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With cryptocurrency slowly gaining mass adoption, many bad players have now come into the picture. The rise in crypto scammers led to crypto being called “The Digital Wild West”.

Also described as a promising innovation, cryptocurrency has its fair share of scams that can lure even the most careful, but that’s not to say that you can’t stay safe from them.

Navigating the sphere can be tough, especially when one simple mishap can lead to criminals stealing your personal information or even transferring your digital assets to their wallets.

To avoid this, it’s imperative to have an understanding of how they work. First, let’s get to know more about these cryptocurrency scams

What Are Cryptocurrency Scams?

Cryptocurrency scams are just like any other scam you’d find on the Internet, except this time, attackers are after your cryptocurrency. Some scams include rug pull scams, social media giveaway scams, and even pump-and-dump schemes.

Their main goal is to manipulate users into providing confidential data, such as wallet keys, to transfer digital assets to another wallet.

What Are The Different Types of Cryptocurrency Scams?

There are indeed new forms of these floating all over the internet, and it shouldn’t come off as a surprise that a lot are found in the crypto space.

Before diving deep into the world of cryptocurrency, you must first understand how these frauds work. Here are the most common cryptocurrency scams you might encounter: 

Rug Pull Scams

A notable type of scam in the crypto sphere is the rug pull scam. The name comes from the situation when one pulls a rug under someone else, which essentially means that an entity is withdrawing its support. 

how to identify a rug pull crypto

Usually, this occurs when a development team abandons a project after investors have pooled their money. This has particularly warped the views of many on the crypto industry. Many developers in all kinds of projects – DeFi and NFTs, among others – quickly jump ship after gaining money from investors.

To stay away from this, it’s helpful to do your research on the team. Do a background check and review their past accomplishments. While these methods are not fool-proof, it’s the least you can do to stay away from bad actors in the crypto space.

Read Also: 10 Easy Signs On How To Identify A Rug Pull In Crypto

Investment Scams

Here’s a scenario. An “investment manager” sends you a message claiming to have made six figures after investing in a crypto token. They claim that when you heed their advice, you could be a millionaire, just like them.

illustration of hands reaching to grab money

All you have to do is pay them in crypto. Convinced, you pay them on a fake website to avail of their services. You attempt to log in, and then you realize – your funds are stuck unless you pay an even higher upfront fee. You then realize: I’ve been scammed.

Many investment scams occur through social media, so it helps to be vigilant when replying to messages in your inbox. 

Another type of investment scam is when the thief impersonates a celebrity or known influencer who can increase your income tenfold. Oftentimes, they would have the same profile picture and name – easily convincing those who do not mind to do a double take.

Once you open the malicious link and send your cryptocurrency, they disappear. Know that these figures would not take their time to message you on social media.

If you receive a message from a celebrity, chances are it’s a thief who’s after your crypto. 

Social Media Giveaway Scams 

Social media users must steer clear of crypto-related links on this medium, especially if the pages or accounts are not verified.

A scammed person in front of a computer

These accounts lure their soon-to-be victims by creating giveaways, sometimes in the form of airdrops. When visiting the link, you might be asked to verify your account by paying in crypto.

This may sound reasonable to some. But for the unaware, the next thing you know you’re a victim of a social media giveaway scam. Even worse, your cryptocurrency and personal data could be stolen. 

Phishing Scams 

Phishing scams are one of the most common ones on the internet. It’s a given that this has reached the crypto space as well. Phishing is defined as a type of attack that attempts to steal your data or personal information.

a hacker's silouette

In crypto, they’re after your wallet’s key information. Once the attackers have the keys to your wallet, you have to get a new wallet as changing keys can be quite tedious. At the same time, you’re guaranteed that your newer wallet is safe.

Scammers pull off this new attack by creating a similar webpage – that means a similar link, user interface, and other details. A victim then connects their wallet or inputs private information.

Now having access to this data, attackers use this to steal funds. To avoid this, it’s a must to check every email you receive or link you visit. If you’re uncertain, it’s best to do a simple search if a similar phishing scam has occurred. 

Love Interest Scams 

Dating apps can be another source of these schemes. When one develops a relationship with another party, strictly long-distance and online, some form of trust is established.

As time goes on, the other party tries to convince the other to give money, usually in cryptocurrency. Once the scammer receives the crypto, they disappear – destroying your relationship and leaving your wallet empty. 

Pump And Dump Scams 

For many people, scrolling through Twitter timelines or watching YouTube videos can be a great source for the latest news on cryptocurrency. Content creators have leveraged the popularity of social media to propagate numerous pump-and-dump schemes.

pump and dump illustration

Here’s how a pump-and-dump scheme works.

  1. A notable influencer is paid to post or mention a “promising” coin. Most of the time, these coins tend to be ones with a lower market capitalization. This means that it doesn’t take a lot of buyers or even sellers to cause a huge shift in price.
  2. With this, you might already have an idea of how this goes. Their audience buys the coin immediately upon it being mentioned.
  3. Once the price skyrockets, the influencer then sells a huge chunk of their holdings – earning a massive profit.
  4. The price plunges.
  5. Investors panic and a massive sell-off occurs. These have already occurred multiple times from Twitter influencers to YouTube content creators.

Hence, doing your research before investing is a must in the crypto space. 

Fake Crypto Exchange and Wallet Scams

Just about any developer can create a convincing cryptocurrency exchange or digital wallet. That’s why all owners of digital assets must exercise extreme caution when choosing the right platform.

It’s good to go for more notable ones with an established track record. There are many up-and-coming crypto exchanges and wallets that aim to steal your precious digital assets.

Oftentimes, they would require you to deposit a minimum amount of money before you would be able to use the exchange.

Once the time comes that you’re ready to withdraw your funds, you realize it’s stuck. That’s when you know you’ve fallen into the trap. 

How To Protect Yourself From Cryptocurrency Scams 

Despite the number of scams that are now hounding many crypto users, that doesn’t mean that investing in crypto is unsafe. There are a few must-dos before you add another cent’s worth of crypto to your holdings.

two hands protecting assets

Here’s how you can keep yourself from falling prey to these scams: 

Research, Research, Research 

There’s one rule you must follow when navigating the world of crypto. Always DYOR (Do Your Own Research as they call it in crypto-speak).

That means before investing in a project, you have to read the white paper – a document that describes a product’s goals to the audience.

Typically, this paper includes information on tokenomics, information about the team, and the project’s notable features. But sometimes, this isn’t enough.

You can go even deeper by going through their socials. If a Discord community is available, you might even get to talk to the team directly. 

Store Your Crypto In A Cold Wallet

There are two types of wallets in crypto – hot wallets and cold wallets. Hot wallets are digital wallets that you can easily download as browser extensions or mobile applications – think Metamask, Coinbase Wallet, or Trust Wallet.

Because they’re on your phone or laptop and connected to the internet, a simple scam could even result in losing your tokens in the blink of an eye. To avoid this, don’t connect your hot wallets immediately to any website.

Many victims have claimed to lose their funds by connecting their hot wallets to dubious websites. On the flip side, it’s a lot more convenient to use. 

But if you’re looking to avoid these safety issues, consider investing in a cold wallet. Also known as a hardware wallet, this device stores your tokens offline, keeping you away from online attacks.

Connecting to the internet is only necessary when dealing with transactions. Typical examples of this include Trezor and Ledger.

Storing your crypto in a hardware wallet is the safest way to store your digital assets although less convenient than hot wallets. 

It cannot be emphasized enough: always err on the side of caution before clicking any link online. Especially true for those who use hot wallets, clicking a link and even sometimes connecting your wallet can easily expose your personal information.

Review each link you click and check if it matches the website that you want to visit. Once you’re on the web page, check for spelling errors and other small details. 

The Takeaway 

Despite all these scams, cryptocurrencies remain to be one of the most promising innovations this decade. But, awareness is key when it comes to staying safe from scams.

From rug pulls to fake crypto exchanges, fraudulent schemes become more prevalent each day. That’s why before investing more of your funds in this space, it’s best to read up on the different types of crypto scams.

And with an increasing number of bad actors getting their hands on the crypto space, users must do everything they can to stay safe from these attacks. 

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