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Scammers know no borders – this also applies to stealing your cryptocurrency.
Scammers exploit various schemes to lure victims into fraudulent crypto investments. They even go so far as to form fake relationships through dating apps like Tinder.
Headlines like “Crypto and Romance Scams Continue to Cost Victims Billions” and “A Romance Scammer Took Her Life Savings in Crypto” are becoming commonplace.
According to a 2022 Federal Trade Commission (FTC) report, cryptoromance scammers scammed victims out of $139 million last year. 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 might just be the tip of the iceberg – there are likely more victims who have done so. not reporting their incidents.
Aaron Cohn, a partner at Weinberg Wheeler Hudgins Gunn & Dial, a law firm that focuses on financial fraud, says his practice has seen a sharp rise in victims seeking help with hacked crypto accounts.
“Retail investors considering crypto investing need to understand the increased risks and should take heightened safeguards to ensure they don’t become the next victim,” says Cohn.
To avoid schemes that crypto enthusiasts take advantage of, here is 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 and not your money.
Crypto scammers use many of the same tactics used in other financial crimes, such as
This latter type of fraud could consist of breaking into someone’s crypto wallet or tricking an investor into sending a digital asset as payment for a fraudulent transaction, says Shane Cummings, wealth advisor and director of technology and cybersecurity at Halbert Hargrove .
The goal is always to manipulate victims into revealing personal information or transferring valuable digital assets such as non-fungible tokens (NFTs) to the perpetrator’s account.
“As a tool, crypto scams are particularly attractive to nefarious agents who enjoy the rapid conversion of cryptocurrency into fiat money, ready-made third-party transaction applications, and extensive obfuscation techniques,” said Chengqi “John” Guo, professor of computer information 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 are bad actors who trick people into sending their cryptocurrency to the scammer with the promise of “huge profits”.
Scammers can play many roles such as: B. an “investment manager”, a celebrity or even a love interest on an online dating site. Whatever role is taken, they promise to grow your investment if you transfer your cryptocurrency to them.
If you comply with their request, say goodbye to your crypto.
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.
If you buy, the price goes up, at which point the scammer dumps their holdings at the new higher value, causing the price to collapse, leaving you and all other victims underwater.
“Usually the new token is worth a few cents or even fractions of a cent. But a bit of momentum can propel it up the charts on sites like CoinMarketCap.com to make it appear like the price surge is going skyward,” Cummings says.
“Given the speed at which new coins are being created and marketed to investors without regulation on the internet, some investors looking for a quick profit will want to be lured by reports of triple-digit percentage gains in a digital asset over a short period of time on the move jump on the train,” he says.
To spot an investment program, look for promises of excessive rewards or zero risk.
These schemes often start on social media or online dating sites, so be careful if someone contacts you about your crypto assets out of the blue. Also, keep an eye out for anyone talking about a specific crypto asset on Reddit or other social media platforms. These are known as social engineering scams.
Phishing scams are an old favorite among scammers. Scammers aim to access your account details, including your crypto keys. As any crypto user knows, whoever owns the key owns all crypto.
Phishing scammers often trick you into clicking a link to a fake website where they can then steal your account information. They can impersonate well-known companies like Amazon or your bank, utility companies or even government agencies and possibly post links on social media or contact you directly.
For example, they could send you an email or SMS saying that a withdrawal has been initiated and give you a link to cancel the transaction.
“The link leads to a fraudulent website and accesses the investor account credentials, allowing 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 being updated, and cryptocurrency platforms are just one form of software. As many have become accustomed to upgrades in the digital age, scammers 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 both the Ethereum Foundation and Robinhood were so concerned about that they issued a warning that users are on “high alert” for upgrade scams.
SIM swap scam
SIM swap scams are among the newer crypto scams happening today. They occur when a scammer gains access to a copy of your SIM card and can access all of your phone’s data.
“This information can be used to obtain and use the two-factor authentication codes needed to gain access to crypto wallets and other accounts without the victim knowing,” Cohn says. “When this happens, the victim’s crypto accounts can be hacked and wiped without the victim even being contacted.”
Fake crypto exchanges and crypto wallets
“If you scour your social media handles, you will come across websites promoting cheap bitcoin (BTC),” says Martin Leinweber, digital asset product strategist at MarketVector Indexes. They can advertise cryptocurrencies at 5% below market value and promise huge savings if you buy through the site – but sometimes these platforms are fake crypto products.
These fake crypto products often offer outrageous returns, and users are usually required to pay a hefty initial fee and then are often encouraged to invest more and more.
And when you try to withdraw your money, you’ll probably find that it’s gone.
“A fake crypto wallet is a malware scam,” says Leinweber. “Criminals 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 long user history.
“If a wallet’s website is trying to resemble a legitimate brand, you should consider it a scam and move on,” says Leinweber.
How to report crypto fraud
“Because many perpetrators of crypto fraud are located outside of the United States, there is limited action our law enforcement agencies can do,” Cummings said. But you should still report all crimes.
You can report crypto scams in the following places:
You can also file a complaint with the crypto exchange you sent the money through.
“Typically, a formal complaint is required for a claim to be properly investigated by your agent,” says Cohn. “The investor has to find out quickly whether and how this is necessary.”
You can also reach out to the media and invite them to cover the event, Guo says. “This can increase public awareness of the crime and help curb future criminal activity.”
Just make sure you share it with the discretion to protect your own privacy, he adds.
How to avoid crypto scams
Given the heightened risks associated with digital assets, caution is advised. Follow these tips to avoid crypto scams:
- Do not respond to unwanted contact. “No matter who contacts you from your crypto broker or any other financial institution, the best course of action is not to respond,” says Cohn. “Look up the facility’s official number and get in touch with the independent.”
- Check before you click. Do not open hyperlinks or attachments from unknown senders.
- keep accounts separate. Do not permanently link crypto brokerage accounts and traditional bank accounts.
- Make a stop immediately. “If you get a notification of unusual activity on an account, don’t wait to block future transactions for fraud,” says Cohn.
- Use reputable companies. To ensure your data and crypto security, use a wallet from a reputable company,” says Leinweber. He points to Exodus and MetaMask as legitimate hot wallets, or Ledger, Trezor or Bitbox as legitimate cold wallets.
- Look for HTTPS. HTTPS — as opposed to just HTTP — in a crypto exchange or wallet URL indicates the site has secured and encrypted traffic, Leinweber says.
How to get money back from crypto scam
It is difficult to get your money back from crypto scams. “Because transactions on a blockchain are immutable, the likelihood that you’ll get your coins back is pretty slim,” says Leinweber.
Nevertheless, he recommends reporting crimes to the judicial authorities. “If you report a scam, the government can track down the criminals and get your money back for you,” he says.
Ultimately, it’s best to take extra precautions with future assets so you don’t become a victim again.