5 Common Crypto Scams And How to Avoid Them

Over the years, investors have lost billions of dollars to various crypto scams and attacks. In 2021, the industry lost about $1.3 billion to fraudsters, with an increment of 189% in 2022, as a whopping $3.7 billion was stolen. Referencing the stats, it suffices to say the crypto industry is a major target for financial scammers seeking to rip you off your hard-earned money.

They generally take advantage of the ignorance of the rapidly evolving crypto innovation to scam their victims. However, in this article, we will discuss five common tricks crypto scammers use and how you can escape their gimmicks to protect your money.

1. Bitcoin (BTC) scams

Bitcoin scam is one the oldest financial scams, nearly as old as Bitcoin itself. As BTC is the primary and first-ever crypto asset to be invented and has the largest market cap, many finance entities, including individual and institutional investors, consider it the safest digital asset to invest in. However, contrary to their thoughts, Bitcoin is one of the blockchain networks plagued with frequent scam events as hackers and bad actors continually devise means to breach the network’s security system.

One of the most common scams facing Bitcoin is a Phishing scam. Phishing requires a hacker to impersonate prominent entities like crypto startups and celebrities, sending false messages or emails with enticing content to potential victims to lure you into exposing your private crypto wallet or account details such as private codes, passwords, or key phrases just to steal your digital asset holdings or funds at the long run.

Avoiding them is easy, you just need to pay extra care before clicking on links embedded in emails or messages you receive. Cross-check senders’ names and links to know if they are legitimate, as most scams often misspell real website names to create fake ones, for instance, Google.com can be spelled as Gogle.com to scam you.

2. Crypto Project Rug pulls

The mechanism behind rug pulls is quite simple, with decentralized finance (DeFi) and Nin-fungible tokens (NFTs) as its primary targets. Attackers create a crypto token and list it on a decentralized exchange to bypass basic security examination protocols. Typically, new tokens rapidly rise in price, enticing investors to invest. Once the founders are satisfied with the peak value of the coin and the number of investors, they would run off with the funds, leaving investors with worthless tokens.

In 2022, about 117,000 scam coins were launched, losing billions of dollars from victims. More so, a scammer reportedly created a fake version of the popular NFT collection Mutant Ape Yacht Club, stealing $3 million from investors. To stay safe from this form of scam, read the whitepapers of a new home or NFT collection to know its core purpose, and research the illegitimacy of the founders. If you can’t find white papers or previous records of the founders, steer clear of such projects.

3. Crypto-Romance Scams

Crypto romance scam refers to a form of financial crime that starts as a romantic relationship between two internet lovers but ends up with one party losing their crypto asset holdings. According to reports, about $185 million in crypto assets was lost to crypto romance scams in 2022. It usually starts with con artists with fake profiles on dating sites hitting you up in your DM and striking up a conversation with you.

Once you are comfortable talking with them, they switch the conversation to crypto-related topics, often suggesting you invest in a crypto investment project with high returns, enticing you with convincing proofs to lure you to invest. Once you are convinced enough to invest, they would cut ties with you, scaling you of your funds. One red flag is that romantic scammers would refuse meeting you face-to-face or agree to FaceTime with you just to keep you ignorant.

4. Social Media Scams

Looking closely, you would agree that most of these online scams originate from social media, especially Twitter ( now X) and Instagram, usually with ads, posts, or direct messages. Scams have become more rampant on Twitter ever since the new owner, Elon Musk, decided to verify accounts (blue ticked) with just an $8 fee. Hence, before following investment advice from verified accounts, please find out how old it is, its followers, and the content of its other posts.

More so, YouTube is another target point for scammers. They can easily create fake streaming channels, steal content from legitimate ones, post enticing investment projects, and lure you into clicking links that would direct you to commit your funds to scammy projects. If you need investment advice, simply visit a financial expert to avoid losing your funds to scams.

5. Ponzi Schemes Scams

It is often heard that many crypto skeptics consider cryptocurrency a Ponzi scheme; an instance was in 2022  when Jamie Dimon, the CEO of JPMorgan, called crypto a decentralized Ponzi scheme. A Ponzi scheme, in its actual term, means a financial scam project that promises investors attractive returns by using newer investors’ funds to pay out early investors instead of investing the funds. Hence, the earlier you join, the bigger your payouts.

Many scammers leverage the crypto innovation to build their Ponzi schemes, paying out instantly at first, just to eventually run off with victims’ money. Hence, any project promising you huge returns in exchange for your investment is a red flag. Most times, these schemes would run referral programs to boost your earnings, just a pod them.

Conclusion

Beyond the five tricky means listed here, there are numerous other ways in which fraudsters perpetrate the crypto industry. Nonetheless, this article has some justice to five of the most common ones. It is in your best interest to watch out for them and do your due diligence before investing your hard-earned money in any crypto project.