As the popularity of cryptocurrency has grown, so have the attempts by con artists and grifters to part people from their crypto assets. Blockchain security firm Beosin has estimated that nearly $655 million worth of crypto was lost in hacks, phishing scams, and rug pulls in the first half of 2023.
Crypto scams are becoming more sophisticated day by day and therefore, it is all the more important for cryptocurrency investors to be vigilant and only invest in a project after thoroughly verifying its legitimacy.
Crypto scams can take many shapes and forms but there are certain common methods you can look out for to protect yourself from such scams. Hence, we have compiled this list of common cryptocurrency scams in 2023 and have also shared some tips to avoid becoming a victim of fraudulent crypto schemes.
What are Crypto Scams?
Crypto scams are a type of financial scam that seeks to part people from their crypto assets. Scammers often employ the same tactics used in other financial scams such as pump-and-dump schemes or asking for payment via cryptocurrency for a fraudulent transaction.
The goal here is to steal the user’s personal information or make them transfer their digital assets including crypto coins and non-fungible tokens(NFTs). This is further complicated by the fact that transactions on a blockchain are immutable and hence, cannot be reversed.
10 of the most infamous Cryptocurrency Scams of 2023
These days, there seem to be as many types of cryptocurrency scams as there are types of cryptocurrencies. Their modus operandi though, largely falls into two categories: crypto scammers either try to obtain access to your digital wallet or encourage you to transfer cryptocurrency for a fraudulent investment opportunity.
Scammers may create fake versions of legitimate crypto trading platforms or crypto wallets to steal your assets. These fake websites look very similar to the real ones tricking people into believing that they are investing money on the real trading platform. Such websites may either end up stealing your wallet and other financial information or prevent you from withdrawing your money by suddenly shutting down the shop.
Pump and Dump Schemes
Pump-and-dumps are a common type of crypto scam where the prices of a digital asset are artificially inflated by spreading false information about the project. Traders rush to buy the coin and once the price of the cryptocurrency reaches a certain level, the promoter group sells their holdings dumping a large amount of coins in the market.
This decreases the value of the dumped coin making it difficult for other investors to sell their holdings and causing them huge losses.
Private keys are the keys required to access the cryptocurrency stored in a digital wallet. Phishing scams target these online wallets by sending a link to crypto holders that takes them to a fake website where they are asked to enter their private key information. After acquiring this information, scammers can easily steal the crypto stored in the wallet.
Cloud Mining Scams
Cloud mining involves investors putting down capital upfront to secure mining power and rewards. It is not theoretically a scam but most cloud mining schemes invariably end up being at least ineffective if not outright scams. This is because such platforms often do not own the hash rate they claim to have and do not deliver the rewards after the down payment.
Blackmail and Extortion Scams
It is a type of social engineering scam where scamsters send blackmail emails to their target claiming to have a record of the adult websites or other illicit pages visited by the user. They demand cryptocurrency or private key information as payment for not publicly sharing the information. These are outright criminal extortion cases and should be reported as a cybercrime.
Cryptocurrency Romance Scams
Yeah, it turns out that romance scams are thriving in the crypto world as well. These scammers can spend months with their target, encouraging their romantic feelings and giving the illusion of a long-term relationship. Once they gain the trust of their target, the scammers start asking for crypto payments or lure the target into investing money in some crypto scheme.
Scamsters impersonate government or law enforcement officials to gain credibility. Later, they claim that your assets have been frozen due to investigations and convince you to pay them in crypto to resolve the issue. Not just that, they can also pretend to be a representative of a large company like Amazon or even a bank and trick you into giving up your cryptocurrency for one reason or another.
Giveaway scams are a type of impersonation scam that promises targets free money or a ‘once-in-a-lifetime’ opportunity to complete certain tasks or by following some steps. In this case, scamsters pose as celebrities, businesspeople, or influencers to gain the targets’ trust.
Well-crafted social media posts from such “celebrities” create a sense of FOMO among people and people start transferring their crypto assets with the hope of getting instant returns.
Business Opportunity Scams
Here, scammers would contact you with promises of “guaranteed returns” or some exceptional business opportunity. They may even claim to double or triple your crypto assets overnight. You may be required to make large investments for larger returns. However, there are no guaranteed returns on digital assets and such bogus schemes would only lead to your financial ruin.
Fake Initial Coin Offerings(ICOs)
With the rising popularity of ICOs, cases of fraudulent ICOs have also come up. Scammers create fake websites or may even rent fake offices to deceive investors. They may ask investors to transfer some cryptocurrency in a compromised wallet or promise discounts in the ICO in exchange for sending cryptocurrencies like Bitcoin.
How to Identify Crypto Scams
There are quite a few signs that you can look out for before investing in any crypto-related scheme.
Too Good to be True Schemes
The adage, “If something sounds too good to be true, it is probably a scam” holds true in the crypto world as well. Trust your instincts when it comes to a crypto offer that seems so good that it just cannot be legit. Nothing is ever free and if a scheme offers you free coins for doing practically nothing, it is most probably a scam.
Claims of Guaranteed Returns
Let’s just get this out of the way. No financial investment especially one in digital assets can give guaranteed returns. Therefore, any offer that makes tall promises of guaranteed returns is a big red flag.
Check out the White Paper
A whitepaper is one of the most critical aspects of a new token launch as it describes the motive and purpose of the crypto coin. Fake cryptocurrencies either would not have a white paper or it would be a poorly written one. Be careful if a white paper does not make sense or the figures mentioned in it do not add up.
Analyze the Marketing
Cryptocurrency scams are more often than not marked by excessive marketing. They may have a significant presence on social media and heavily promote their coin via influencer collaborations. You should be wary of cryptocurrency promotions that claim to be the next best thing or make extravagant claims about the amount raised by them.
Search for the Team Members
A legitimate cryptocurrency project would most probably not conceal the identity of its developers and other key members. Though some open-source projects may not name their developers, the project’s code can be openly viewed and discussed on GitHub or GitLab. Legitimate crypto projects would also use specialized forums and Discord for discussions.
It would, however, be suspicious if you are unable to find any concrete information about the crypto project, its code, or team members.
5 Tips to Avoid Crypto Scams
There are several actions you can take to protect your crypto assets and avoid becoming a victim of a fraudulent scheme.
Use Cold Storage
Cold wallets are offline hardware devices used to store cryptocurrencies. These wallets are a safer option for long-term crypto storage as they are not connected to the internet and hence, less likely to be hacked. Your private keys also remain in your possession in the case of cold wallets.
Research the Project
Crypto scams rely on pressure tactics and the feeling of FOMO among investors to encourage people to part with their assets. In such a situation, you should always take a step back and thoroughly research the project. Read the whitepaper and do a background check on the team behind the project. You can even evaluate the code if it is open-source.
Invest only if you are satisfied with the legitimacy of the project.
Ignore Unsolicited Communication
Simply ignore strange emails or phone calls from people who are way too eager to speak to you and suddenly bring up cryptocurrency in the conversation. These are scams and you should not disclose your personal information or transfer any money to such people.
Be Skeptic of Social Media Ads
As we mentioned above, crypto scams advertise heavily on social media to create a sense of FOMO. Maintain a healthy skepticism of crypto projects that promote giveaways or promise “free” crypto or any sort of guaranteed returns. Influencers are paid to promote these projects and their word should not be taken as holy grail.
Verify the Authenticity of the Website
Always verify the authenticity of the website before investing your money. Many fake websites try to mimic the design of legitimate crypto trading platforms but they would always have certain discrepancies that would differentiate the real platform from the fake one.
It is also a good idea to download apps from legit platforms like the Google Play Store or the Apple App Store.
How to Get Bitcoin Back from Scammer?
Blockchain transactions are by design immutable. It means that cryptocurrency transactions are permanent and cannot be reversed. Therefore, it is nearly impossible to get Bitcoin or any cryptocurrency back from a scammer once the transfer has been completed.
Further, the situation becomes more bleak for victims of crypto scams as cryptocurrency operates in a legal grey area in most places. Hence, crypto investors would not have the same protections as people who invest in conventional financial instruments.
The Bottom Line
The increase in the size of the crypto industry and relatively little regulatory oversight(compared to other financial investments) has made it a breeding ground for scams and frauds. Just as the crypto industry is evolving, the scams are evolving too.
Scammers may undertake social engineering initiatives to either steal your personal and financial information or try to lure you into sending cryptocurrency to compromised digital wallets.
However, there are certain telltale signs you can look out for when checking out a new crypto investment project. Do not cave into pressure tactics and always do your due diligence before putting in your money. Cryptocurrency investments are a risky and speculative venture and hence, you should never invest money you cannot afford to lose.