Common cryptocurrency scams to know before investing

Interested in investing in crypto? Read this first – Common cryptocurrency scams to know before investing. As you become involved in the new digital monetary mechanisms known as cryptocurrency, it doesn’t take long to recognize there’s risk involved in these transactions. And we’re not talking about the volatility of the market. Scams are everywhere online, and cryptocurrency exchanges are no different.

Between October 2020 and May 2021, nearly $80 million dollars were lost in the United States as a result of thousands of cryptocurrency-related scams, according to the FTC. Similar postHow to buy virtual land in the metaverse today and learn how to make your own cryptocurrency coin

Can you get scammed with cryptocurrency in 2022? There’s a new spin on scammers asking people to pay with cryptocurrency. It involves an impersonator, a QR code, and a trip to a store (directed by a scammer on the phone) to send your money to them through a cryptocurrency ATM.

How do crypto scams work? Some scammers tell you to pay in cryptocurrency for the right to recruit others into a program. They say you’ll get recruitment rewards paid in cryptocurrency if you do. The more cryptocurrency you spend, the more money they promise you’ll make. But these are all fake promises and false guarantees.

How many scams does crypto have? From around 5,000 reports of fraud in 2017, scammers targeted almost 100,000 in 2021, a nineteen-fold increase, while the number of losses was approximately 18 times greater than in 2017.

What Are Some Common Cryptocurrency Scams?

Crypto scams can be as simple as phishing and fake websites, or more complex like NFT rug pulls. Crypto scams are particularly difficult to spot, and funds stolen are near impossible to track at times.

Below are the Common crypto scams you should know about before diving into the crypto market in 2022

Pump and Dump

What is a cryptocurrency pump-and-dump scam? A pump and dump is a securities scam usually involving stocks. Scammers create false hype about a stock in order to generate interest. Once investors start buying shares, the price of the stock goes up. When the price reaches a certain point, the scammers behind the fake hype sell all of their shares. This causes the stock price to plummet, which leaves new investors holding the bag. 

Crypto pump-and-dump schemes take advantage of people while making some big money for scammers. They can involve social media influencers who receive financial incentives for telling people to buy a certain digital coin in order to raise its value. Once the value goes up, the scammers and influencers sell their coins and pocket the profits, while everyone else sees their investments lose value

Cryptocurrency Imposter Websites

You may be following a solid tip from someone with a lot of expertise but still become a victim by accidentally visiting a fake website. There’s a surprising number of websites that have been set up to resemble original, valid startup companies. If there isn’t a small lock icon indicating security near the URL bar and no “HTTPS” in the site address think twice.

Even if the site looks identical to the one you think you’re visiting, you may find yourself directed to another platform for payment. For example, you click on a link that looks like a legitimate site, but attackers have created a fake URL with a zero in it instead of a letter ‘o’. That platform, of course, isn’t taking you to the cryptocurrency investment that you’ve already researched. To avoid this, carefully type the exact URL into your browser. Double-check it, too.

Phishing Scam

Phishing happens when someone posing as a legitimate cryptocurrency project or exchange tries to get you to give them your private keys or login information. They can do this by sending you fake emails or creating fake websites that look real. Be very careful when giving out your private information, and always double-check the website or email address to make sure it is legitimate.

Fake celebrity endorsements

Scammers hijack celebrity social media accounts or create fake accounts, encouraging followers to invest in fake schemes like the ones above. In one case, some $2 million was lost to scammers who even used Elon Musk’s name on a Bitcoin address, to make the scam look more trustworthy.

Extortion or Blackmail

This is when someone tries to blackmail you into giving them money in exchange for not revealing your involvement in a cryptocurrency scam or illegal activity. They may threaten to release your personal information to the public if you don’t pay up. Be careful about whom you do business with online, and never give anyone your private information unless you are sure o legitimacy.

Crypto Scamming Emails

Even if it looks exactly like an email you received from a legitimate cryptocurrency company, take care before investing in your digital currency. Is the email the exact same, and are the logo and branding identical? Can you verify that the email address is legitimately connected to the company? The ability to check on this is one reason why it’s important to choose a company that has real people working for it. If you have doubts about an email, ask someone who works there. And never click on a link in a message to get to a site.

Scammers often announce fake ICOs, or initial coin offerings, as a way to steal substantial funds. Don’t fall for these fake email and website offers. Take your time to look over all the details.

Business Opportunity Scam

This is when someone tries to lure you into investing in a fake cryptocurrency business. They may promise high returns on your investment, but this is almost always a scam. Do your research before investing in any business opportunity, and be sure to ask lots of questions!

Popular Cloud Mining Scams

Cloud mining is a popular way to mine cryptocurrencies, but it is also a favorite target of scammers. Many scams promise huge profits from cloud mining, but in reality, these schemes almost always result in losses for the investor. Be very careful when considering investing in a cloud mining scheme, and do your research before handing over any amount of money.

Fake exchanges

Scammers send emails or post messages on social media promising access to virtual money stored on a cryptocurrency exchange. The only drawback is that the user usually has to pay a small fee first. The Exchange never exists and your money is lost forever.

Exit Scam

This is when a digital currency project suddenly shuts down and disappears, taking all of the invested funds with them—particularly common with Initial Coin Offerings (ICOs). Before investing in any ICO, make sure to do your research to avoid being scammed.

Demanding Crypto-Only Payments

If a seemingly credible person or retail establishment claims they cannot accept any form of currency other than Bitcoin, it’s likely a scam. Bitcoin and other altcoins are a burgeoning asset class, so experts say credible institutions aren’t going to accept crypto and not also accept U.S. dollars through normal means like wire transfers, checks, credit, and debit card payments, and cash.

In general, anyone demanding you pay them in Bitcoin might be trying to hoard it and capitalize on its skyrocketing value. And unlike banks, blockchain lacks common know-your-customer (KYC) protocols. That means people can open wallets without having to present valid identification, a Social Security number, or an address and contact information. Though blockchain is public and creates permanent, open-access records, people can transact on the blockchain more or less anonymously — making it easy to trick you, take your money, and run.

Digital Crypto Collectibles and Games Fraud

Like we saw with the “Squid Game” scam, sophisticated coders now have the ability to create new games and entire imaginary worlds on the blockchain. And to do it as quickly as the next viral Netflix show takes off. 

An easy way to scam excited blockchain newbies is to get them to buy a type of newly minted coin or token for a game. If enough people drive the price up through supply and demand, this gives the original scammers an opportunity to sell all their holdings and disappear in a move known as a “rug pull.” 

Unlike bank accounts for federally regulated currency, there’s no such thing as fraud protection or FDIC insurance on the blockchain. When your money gets stolen on the blockchain, the only way to get it back is for the recipient to pay you back directly. On a decentralized exchange, that’s highly unlikely. And while mainstream crypto exchanges have better fraud security measures than lesser-known exchanges, there’s still no guarantee for investors to recoup stolen crypto.

Ponzi Schemes

Crypto investments can also be used as the vehicle for a traditional Ponzi scheme, where new adopters are necessary to give artificial returns to the early adopters. Purported investments in emerging crypto markets can also serve as the supposed goal for Ponzi schemes. Given that crypto is widely misunderstood, it can be the perfect cover for a bogus scheme.

Cryptocurrency Investment Schemes

New forms of crypto are constantly being minted, and when new coins hit the blockchain it’s known as an initial coin offering (ICO). But ICOs are also opportunities for scams. A company or individual may say they have a once-in-a-lifetime opportunity to invest in a new form of crypto with guaranteed 1,000% returns. They may then pressure you into depositing a bunch of new coins into a digital wallet that’s been compromised somehow, or “pump and dump” by buying up the coin and selling when the price explodes.

Romance Scams

Dating apps are rife with crypto scams. According to the FTC, about 20% of the money lost in romance scams from October 2020 through March 2021 was sent in the form of cryptocurrency. Scams like this involve long-distance or digital relationships in which one party pressures and convinces the other to buy or give money for some new crypto that’s really just a way to scam people out of their money.

Fake Cryptocurrency Mobile Apps

Another common way scammers trick cryptocurrency investors is through fake apps available for download through Google Play and the Apple App Store. Although stakeholders can often quickly find these fake apps and get them removed, that doesn’t mean the apps aren’t impacting many bottom lines. Thousands of people have already downloaded fake cryptocurrency apps, reports Bitcoin News.

While this is a greater risk for Android users, every investor should be aware of the possibility. Are there obvious misspellings in the copy or even the name of the app? Does the branding look inauthentic with strange coloring or an incorrect logo? Take note and reconsider downloading.

Phishing Scams

This type of scam is as old as the internet, but with crypto, there are some new implications. Just as a “normal” phishing attack would work, bad actors send emails attempting to bait recipients into clicking links and inputting their personal details — including crypto wallet key info. But unlike most passwords and usernames, you only get one private key to your blockchain wallets. This is part of blockchain’s decentralized design, ensuring that one entity cannot control your information, but it poses an issue if you ever need to change your key.

Traditional Theft

Crypto also provides criminals new opportunities for theft. They can hack investors’ crypto wallets and steal their currency; they can set up fake wallets to bilk counterparties, and they can set up phony crypto exchanges to steal customers’ money.

Broker/Dealer Fraud

The SEC has examined exchanges and funds investing in cryptocurrencies, which may, depending on the circumstances, need to register as broker-dealers or exchanges.

Regulation Of Cryptocurrency

The SEC, CFTC, and IRS all assert regulatory control over cryptocurrency under certain circumstances. For the SEC, a given cryptocurrency must qualify as a security or the “investment of money in a common enterprise with a reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of others.” The SEC developed its application of this test to cryptocurrency in its now-famous report on The DAO, a German crypto ecosystem.

The CFTC also has the authority to regulate crypto as a commodity in accordance with the Commodity Exchange Act. The CFTC has recently stated that crypto enforcement is a top priority because of its high risks for investor fraud.

The IRS has also taken the position that cryptocurrency investments are assets that should be treated like any other for tax purposes, permitting it to tax returns on crypto investments. And through its Criminal Investigations Division, the IRS can pursue money-laundering crimes committed with cryptocurrency. Enforcement efforts by the SEC, CFTC, and IRS can also extend internationally to schemes that have violated U.S. laws.

As cryptocurrencies continue to grow in market cap and influence, whistleblowers will be essential in helping the government catch wrongdoers and prevent fraud. Whistleblowers can also take advantage of the various whistleblower reward programs offered by the SEC, CFTC, and IRS and potentially share in any government recovery.

1 Comment

  1. Thanks, this post will really create awareness about Cryptocurrency scam among the people. “If you’re Scammed, Financial Fund Recovery Experts will help you to recover your funds from a Cryptocurrency scam. Consult us now!”

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