The popularity of cryptocurrencies has skyrocketed in the past couple of years, opening up many new opportunities for crypto owners. The new type of money enabled new businesses to thrive, streamlining how we deal with online transactions while ensuring maximum security.
Cryptocurrencies put power into the hands of individuals. Unfortunately, many crypto owners lack the necessary education on handling their digital funds, which has paved the way for many online scams. US crypto owners lost over $185 million to crypto scams in Q1 of 2022 alone.
Apart from standard tired-and-tested frauds, crypto scammers devised many new and original ways to steal money, including building fake or unregulated exchanges.
If you have or want to obtain a cryptocurrency, read this short guide and get familiar with the most common crypto scams and how to protect yourself from them.
What Are the Types of Crypto and Bitcoin Scams?
Crypto scams come in all shapes and sizes, but some are more common. Here are the most popular scams that you should be aware of.
- Phishing — Phishing is a scam where fraudsters create fake websites or send fake emails that look legitimate to trick victims into sharing their login credentials, private keys, or other sensitive information. This data allows scammers to access victims’ cryptocurrency wallets or exchanges and steal their digital assets. Never share your sensitive data or private keys with anyone.
- Fake exchange — This type of scam involves fraudsters creating a phoney cryptocurrency exchange website that looks legitimate. They often offer attractive incentives or bonuses to lure victims into depositing their cryptocurrencies onto the exchange. Once the victims have deposited their digital assets, the scammers simply disappear with the funds, leaving victims with no way to retrieve their money.
- Pump and dump schemes — These are schemes where fraudsters artificially inflate the price of a low-value cryptocurrency by spreading false or misleading information to attract buyers. Once the price has increased significantly, the fraudsters quickly sell their holdings, causing the price to crash and leaving other investors with significant losses.
- Ponzi schemes — Ponzi schemes involve fraudsters promising investors high returns on their investments, often in a short period. The returns are usually paid from the contributions of new investors rather than from legitimate profits, which eventually results in the scheme collapsing when there are not enough new investors to pay existing investors their promised returns. The SEC recognised various forms of Ponzi schemes, including fraudulent investment schemes, fake ICOs, or other types of scams.
How to Recognize Crypto Frauds?
Below, we list some of the most common patterns scammers use to help you understand how they work and avoid them.
- Guaranteed return promises — Be sceptical of any investment opportunity that promises guaranteed returns, especially if they are excessively high. If an investment opportunity sounds too good to be true, it most likely isn’t. No investment can guarantee returns; high returns usually come with higher risk.
- No SSL certificate — A website that handles sensitive information, such as personal or financial data, should have an SSL certificate. An SSL certificate ensures that data transmitted between a user’s web browser and the website’s server is encrypted and secure. If a website does not have an SSL certificate, it may be a sign that it is not secure and should be approached cautiously.
- Overzealous marketing — If the marketing seems too good to be true or is overly aggressive, it’s best to do more research and be cautious. For example, many online gambling scam sites will use aggressive and intruding marketing strategies to attract people. Unfortunately, many people have been scammed through gambling into losing their cryptocurrency, so it’s essential to stick to valid sources. For example, if you’re into sports betting, you should only join reputable and trustworthy platforms, such as the UK sportsbooks by bookmakers.bet.
- Recent online presence — If a company has a current online presence or no online presence at all, it could be a sign of crypto fraud. A legitimate company should have a well-established online presence with a website, social media accounts, and reviews from real customers. A company with little to no online presence or a hastily put-together website may be a red flag.
How to Protect Yourself From Crypto and Bitcoin Scams?
Scams usually come as a result of negligence or lack of knowledge. Therefore, you’re already on an excellent path to avoiding scams by learning what they are. Still, there are several practical things you can do to stay safe. Here are some of them.
- Do your research before engaging with any crypto transactions — Try to understand the technology behind the crypto you want to send or receive, its potential risks and rewards, and the legitimacy of the company or exchange you’re considering. Read reviews, check the company’s history, and seek advice from experts or people you trust before making investment decisions.
- Only use well-trusted and verified sources and sites — Stick to reputable exchanges or brokers, and avoid unregulated or unknown platforms that may be fraudulent. Be cautious of unsolicited messages or emails claiming investment opportunities, as they could be scams attempting to trick you into handing them your money.
- Protect your wallet with a private key that you do not share with anyone — One of the most significant things you can do to protect yourself from crypto scams is to secure your wallet. This means using a strong and unique password and safeguarding your private key, the code that enables you to access your funds. Keep your private key securely, and never share it with anyone. Also, BestKodiTips discussed crypto wallets and emphasised the importance of understanding how different types of wallets work to maximise security. Simply put, understanding the difference between software, hardware, and paper wallets will help you take the necessary steps to protect your wallet.
- Only download apps from official platforms and avoid .apk files — Scammers may create fake apps that mimic legitimate ones, so verifying an app’s authenticity before downloading is crucial. Always check the app’s reviews, ratings, and the number of downloads, and make sure to only download from the official app store for your device.
How to Recover From a Crypto Scam?
Crypto scams can be devastating, leaving victims helpless and frustrated. Unfortunately, recovering funds from a crypto scam can be challenging.
One potential advantage is that, in most cases, it is possible to track where the money went through the blockchain. However, it is vital to take legal action to increase the chances of recovering the funds.
One possible way to recover your funds is if the scammer tries to move the money to a regulated exchange. In this case, you can report the scammer to the exchange and potentially recover your funds. In addition, only stick to safe and secure options, such as the crypto wallets listed by Forbes, for another layer of protection.
It is crucial to be proactive when using crypto exchanges, as scams are, unfortunately, quite common in the industry. Taking the necessary precautions and being vigilant can help prevent scams from happening in the first place, but it is crucial to be prepared in case the worst does happen.