Cryptocurrency Scams: Know and Avoid Them on the Spot

tl;drWhile cryptocurrencies, with their notable growth, are the hottest topic in the investing realm these days, and nobody can close their eyes on it, there has been an increase in the number of scams associated with digital assets. Meaning, as an investor, you may lose your funds and face critical attacks! As long as consumers have money to spend, there will be criminals striving to steal it, and scams are the biggest threat to building trust in crypto! To avoid scams, you need to be equipped with top-notch knowledge of spotting the scams and safeguarding against such frauds. That is exactly what you will learn by reading this article.
Cryptocurrency Scams: Know and Avoid Them on the Spot
Cryptocurrency Scams: Know and Avoid Them on the Spot
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Type of Cryptocurrency Scams

You can't have your cake and eat it too! If you want to be blessed with cryptocurrency benefits, you’ll need to know the risks involved in these transactions. Social engineering scams, ICO scams, rug pull and phishing are common scams that may impact you as you join the cryptocurrency party. Scroll down to learn more about each of them.

Social Engineering Scams

Scammers use psychological manipulation techniques and entice people to gain control over certain private information of user accounts. One of the ways that scammers trick you and get what they seek is giveaway scams.

Giveaway Scams 

We all love to win prizes, and scammers take advantage of this. Giveaway scams are among the most common ways to get attacked. A giveaway scam is a kind of social engineering scam that often occurs on popular social media platforms, such as Youtube or Twitter. In this case, scammers encourage investors and users to participate in major, legitimate cryptocurrency giveaways. Then, they ask you to pay money to send you more money back or give them your account information to get the prize. They may use the names of famous companies you know and pretend that you’re the only one who has won the prize and incentive you not to miss it. However, the same text, email, or letter has been sent to a great number of other people like you. Keep in mind that crypto transactions are irreversible, and if you lose your cryptocurrencies, there is no way to get them back.

Initial Coin Offering (ICO) Scams

An initial coin offering allows any startups and undertaker industry without any operating history to join. Due to the lack of regulation and security laws, it is a potential situation to get scammed.


Pump and Dump Scams

Pump and dump scams are a form of ICO scams and happen when fraudsters and scammers raise the company's stock price by sharing positive but fake information. As traders and investors rush to buy the token, the price continues to rise. Once the fraudsters dump their shares and stop promoting the stock, the stock price typically freefalls, and investors lose money. 

Rug Pull Scams

Another fraudulent scheme to steal your cryptocurrencies refers to the rug pull method and usually happens in the Decentralized Finance (DeFi) ecosystem. To perform a rug pull, developers introduce a fake DeFi project and create a liquidity pool with their newly-minted scam token and reliable cryptocurrency. To make the cryptocurrency tradable and ensure the investors about the new crypto’s worth, they pervade liquidity with cryptocurrency. By increasing the price of the valid and reliable cryptocurrency, the project is then abandoned and laid off by the developers. They will withdraw everything from the liquidity pool and steal the investors' funds.

Pump and Dump vs Rug pull

Rug pull scams are similar to the pump and dump scams, and both follow a similar pattern. What makes them different is that for a pump and dump scheme, liquidity may still be in the pool, but the price will be heavily tanked. However, rug pulls remove liquidity from the pool and makes the tokens untradable.


Phishing Scams

Phishing is a type of cyber attack and online scam with the aim of stealing your sensitive data and information. Cryptocurrency phishing scams are common on forums, messaging apps and social media sites. Specifically, scammers who are interested in crypto wallets’ private keys attempt to steal the cryptocurrency contained in those wallets by sending emails.

Email Phishing

Email phishing is one of the most common types of phishing scams meant to steal your sensitive information via email. Hackers send an email from a seemingly legitimate and well-known organisation to significant numbers of recipients and users. The scammers ask users to click on a link that leads to a page or website where users will confirm personal data and account information. You know what happens then!

Vishing

Have you ever got suspicious spam phone calls? If yes, it is likely you’re targeted for voice phishing. A vishing scam, or voice phishing is another form of phishing that has the same purpose as other types of phishing to steal information and try to manipulate the victim over the phone.

Spear Phishing

Spear phishing generally focuses on business executives, public personas and individuals. For example, an email stating your account has been deactivated or is about to expire or a warning that someone is trying to log into your account. This email includes a link to a login page and you need to click the link and provide credentials.

Whaling

Whaling is a specific type of phishing attack similar to spear phishing. The difference is whaling scams typically target a CEO, CFO, or any CXX within an industry or a specific business or high-profile employee. However, spear phishing chases a category of individuals with a lower profile.


How To Prevent Cryptocurrency Scams?

The best you can do as an investor to protect your investment is to make yourself aware of the potential traps and common mistakes others have made and invest with an open eye! Here are some of the best guidelines to help protect your investment:

  • Keep your wallet secure and always hold your private key to yourself and don't share it with anybody. Despite that, keeping the private key in your hot wallet is risky and cold wallets are safer.
  • Do your own research about the companies and cryptocurrencies: read their whitepaper and roadmap and find out what experiences others share.
  • To protect yourself from phishing attacks, enable multi-factor authentication in your account and on whatever kind of crypto wallet and exchange you use. Ensure that all applications, internal software, network tools and operating systems are up-to-date and secure, install malware protection and anti-spam software.
  • Double and triple-check website URLs. Scammers use the URL of legitimate sites and swap letters and numbers to make phishing scams.
  • To prevent getting rug-pulled, check the liquidity and seriously avoid investing in a cryptocurrency if you don't fully understand how the project works.
  • To prevent ICO scams, review the company's whitepaper thoroughly. Research the individual team members of a project before you invest and Determine who's behind it. If the token has been around for a while but development on the project seems to have disappeared, it's best to avoid it.

Biggest Crypto Scams of 2021

2021 was a year with an immense growth of cryptocurrencies and the launch of new cryptocurrency projects with their native coins and tokens. Despite the substantial gains it brought, crypto provided opportunities for scammers to trap uneducated investors. Let’s check out two reports of the biggest crypto scams of 2021.

Squid Coin

The name of this coin refers to the Squid Game series, one of the most popular television shows across the globe. The coin was inspired by the Netflix series offering obsessed gamers access to a play-to-earn game and giving nearly 3000 per cent returns in three days. But two weeks after its launch, people who bought Squid tokens could not sell them, and creators of Squid Game coin sold their entire holdings rapidly and brought down the coin’s value to $0, and it turned out to be a rug pull scam.

Poly Network Hack

The Poly n=Network is a decentralised finance (DeFi) platform that optimises peer-to-peer transactions in the blockchain and allows users to swap tokens from one digital ledger to another. For example, a customer could apply Poly Network to transfer tokens such as bitcoin from the Ethereum blockchain to the Binance Smart Chain. In August 2021, this network was hit by one of the largest hacks that made off $610 million in cryptocurrency and lost funds in more than 12 different cryptocurrencies, including Ether, according to Chainalysis.

Bottom Line

As you consider investing in different startups and exchange platforms, you should be aware of the possibilities of losing your cryptocurrency investments as there are several scams out there. Despite the changing prices and coin-based scams, cryptocurrency is still one of the safest places to invest. To avoid falling for any scams, you should educate yourself, study several types of spoof and fraud, and recognise the signs and red flags. Here at Cryptologist.st, we provide educational reports to boost your knowledge of the Crypto world. But that’s not the only thing we offer, have a tour in Cryptologi.st to see for yourself. Stay tuned!

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