How to identify and avoid crypto scams

Crypto space is relatively new and could be a breeding space for scams. Staying cautious while exploring the crypto world is very important to safeguard your investments. In this lesson, we will learn about the ways to find a potential scam and create a shield against the same. Let us dive in to learn some tactics to avoid being a victim to the crypto scams!

1. What are crypto scams?

Imagine yourself in a world where people use digital currency like Bitcoin. These scams are tricks which hooligans play to steal the digital money or fool the person into giving it to them. Some might promise that if you give them the money, they will make it grow faster. However, mostly they are lying, and they would take the money to run away with it. Many fake websites operate here which look exactly like a real one. One often tends to buy stuff there but all the money’s gone into the fraud scheme. Scammers often pretend to be like famous people, like tech gurus, just to trap the innocent ones.

To stay safe, it is crucial to do the research before investing or storing the digital money! Remember, if something seems fishy here, it probably is, so be careful!

1.1. Real-world highlights

• Ponzi scam: Bitconnect is one of the examples where investors were promised very hefty returns through a lending program. But, it turned out to be a ponzi scheme and the value of its token fell , resulting in losses.
• Exit scam of Mt. Gox: The exchange Mt. Gox claimed to have been hacked and lost Bitcoin. Later, the exchange’s owner was found to be the real thief of funds.
• Fake ICOs: Scammers have started with fake ICOs where they promise unrealistic outcomes. Once they raise funds from the investors, they disappear with the money.
• OneCoin scam: It was promoted as a cryptocurrency by its founder, Ruja Ignatova, and her team members. They claimed that it is the biggest rival of Bitcoin. However, it was later revealed as a Ponzi scheme.
• Fake giveaways: Many scammers promote fake giveaways on social media. Victims tend to send funds but get nothing in return!

It is of utmost importance to read about such scams and get knowledge of how a person can fall victim to them.

2. Types of scams

• Phishing Scams: They involve fake websites or emails which look like authentic crypto services. Investors are tricked into sharing their private keys or login information, which is used by the scammers to steal their money.
• Ponzi schemes: Here, scammers swear of hefty returns on investments and use the money from new investors to pay the old ones. Eventually, when the scheme collapses, the investors lose their money.
• Fake ICOs: These are the ways which startups use to raise funds. Scammers take advantage of the same. They create fake ICOs, collect money from everyone and disappear with money without delivering anything in return.
• Pump and dump: Scammers artificially inflate the price of cryptocurrency by spreading false information or buying in large quantities. Once the price goes up, they sell their holdings and make the price crash. Others lose their money this way!
• Fake wallets and exchanges: Fake wallets or exchanges are created by the scammers. Users deposit their money and it gets stolen eventually!
• Social media scams: Scammers promote fake messages through social media apps, convince people to send crypto through social media accounts. They impersonate someone or use emotional ways to pull in funds.
• Giveaways: Scammers pretend to be some well-known figures on social media, promising to double or triple any currency sent to them. Victims send money and never get it back!

3. Identifying the scams: A step-by-step guide

• Research the project thoroughly before investing. Go through the essentials like whitepaper, team information, goals and technology. Scams lack clear documentation at times.
• Examine the official website closely and look for spelling errors , as scam websites are very poorly designed. Verify the website address.
• Verify the team and the panel of advisors and check them if they are real. Be cautious if they have used stock photos.
• Be careful of the unrealistic promises of guaranteed high returns. 
• Read the whitepaper twice to understand the technology and the purpose.
• Engage with the project’s social media community and ask questions. See how responsive and transparent they are!
• Ensure that the project complies with the ongoing market regulations.
• Scammers might pressurize you to make quick decisions. Take your time to research!
• Watch out for phishing scams and do not click on links sent via email or social media. 
• Stick to well-known and reputable crypto exchanges and wallets. 
• Educate yourself about the crypto world, knowledge is the best defense against scams. 
• Always trust your instincts! If something feels too risky, trust your gut feeling and walk away. 

4. How to report crypto scams?

There are organisations working to help the victims of crypto scams. Use their online complaint forms to seek help:

• FTC fraud report
• Commodity futures trading Commission complaints
• U.S. Securities and Exchange commission fraud reporting
• FBI Internet Crime Complaint centre

The crypto exchange can also be contacted which is used. They might have  fraud prevention measures in place to protect your funds.

5. Newest scams in 2023

• Blackmail and extortion scams: The Federal Trade Commission mentions that scammers claim that they have embarrassing personal details of yours, including your private pictures,  to lure you in. They threaten to make the info public if you don’t send them the crypto. Such scams shall be reported to the FBI.
• Business opportunity scam: someone here contacts you with an opportunity and a promise of helping you grow richer. They claim guaranteed returns for your digital assets. Do not reply to such scammers.
• Romance scams: These types of scammers pretend to become your love interest online, usually by telling lies. They can spend months building a romantic relationship with you. At some point, they ask for crypto payments. Be very careful before getting involved!

6. Final thoughts

The mad rush into the crypto world has evoked feelings of instant investments. As the crypto world gains momentum, it will become a centre of attraction to the scammers as well. It is very important to understand the common ways used by scammers to steal. You should be able to spot the frauds and report about them. Staying updated and aware is the only way out of this trap!

7. FAQs