Crypto Scams: What They Are & How To Avoid Them

As cryptocurrency has grown popularity, so has the frequency of crypto related scams. According to a report by Chainalysis, illicit cryptocurrency transactions equaled $14 billion U.S. for 2021. This figure is expected to be larger for 2021.

Crypto scams come in different forms and use various tactics. And with the increased frequency of crypto attacks, it’s perfectly normal to feel anxious about crypto trading. However, we are here to help. This article will cover some of the common cryptocurrency scams. There will also be sections on how to identify cryptocurrency scams, how to avoid them, and what to do if you have fallen victim to one. So, let’s get started with some of the most prevalent cryptocurrency scams.

Now that we have covered some common cryptocurrency scams, let’s look at how you can spot them. While each scam has their own wording or strategies, there are some shared characteristics between them.

Guaranteed returns

Many crypto scams will promise that you will get a 100% return on your investment. Other scams will assure you that their product is guaranteed to make you money. If you see these claims in any offer, it is a definite red flag.

Free money

This characteristic relates to the previous one. A scam will claim that you will receive free crypto or cash with no strings attached. While most legitimate exchanges offer free crypto, you have to perform a task to earn it; for example, referring your friend to the exchange. Be wary if you are offered free crypto/cash without having to perform a specific task.

Poor/fake whitepaper

A whitepaper is used by developers to explain the project they are working on and how it works. Crypto developers use whitepapers to explain the information behind the coin they are releasing. They usually contain statistics, diagrams, and formulas about the cryptocurrency. The goal of the whitepaper is to get people to invest in the currency. Any legitimate cryptocurrency should have whitepaper.

Fraudulent cryptocurrencies often have poorly written whitepapers. The information will be confusing, and the document usually has numerous spelling and grammatical errors. Sometimes the whitepaper does not exist.

Unknown developers

Every legitimate cryptocurrency and crypto related service has a group of developers behind it. It should be easy to find background info on each person, such as their education and past projects. Each member usually has an active social media presence. If you are having a hard time finding who is behind a cryptocurrency or crypto relate product, be cautious. While not every legit crypto developer will have an active social media presence, scammers take extra measures in order to hide their identity.

Overdone marketing

In order to reach a larger demographic, scammers will put a lot of effort into marketing. You will likely see well produced videos and slickly designed online ads. This makes it hard to determine whether the ads are for a legitimate or fraudulent crypto coin or service. One trait of fraudulent crypto marketing is extravagant claims. For example, “Invest in this cryptocurrency and earn up to $10,000 in return”. The wording in these ads tend to be heavy-handed, in other words excessive. In any case, do some research into the product being advertised.

There are several things you can do to protect yourself from crypto scams.

It is always important to do some research before you begin crypto trading. I recommend that beginners read some articles and watch a few videos on cryptocurrency to become familiar with the terminology, theory, and investing strategies. If you are interested in buying a new coin, research its developers and see if you can read its whitepaper. Try and find reviews from trusted individuals and websites. You can also find webpages that list fake cryptocurrencies and fake crypto web sites. TrendMicro has a list of fraudulent crypto webpages, which is updated regularly.

Crypto wallets are arguably the most important part of crypto trading. Without one, you stand a higher chance of having your crypto assets stolen. Because of their importance, you should ensure your wallet is safe from scams. Never divulge your private keys to anyone. If a website asks for your private keys, then it is a scam. Set up security features like multifactor authentication and recovery phrases; this makes it harder for scammers to access your wallet.

Lastly, be wary of social media posts advertising crypto coins and related products. Scammers will often use unauthorized images of celebrities or notable people to promote their scheme. This creates a sense of legitimacy. While some of these adverts are legitimate, it’s always best to be cautious when you see them. Always do your research into crypto social media posts to gauge their legitimacy.

These are just a few examples of ways you can protect yourself from crypto scams. To see more steps you can take, check out this article.

What do I do if I have fallen to a crypto scam?

Falling victim to a crypto scam is a horrible experience. While you will feel anxious, try your best to be level-headed. Take a moment to collect your thoughts. Next, gather all the information related to the fraud, which may include documents, screenshots of emails or texts, and receipts.

Once you have gathered your information, contact your bank. Let them know of the crypto scam and, depending on the situation, you may have to cancel your debit/credit card. If your crypto wallet is compromised, contact your wallet provider. They will walk you through the next steps. If a scam occurs on a cryptocurrency exchange, report it to the site’s administrators.

You can also contact your local police to report the incident. They will keep a file on hand for future reference. Lastly, report the scam to the relevant anti-fraud organization. For Canadians, that would be the Canadian Anti-Fraud Centre.

Because of the decentralized nature of the blockchain, any crypto transaction can be traced. Therefore, you can have a governing body access the blockchain and track your stolen crypto to wallet it was sent to. You may end up getting some back.

What are some NFT scams?

NFTs have many of the same scams as cryptocurrency. Rug pulls, phishing messages, and pump and dump schemes are some of the common NFT scams. One scam that is unique to NFTs is plagiarised content and art theft. Scammer will illegally download digital art and sell them as NFTs; they will claim they created the art.

DevianArt, a digital art website, has a tool called DevianArt Protect to protect users from art theft. The tool scans blockchains to find stolen artwork. The artist is then alerted to the theft. DevianArt Protect will also scan DevianArt itself for any possible threats. The downside to this tool is that it will not automatically take down the stolen art. It is up to the individual artist to contact DevianArt or the NFT marketplace to have the plagiarised art removed.

An example of a verified NFT seller. Source: OpenSea

There are some things you can do to prevent NFT theft. First, make sure the seller’s account is verified. On the NFT marketplace OpenSea, verified accounts will have a blue check. Check out the seller’s social media accounts to see their activity. You can also track their history on NFT marketplaces. If anything unusual comes up, they are probably a scammer. To check the authenticity of the art, do a Google reverse image search. Doing this will reveal whether the image is original or a copy. Lastly, if you suspect an NFT has been plagiarized, report the seller to the exchange.

Sources used for this article

Kaspersky: Common cryptocurrency scams and how to avoid them

Investopedia: Beware of cryptocurrency scams

NextAdvisor: 6 common crypto scams, and how investors can protect their coins