The cryptocurrency was first created in 2009, and its popularity skyrocketed in the 2020s, with the market crossing $3 trillion in 2021 — crypto currently enjoys a cap north of half a trillion. Consumers were tempted to invest in cryptocurrency because a central authority didn’t control it, promised extremely high returns, and its value was deemed by user demand. Cybercriminals and scammers were interested in crypto for the same reasons and stole over a billion dollars collectively through crypto scams between 2021 and 2022.
Cryptocurrency is relatively new, but the tactics used for crypto scams are similar to pre-existing methods, like phishing and impersonation. Here are 8 common crypto scams explained with real-life examples and tips to spot signs of a crypto scam before you fall prey to it.
Perpetrators target users, scouring their digital footprint to develop customised strategies for building a trusted relationship, commonly a romantic association. Once they gain the target’s trust, scammers slowly slip into cryptocurrency-related conversations and claim to have made loads of money via the channel to grip the target’s attention and entice them to invest.
Scammers sometimes guide the target throughout the process, detailing how to open an account, invest, trade and withdraw money. They may use fake websites or wallets to simulate legitimate-looking platforms and dashboards showing profits. After they successfully receive a large sum of money from the victim, they cut contact and vanish, leaving the victim sans money and a loving partner.
Pig-butchering, another crypto scam on the rise, uses the romance tactic to build a relationship with the target and lure them into sending money to fake crypto trading platforms and wallets, eventually stealing the invested money.
Tho Vu virtually met Ze Zhao on Hinge, a popular dating app. They spoke for months, and Vu was convinced their relationship was real. During their relationship, Ze Zhao mentioned he could help Vu trade in cryptocurrency and seemed to have a thorough knowledge of the trading process. Zhao requested Vu to transfer her Bitcoin investments to an address linked to an account on the Hong Kong cryptocurrency exchange called OSL. He had promised that the crypto investments would help them get married and start a life together. Soon after, the money was gone along with Zhao.
Scammers pose as well-known celebrities, personnel from well-known companies like MetaMask, or someone you know like friends, family or acquaintances and contact you via email, SMS, social media DM or call. The purpose of the impersonated contact is to get you to perform certain actions without thinking twice. Actions may include giving out your personal and sensitive information like login and bank account details, sending money or cryptocurrency to the impersonated contact, or clicking on a link to a malicious website.
They can also pose as customer support agents to fix an issue with your crypto wallet or trading account. Scammers often lead you to a link that redirects to a fake login page created to steal your details or may demand additional fees to resolve the issue.
Sebastian (name changed) sent 10 Bitcoins to a link supposedly posted by Elon Musk in one of the replies to his tweet stating, ‘Dojo 4 Doge’. He tried to verify the post by checking the blue tick on the profile and, once reassured, clicked on the link that led him to a website showcasing a Bitcoin giveaway, seemingly run by Elon Musk’s Tesla team. He sent his coins, hoping to receive double the amount. Sebastian soon realised that the whole thing was a setup to steal cryptocurrency and that he had lost his 10 Bitcoins. Twitter even confirmed rampant crypto scams on its platform.
In this case, scammers combined an impersonation and giveaway scam where the perpetrators created a social media profile impersonating someone famous, claiming to promise something in return for cryptocurrency.
Pump and dump scam
Scammers pick celebrities, influencers and other crypto investors to form a group that convinces participants to buy a pre-decided coin to drive up the price by creating a false demand. Influencers and celebrities are sometimes incentivised to create hype around the same coin on social media to assure users of its credibility and entice them to buy it. Once the price is artificially inflated via the aforementioned tactics, the group partaking in the pump and dump scheme sells their respective shares at the peak value, causing a price drop and leaving the genuine investors with nothing.
Peter Komolafe, a financial advisor and YouTuber, received a DM from an unknown account on Instagram asking him to join a crypto pump group on Telegram. Peter joined the group out of curiosity and found that it already had around 15,000 people. The group operators would encourage group members to create noise around a pre-decided crypto coin to drive the price, causing a pump in its value. At its peak value, the group participants would sell their shares to gain large sums of profit, causing a price drop (dump), leaving the other investors with losses.
This shows that the pump-and-dump schemes operate on a large scale and utilise influencers and celebrities to create buzz around the selected coin.
As per Reddit vigilantes, newbies to crypto are usually the ones to fall for such scams due to their lack of knowledge and awareness about the ins and outs of crypto trading. They tend to blindly trust celebrities and influencers on social media and invest in coins they might market without due diligence.
Rug Pull scam
Due to its decentralised nature and lack of regulations, almost anyone can develop a cryptocurrency project. Scammers take advantage of these features and create projects to gain traction and lure people into investing large sums of money before shutting down the project and stealing the invested money.
The SQUID coin was created for an online game inspired by the popular Netflix series Squid Game (not officially linked to the series). The crypto coin rose in value within a week, pulling in around 43,000 investors.
Experts warned that the coin could be a scam due to its inability to be sold by investors. Soon after the token’s price seemed to skyrocket, the coin collapsed.
However, the coin was relaunched in August 2023 with a new contract address. As per CoinMarketCap, the community operates it, while Binance has blocklisted the addresses of the initial coin developers.
Ponzi or pyramid scheme
Scammers use fake platforms and apps to entice users to invest in crypto trading and promise high returns. In a crypto pyramid scheme, operators guarantee incentives to investors for any new participants they bring in. This prompts investors to convince their acquaintances, friends and family to invest in the scheme. Eventually, the crypto platform stops working; investors cannot withdraw assets, and the operators claim that the investment is no longer valid or that they are facing issues and cannot dispense the invested money.
The US Security and Exchange Commission (SEC) charged 11 individuals for running a crypto-related Ponzi scheme called Forsage. Forsage was marketed as a smart contract, a computer program used to verify and automate Ethereum, Tron and Binance Blockchains transactions. The platform operated on a pyramid scheme model where investors earned profits by recruiting new investors with a Ponzi structure that paid off early investors using the assets pooled by new members.
Interestingly, while researching Forsage, I came across a website by the same name having a co.in extension. This website had logos similar to those of Forsage, the platform which is an alleged Pyramid or Ponzi scheme as stated by SEC. The website had links to social media, but clicking on those redirected to their generic social media homepage rather than the company page.
Fake crypto wallet apps
Crypto wallet apps, often hot wallets, are digital safes that store private and public keys required to buy cryptocurrency.
Cybercriminals can impersonate legitimate wallet apps to steal a mnemonic phrase used to recover a stolen or lost crypto wallet. The threat research team at Trend Micro identified fake app wallets for nearly all popular wallets, including imToken, Bitpie, MetaMask, Trust Wallet, and TokenPocket.
Scammers create fake websites that impersonate official crypto wallet app websites or trading platforms. Scammers use traditional phishing tactics like legitimate-looking emails, DMs, SMS or calls, typically posing as customer support or bank authorities and prompt the victim to enter sensitive details by clicking on a link provided by the phishers.
Scammers can prompt victims to give away their private key for cryptocurrency transactions, their login details to a trading platform or a crypto wallet, or get them to invest in a fraudulent scheme.
MetaMask, a crypto wallet company, released an alert on their community page warning users of an ongoing MetaMask phishing campaign where scammers send an email asking users to verify their wallet using the link provided.
Also read: How to identify phishing scams?
Fake job listings
The FBI issued a warning asking citizens to steer clear of false job advertisements linking to labour trafficking. In such cases, victims are forced to stay in close quarters and made to carry out crypto-related scams, like the popular romance and pig-butchering scams, against their will.
In a second type of fake job listing scam, victims find jobs associated with crypto trading via popular job-hunting sites like Indeed. Once employed, they are tasked to buy cryptocurrency on behalf of clients with money deposited into their bank account. The bank later informs them that the transactions are fraudulent and that they must pay back the transacted amount.
Daniel LaSane was among the many who lost thousands of dollars to fake job listings related to crypto. He received a job offer from Cryptocurity LLC and was instructed to purchase Bitcoins under a client’s name with money deposited in his bank account. After completing a few more transactions, he was informed by his bank that all the transactions were fraudulent and that he owed $10,000. BBB has issued an alert against Cryptocurity as a cryptocurrency scam.
Signs to spot common crypto scams
Scammers can use not one or two but many of these tactics together to carry out elaborate scams. Now that you know the most common ways scammers trick investors into buying huge sums of money, the next step is recognising signs of a potential crypto scam.
A message from an unknown person, whether via SMS, email or social media DM, that talks about crypto-related schemes with extremely high returns should be treated cautiously. Even if the message appears to be from someone you know, cross-check with the person outside of the platform they used to contact you before taking further action.
Scammers use fake online ads to lead users to a malicious website that either downloads malware onto their computers or asks for sensitive information that the scammers can steal.
If you search for cryptocurrency-related tools and an ad for the tool pops up in the search results or see digital ads for the tool while browsing websites, avoid clicking on the ad. Instead, scroll to find the official non-sponsored result and click on it, or type in the official URL into the search bar.
Hype on social media
Scammers impersonate celebrities and influencers to entice social media users to participate in giveaways where they ask for a certain amount of cryptocurrency to be sent to their wallet address in return for double the amount.
Some legitimate celebrities and influencers are paid to promote a particular coin to carry out the pump-and-dump scam.
Giveaways can come in the form of impersonated celebrity and influencer profiles or emails from impersonated companies. Avoid such giveaways, especially if they sound too good to be true and urge you to avail yourself of the offer quickly, e.g., Avail in the next 30 minutes! The countdown starts now.
Self-proclaimed ‘Trading Experts’
Influencers could promote a particular coin pretending to know about the cryptocurrency and how the market works, but in fact, could be promoting a coin to receive a commission from pump and dump scheme operators or a crypto project aiming to execute the rug pull scam.
You could have recently befriended someone online, sometimes a romantic interest who may talk about crypto trading and promise to help you gain high returns. This could be a set-up for a romance scam.
No form of investment provides guaranteed returns. If a crypto project, trading platform, app, or scheme claims to provide guaranteed returns, do not invest in it. It will likely be a scam promising guaranteed returns to lure in more investors.
Cryptocurrency trading is a fairly new platform for investors and comes with inherent risks like any other type of investment. Its volatile nature makes it different, which means you can make a large percentage of profit overnight, but you can suffer huge losses overnight, too.
Users should spend a good amount of time researching the process and its associated attributes, like projects, wallets, trading platforms, brokers and so on. Only invest an amount you can afford to lose.