Cryptocurrency has taken the world by storm. Unfortunately, like every other popular trend, malicious actors are rampant. The high influx of new users and crypto’s technical learning curve have led to a rise in scams that might scare away new investors.
Phishing, fake ICOs, and rug pulls are just some of the types of scams we’ll cover in this article. Here’s what you must watch out for and how you can protect yourself from these cryptocurrency scams.
Phishing
Phishing seems a downright medieval method compared to the technical sophistication cryptocurrency networks possess. However, phishing continues to pose a threat due to its simplicity. Malicious actors lure unsuspecting victims via fake emails loaded with malware.
Despite massive education around the topic, people continue to fall victim to malware in their inboxes. One reason for this is hackers posing as trustworthy sources. For instance, a hacker might send an email that appears to originate from an entity on a crypto development team or a Dedi project.
These emails can lure people into spoofed websites that mimic the original project, leading users to divulge their crypto keys. The email inbox remains a popular entry path for malicious actors and you must watch out for tell-tale signs.
First, check what kinds of emails you can expect to receive from any entity you’re dealing with. For instance, some projects rarely send emails, while large exchanges like Coinbase routinely send updates. Either way, no reliable entity will ever ask you for your private keys. Receiving such requests is a red flag and you must report these emails to your service provider. Other telltale signs include fake addresses, using free email domains, and the lack of an SSL certificate on spoofed websites.
A tip
Rug pulls
Rug pulls have been distressingly common in the crypto world for a while now. Rug pulls are tough to spot because of the huge diversity of crypto projects on offer. A new DeFi project pops up seemingly daily and separating the genuine from fake ones is tough.Â
A rug pull occurs when the founders of a DeFi project sell their tokens on the open market after pumping up prices to record levels. Many rug pulls go unreported because the prices these tokens rise to are not objectively high. For instance, a token might rise from zero to a few fractions of a cent.
As previously reported by Finbold, DeFi rug pull scams pulled in $2.8B in 2021.
However, thanks to the large number of tokens issued, the money investors lose is significant. Some red flags to watch for are an unknown development team. While the crypto world is sensitive about divulging personal information, developers typically disclose projects they’ve worked on.
A project that is trying to leverage the latest fad in the markets is also unlikely to sustain itself. These projects usually tap into the craze speculators have for a fad, lure them in, pump prices up, and leave them holding the bag when the inevitable crash comes. If you notice huge speculative hype surrounding a project, and the founding team tapping into this, it’s best to stay away.
Other signs of a rug pull are a dramatic increase in token prices in a short period. Sometimes, a project is worth the hype. However, if a token begins appreciating for no discernible reason connected to the project, watch out for a rug pull.Â
Ponzi schemes
Like phishing, Ponzi schemes have existed for a long time and crypto is no different. In a Ponzi scheme, scammers promise high-interest payments on an investment and fund those payments via payments from new investors. The scheme runs until the scammer cannot source new investments, at which point payments stop and investors lose all their money.
Crypto Ponzi schemes are aplenty, unfortunately. Typically, they leverage the speculative interest people have in the sector and promise extreme returns. These returns are usually fueled by a “top secret” or “revolutionary” investment method that the founder of the scheme pushes.
Ponzi schemes are relatively easier to spot than the other scams on this list. If the person pushing the scheme cannot explain the mechanics of their investment strategy, you should consider it a red flag. Other indicators include a large number of existing investors pushing you to invest in the scheme, citing the huge returns.
Reputable investment schemes don’t need investors marketing them to succeed. Ponzi or multi-level marketing schemes are the ones that need such tactics.
Fake wallets
Your crypto wallet holds your coins and keys. It’s the most important part of your crypto-investing infrastructure. With paper wallets turning impractical, most investors are buying cold wallets. However, these are also fraught with scams.
Malicious actors have begun impersonating reputed wallet providers and stealing investor funds. For instance, scammers cloned the reputed crypto wallet manufacturer Trezor on the app store and siphoned investor funds away.
The best way to protect yourself is to choose physical cold wallets. Stay away from any app-based online wallet since you can never verify the authenticity of such products. Even when purchasing cold wallets, make sure you purchase new ones from reputable providers.Â
Staying safe
Crypto is a highly lucrative sector but it is fraught with scam artists. The scams listed in this article are the most common ones and protecting yourself boils down to conducting due diligence. Do not fall for unrealistic returns and always view such opportunities with a skeptical eye.
