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Cyber crime

What is a crypto scam? Top scams to avoid in 2024

Bristol James
9 Min
Crypto scam artwork

Crypto scams refer to any fraudulent practice in the cryptocurrency space aimed at tricking individuals into investing or giving away assets or sensitive information. It encompasses many fraudulent schemes, including fake initial coin offerings (ICOs), Ponzi schemes, phishing attacks, pump-and-dump schemes, fake cryptocurrency exchanges, and fraudulent investment schemes promising unrealistic returns.

Is cryptocurrency money?

Cryptocurrencies don’t have the same characteristics as ‘money’ as we know it. In fact, traditional cash you’d find in your wallet is actually also known as Fiat Money. Unlike Cryptocurrency, and other precious metals such as gold and silver, Fiat Money is government issued by governments and its value is set based on the economic performance and supply and demand within said country. Examples include U.S Dollars, Australian Dollars, Canadian Dollars, Euros and more.

Cryptocurrency upholds some of the same characteristics as fiat money, while also upholding some unique qualities:

  • Being a store of value: Both can be used for payments and as a store of value, however, cryptocurrencies exist in an unstable market, making their store of value much more volatile than those of regular currencies.
  • Decentralised: while traditional currency is controlled by governments and banks, cryptocurrency operates on a decentralised network, meaning no single authority is responsible for the currencies (eg. Bitcoin, which lives on the blockchain and is controlled by millions of miners acrouns the world)
  • Tamper-proof: because of the nature of blockchain technology, cryptocurrency transactions, such as Bitcoin, cannot be tampered or spent twice. This also makes transactions irreversible, which can be a major downside of regular currencies, where banks and governments have more abilities to oversee and intervene when necessary.

Understanding cryptocurrency scams

Now, onto cryptocurrency scams. These scams a deceptive scheme orchestrated to trick individuals or organizations into relinquishing their digital assets. Crypto scams can take various forms, often exploiting common human emotions such as fear or greed.

What sets cryptocurrency scams apart is the unique nature of the industry. Blockchain technology, the backbone of cryptocurrencies, is relatively new and complex, leading to a lack of understanding among many individuals. This lack of knowledge makes people more susceptible to manipulation by scammers who exploit their ignorance.

Another key element is cryptocurrency is the perception of anonymity associated with blockchain transactions adds another layer of allure to cryptocurrencies for those with malicious intent. While blockchain transactions are pseudonymous, meaning they are not directly tied to real-world identities, they are not entirely anonymous. However, this misconception of anonymity can entice individuals to engage in risky transactions, making them more vulnerable to scams.

What makes the crypto industry so susceptible to scams?

The crypto industry’s susceptibility to scams stems from several factors inherent to its structure and operation. These characteristics, which actually contribute to the appeal and potential of cryptocurrencies, also present significant risks:

  1. Privacy. Transactions conducted on a blockchain are pseudonymous, meaning they can be traced back to digital wallets but not necessarily to individuals. While this offers a degree of privacy, it also creates an environment where fraudulent activities can occur without easy identification of perpetrators.
  2. Irreversibility of transactions. Once transactions are recorded on a blockchain, they are typically irreversible. Even illicit transactions cannot be easily undone, leaving victims with little recourse to recover their assets.
  3. Lack of regulation. Cryptocurrency regulation varies widely across jurisdictions, with many areas having minimal or no regulations at all. Without regulatory oversight, scammers can operate with impunity, exploiting legal loopholes and vulnerabilities in the system.
  4. Technological complexity. Blockchain technology, the basis of cryptocurrencies, is complex and not well understood by many individuals. This knowledge gap creates opportunities for scammers to exploit the lack of understanding among crypto holders, making them more susceptible to manipulation.
  5. High return potential. The allure of high returns in the crypto market often attracts investors seeking quick profits. However, pursuing financial gain can cloud judgment and lead individuals to overlook warning signs of potential scams.
  6. Rapidly growing industry. The cryptocurrency market is rapidly evolving, with new projects and ventures emerging constantly. This fast growth makes it challenging for investors to distinguish between legitimate opportunities and clever scams, increasing the likelihood of falling victim to fraudulent schemes.

These factors collectively create an environment where cryptocurrency scams can flourish, posing significant risks to investors and users alike. Understanding these vulnerabilities is crucial for mitigating the risk of falling prey to fraudulent activities in the crypto space.

Top 9 crypto scams to be aware of in 2024

As the cryptocurrency industry continues to evolve, scammers continue to come up with ways to defraud users. Let’s dive into the main types of cryptocurrency schemes you should be aware of:

1.    Fake cryptocurrency exchanges

Similar to traditional stock exchanges, a cryptocurrency exchange is a digital platform that enables users to buy, sell, and trade various cryptocurrencies. Additionally, cryptocurrency exchanges often offer features such as order matching, liquidity pools, and trading tools to facilitate efficient and secure transactions. As such, crypto exchanges play a crucial role in the crypto ecosystem by providing liquidity, price discovery, and accessibility to digital assets for investors, traders, and enthusiasts worldwide.

In this context, scammers create fraudulent cryptocurrency exchanges or digital wallets to deceive users into depositing funds or revealing their private keys. These platforms may appear legitimate but are designed to steal users’ deposits or gain unauthorized access to their digital assets. Victims are left unable to access their funds, resulting in financial losses. There are unfortunately several of these brands which have appeared in the media in recent years, including the collapse of the FTX platform, which resulted in $8.7B in missing funds.

2.    Cryptojacking

Cryptojacking is a form of cyberattack where malicious actors covertly use the computational power of unsuspecting users’ devices to mine cryptocurrencies without their consent. This unauthorized mining activity consumes significant amounts of CPU and GPU resources, resulting in decreased device performance and increased energy consumption.

Hackers typically employ various tactics to distribute cryptojacking malware, including phishing emails, compromised websites, and malicious browser extensions. Once the malware infects a device, it runs in the background, continuously mining cryptocurrency and transferring the generated coins to the attacker’s wallet. Victims experience decreased device performance and increased energy consumption, with profits going to the perpetrators.

3.    Blockchain-wide attacks

Blockchain-wide attacks encompass a range of malicious activities that target entire blockchain networks, exploiting vulnerabilities to compromise their integrity and security. These attacks compromise the operation of the blockchain, potentially leading to financial losses for cryptocurrency holders and undermining trust in the technology.

One common type of blockchain-wide attack is the 51% attack, where a single entity gains control of over half of a blockchain’s mining power, enabling it to manipulate transactions and potentially double-spend cryptocurrency. Another type is a sybil attack, which involves creating numerous fake identities within the network to influence operations while routing attacks manipulate data routing information to intercept or modify communication among blockchain nodes.

4.    Pump-and-dump schemes

Pump-and-dump schemes involve artificially boosting the price of a digital asset through deceptive tactics, such as spreading false or misleading information to lure unsuspecting investors into purchasing the asset. Typically, perpetrators of these schemes make exaggerated claims about the potential profitability of the crypto, enticing others to buy in and drive up its price.

Once the price peaks, the scammers, who typically hold a significant portion of the asset, swiftly sell off their holdings, causing the price to plummet rapidly. As a result, investors who bought into the scheme at inflated prices experience significant losses when the value of the asset crashes.

These schemes rely on market manipulation and misinformation to deceive investors, exploiting their fear of missing out (FOMO) on potential profits. Pump-and-dump schemes often target low-volume or lesser-known cryptocurrencies, as they are more susceptible to price manipulation.

5.    Fake ICOs

An Initial Coin Offering (ICO) is a fundraising method used by cryptocurrency startups to raise capital for new projects. In an ICO, investors purchase newly issued digital tokens or coins in exchange for established cryptocurrencies like Bitcoin or Ethereum, or sometimes fiat currency. These tokens typically represent a stake or share in the project being funded and may offer various rights or benefits within the ecosystem being developed.

In this kind of scheme, scammers create fraudulent ICOs, mimicking legitimate fundraising campaigns, to deceive investors into contributing funds. They promise revolutionary projects or innovative technologies, enticing investors to participate in the ICO. However, once the fundraising concludes, the scammers disappear with the raised funds, leaving investors with worthless tokens and no means of recourse.

6.    Fake crypto wallets

A cryptocurrency wallet is a digital tool or app that allows users to securely store, send, and receive digital assets such as Bitcoin, Ethereum, and other cryptocurrencies. Crypto wallets, which work similarly to a traditional wallet for fiat currency, store the private keys required to access and manage the user’s cryptocurrency holdings on a blockchain network.

Fraudulent wallet apps or services trick users into believing they’re using legitimate platforms to store their digital assets. These fake wallets may resemble legitimate ones but are designed to steal users’ private keys or gain unauthorized access to their cryptocurrency holdings. Victims unknowingly expose their digital assets to theft, resulting in financial losses and compromised security.

7.    Investment scams

Investment scams in the crypto industry involve perpetrators assuming the guise of experienced investment advisors or promoters of fake crypto projects. These fraudulent actors entice unsuspecting individuals with substantial cryptocurrency investment returns, persuading victims to send funds upfront or funnel their resources into purportedly lucrative ventures.

Once victims have committed their funds or resources, the perpetrators swiftly disappear with the assets. Despite initial assurances and persuasive tactics, investors are left empty-handed, with no means of recovering their losses or holding the perpetrators accountable.

8.    Phishing and social engineering attacks

Phishing scams in the crypto space involve the use of deceptive emails, messages, or fraudulent websites to mimic legitimate platforms. Perpetrators impersonate trusted entities to induce people into sharing sensitive information such as cryptocurrency login credentials or wallet keys. By creating a sense of urgency or presenting seemingly urgent scenarios, unsuspecting victims are coerced into unwittingly surrendering their digital assets.

Social engineering techniques are another similar form of crypto scheme. Scammers leverage psychological manipulation to exploit individuals’ trust or emotions, often by assuming false identities or employing pressure tactics to prompt immediate action. These tactics circumvent conventional security measures by exploiting human vulnerabilities, facilitating unauthorized access to cryptocurrency holdings, and subsequent theft.

9.    Ponzi schemes

Ponzi schemes promise high returns on investments by using funds from new investors to pay earlier investors. The scheme collapses when new investments dry up, leaving many investors with significant losses and no means of recovering their funds. Ponzi schemes are inherently unsustainable and rely on a continuous influx of new investors to sustain payouts.

Understanding the diverse array of cryptocurrency scams is crucial for investors to protect themselves from financial fraud and ensure the security of their digital assets. Vigilance, skepticism, and due diligence are essential when navigating the cryptocurrency landscape to avoid falling victim to these deceptive schemes.

Best practices to avoid crypto scams

Wondering how to steer clear of cryptocurrency scams? Here are some key tips to safeguard yourself and your assets:

  1. Do thorough research before investing. Take the time to understand the cryptocurrency, its underlying technology, and other pertinent details around how to securely purchase, trade and store currencies.
  2. Be wary of unrealistic promises. Exercise caution and skepticism towards offers that appear too good to be true.
  3. Use established platforms. Stick to reputable industry leaders when using cryptocurrency products and services.
  4. Pay attention to the project’s online presence and reviews. Choose crypto projects with a robust digital footprint and avoid those with anonymous or shady backgrounds.
  5. Safeguard your personal data. Adopt safe browsing practices and refrain from sharing your private keys to protect against unauthorized access.
  6. Assess the legal compliance of a cryptocurrency. Consider the project’s compliance with applicable regulations in relevant jurisdictions to ensure legality and minimize risk.
  7. Stay informed about industry developments. Keep yourself updated on fraud trends and changes in the cryptocurrency landscape to stay ahead of potential risks.
  8. Seek assistance when needed. Consult financial professionals for guidance and support to navigate the cryptocurrency space safely and avoid potential pitfalls.

By implementing these best practices, you can significantly reduce the risk of falling victim to scams, navigate the crypto landscape with confidence, and safeguard your investments.

Summary

  • Cryptocurrency scams encompass deceptive practices within the crypto space, including fake ICOs, Ponzi schemes, phishing attacks, and more, to trick individuals into investing or revealing sensitive information.
  • These scams exploit cryptocurrencies’ unique characteristics, such as privacy and lack of regulation, while also targeting emotions like fear and greed, making individuals vulnerable to manipulation.
  • The top scams to be aware of in 2024 include fake exchanges, cryptojacking, pump-and-dump schemes, fake ICOs, fake wallets, investment scams, phishing, and Ponzi schemes, all posing significant risks to investors and users.
  • To avoid falling victim to scams, individuals should conduct thorough research before investing, exercise caution with promises that seem too good to be true, use established platforms, protect personal data, stay informed about industry developments, and seek assistance when needed to navigate the crypto landscape safely.

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