If you understand the landscape, investing in cryptocurrency can be profitable; however, it is also filled with scams. Stay alert. Here’s what you should be wary of before investing in virtual currency.
If Jack Dorsey, Elon Musk, and Tim Cook are in the game, it seems like you could strike it rich with crypto, right? If you have some disposable income, perhaps, and we have a guide to help you get started. But beware, as you might be just clicks away from losing your retirement savings to a meme-inspired dog or a coin linked to a trending TV series.
With fluctuating prices, coin-related scams, and misguided information from influencers, the cryptocurrency market is unstable, so exercising caution is essential. The Federal Trade Commission (FTC) reported that US consumers lost over $80 million to crypto scams during the six-month period from October to March 2020.
While some scams are relatively easy to identify, others may be less apparent. Additionally, because the safeguards that protect fiat currencies like the US dollar generally do not apply to cryptocurrency, once your money is lost, it’s usually permanently gone. Here’s how you can protect yourself and avoid falling victim to scams.
How can you safeguard yourself against cryptocurrency scams? Here are some factors to consider before diving headfirst into Bitcoin, Ethereum, or other digital currencies.
Don’t accept any information without verification. Look into the claims regarding any investment, especially if they appear too good to be true or guarantee swift profits. The 2020 Twitter hack was clearly a scam.
Do not trust anyone—officials, public figures, or strangers—who reach out to you directly asking for cryptocurrency payments or presenting you with an “investment opportunity.”
Never disclose your private key or the seed phrase for your cryptocurrency wallet to anyone, and keep that information stored offline, such as in a cold wallet.
Enable multi-factor authentication on all types of cryptocurrency wallets and exchanges you utilize. However, keep in mind that this is not a foolproof method, as demonstrated by the Coinbase hack.
Thoroughly verify website URLs. Scammers executing phishing attempts often replicate the URLs of genuine sites by altering letters and numbers—such as replacing an “l” with a “1” or a “0” with the letter “O.”
Decline any proposal that demands an upfront payment, particularly if it must be paid using cryptocurrency.
Identifying Common Scams
While numerous crypto scams are particular to the digital currency world, many derive from existing scam formats. Some aim at individuals interested in investing in cryptocurrency, while others focus on distributing digital currency to illicitly acquire funds without detection.
Investment Scams
If someone approaches you with a “once in a lifetime” investment offer, you should distance yourself immediately. They often assert that their company or application is on the verge of a breakthrough and that you can get wealthy by joining early. They will aggressively market their product and combine that pitch with a sense of urgency before disappearing with your cash.
Occasionally, this scam takes shape as “investment managers” who offer to grow your assets if you entrust them with your money. They will create what they claim is an investment account for your crypto, but you won’t be able to access those funds unless you pay them a fee.
Other investment scams within the crypto space mimic pyramid schemes. The scammer persuades you to pay them in crypto for the privilege of bringing others into their program, claiming you’ll earn even more money as a result. They state that the more you “invest,” the more substantial your returns will be, but all you end up with is disappointment.
At times, a scam organization will introduce a new cryptocurrency coin or token, alleging that it addresses significant unmet market demands. They will promote their product and encourage you to invest in their coin, claiming it will yield huge returns later before disappearing entirely.
When investing, review the company’s website to see how they ensure consumer protection. Watch for numerous grammatical mistakes and typographical errors, which can indicate a scam. Look for trustworthy reviews from reputable sources. Searching for the company name alongside “review” or “scam” is a good starting point.
Phishing Scams
While traditional phishing scams target your email or banking passwords, crypto phishing scams focus on obtaining the keys to your cryptocurrency wallet. These can also be referred to as “technical support scams,” as the scammer often impersonates tech support to extract your information.
Fraudulent representatives from fake companies—or those pretending to represent legitimate ones—will reach out to you, claiming they can help manage your crypto if you provide your login details. They may also insist they need remote access to your computer or device or ask you to transfer crypto to a dubious wallet address.
Always refrain from sharing sensitive information with individuals who contact you unsolicited, regardless of how convincing or pressing they appear. If they claim to be associated with a reputable company, verify their credentials. For instance, Coinbase advises individuals to only take calls from the support number or email listed on their official website.
Giveaway Scams
Given that some celebrities and public figures frequently discuss crypto on their social media platforms, scammers often conduct fraudulent giveaways using their names and images to extract money from others. They might even respond to the giveaway announcement using fake accounts to lend authenticity to the scam. This scenario occurred when hackers took over Twitter accounts of prominent users to promote phony crypto giveaways. If something seems off or excessively beneficial, it’s best to avoid it.
The scam announcements typically include screenshots designed to make the giveaway appear genuine and a link (or even a QR code) to a site where users can enter. Once on that site, you will be prompted to “verify” your crypto wallet address by sending a payment. Never trust giveaways that require any sort of payment.
If you receive a message on social media or a messaging app like Telegram requesting crypto, disregard it. Genuine companies will not reach out to you unsolicited to ask for payments or login details.
Loader/Load-Up Scams
These scams are bold and involve a person requesting your crypto wallet or credit card details, claiming they require a higher account limit. In return, the scammer promises a portion of the earnings they claim to generate from their investments.
In reality, the victim’s cryptocurrency is taken, and they often find themselves accountable for unauthorized credit card charges. The scammer “loads up” the victim’s account with crypto and then absconds with it all, leaving the victim responsible for any transactions made using their wallet credentials.
Never disclose your details to a third party, even if they assure you can trust them. If you observe this behavior on a legitimate, regulated exchange, report it so they can take action.
How to Report Crypto Scams
If you come across any of these scams or suspect you have fallen victim to one, reach out to the FTC, the Commodity Futures Trading Commission, or the Securities and Exchange Commission.
It’s also wise to report scams to the platforms where these individuals are operating. For example, if a scammer claims to represent the exchange Kraken, it is important for the exchange to be informed. If someone is disseminating fake giveaways on Twitter, report it to Twitter.
As with all scams, safeguarding yourself against crypto-related fraud involves ensuring your data is secure and staying vigilant. Remember, no authentic company will contact you requesting money, and you should not send currency to unknown individuals either.
If an investment opportunity appears too good to be true, it likely is. And if someone demands payment in crypto (or gift cards or wire transfers), it’s a scam. Report them and disregard any further communications.
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