Cryptocurrency Scams: A Guide to Protecting Your Investments
As cryptocurrency and Bitcoin hit all-time highs, scams are unfortunately on the rise. In 2023, reported fraud losses hit over $5.6 billion, and with prices soaring in 2024, scammers are finding new ways to take advantage of investors. This guide covers common scams and how to stay safe.
Digital currency itself involves storing funds in a digital wallet and converting it to cash through bank transfers. Cryptocurrency differs by leveraging blockchain verification and lacking a central authority like a bank; this makes recovery from theft more difficult. Criminals are constantly adapting existing tactics, with some of the following methods being quite common:
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Bitcoin Investment Schemes: These schemes, the most frequent fraud reported to the FBI, involve scammers impersonating “investment managers” who promise exceptional returns from cryptocurrency investments. They often request upfront fees and personal information under the guise of facilitating transfers, ultimately stealing the victim’s funds.
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Rug Pull Scams: Here, scammers “pump up” new projects, NFTs, or coins to get money. After receiving investment, they vanish with the funds. A common example is a fake Initial Coin Offering (ICO), such as the Squid coin scam, where investors lost money after trading was stopped.
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Romance Scams: These scams feature online relationships, sometimes long-distance, built on trust. Eventually, one party persuades the other to invest in cryptocurrency, but the scammer disappears after the investment. These are also called “pig butchering scams.” According to the FTC, romance scammers cost consumers $1.179 billion in 2023.
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Phishing Scams: Scammers send emails with malicious links to fake websites to harvest personal details, such as cryptocurrency wallet key information. Unlike passwords, users only get a unique private key to digital wallets, and it’s difficult to change this key if stolen.
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Man-in-the-Middle Attacks: When people log in to their cryptocurrency accounts on public Wi-Fi networks, scammers can intercept private information like passwords and wallet keys. One should use a VPN to avoid this.
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Social Media Cryptocurrency Giveaway Scams: Fraudulent social media posts promise Bitcoin giveaways, sometimes with fake celebrity endorsements. Clicking the link directs people to a fraudulent site asking for a payment to verify the account. This can result in loss of funds and, worse, stolen personal information.
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Ponzi Schemes: These scams pay earlier investors proceeds from new investors. Scammers lure newcomers with the promise of huge profits with little risk. The absence of legitimate investments means the scheme relies on constantly finding fresh investors.
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Fake Cryptocurrency Exchanges: Scammers lure investors by promising great cryptocurrency exchanges – sometimes even extra Bitcoin—but the exchange is non-existent. Stick to well-known exchange markets like Coinbase, Crypto.com, and Cash App.
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Employment Offers and Fraudulent Employees: Scammers impersonate recruiters or job seekers to get access to cryptocurrency accounts, and often seek payment through cryptocurrency for job training or working remotely. North Korean IT freelancers, for example, are targeting cryptocurrency companies by posing as U.S.-based remote workers.
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Flash Loan Attacks: Flash loans are loans for short periods, used by traders to buy tokens on one platform for a low price and sell them immediately on another for profit. Attackers sometimes exploit this to manipulate prices on a decentralized finance platform. In February 2023, Platypus Finance experienced an $8.5 million loss due to a flash loan.
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AI Scams: Attackers use AI chatbots to provide advice and promote fake tokens. AI can manipulate things like proof of work and create deepfakes of celebrities to promote fake endorsement schemes. Key red flags involve the promise of high returns in a short time.
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Bitcoin ATMs (BTMs): Scammers exploit these devices to trick people into transferring money. They often impersonate legitimate companies and instruct the person to deposit cash into the BTM by scanning a QR code, sending money to the scammer’s wallet.
How to Protect Your Cryptocurrency
Watch out for these red flags:
- Promises of large gains
- Payment only in cryptocurrency
- Contractual obligations
- Misspellings and grammatical errors
- Manipulation tactics
- Promises of free money
- Fake influencers/celebrity endorsements
- Minimal details about the investment
- Several transactions in a day
Safeguard your digital wallets with strong passwords, secure connections (VPNs), and choosing safe storage methods. Remember, cryptocurrency is not FDIC insured. Never share private keys with anyone, and report suspicious activity immediately.
How to Report a Scam
If you suspect or have been a victim of a cryptocurrency scam, report it to the following organizations:
- Commodity Futures Trading Commission (CFTC): CFTC.gov/complaint
- Federal Trade Commission (FTC): ReportFraud.ftc.gov
- Internet Crime Complaint Center (IC3): ic3.gov
- U.S. Securities and Exchange Commission (SEC): sec.gov/tcr
Also, report the incident to the cryptocurrency exchange you used for the transaction.
