Cryptocurrencies have taken the globe by storm, providing a means to perform decentralized and secure financial transactions. However, as these new technologies have gained the limelight, new frauds have also surfaced, surprising many. The world of cryptocurrency is a double-edged sword: on one hand, it offers the possibility of financial independence, while on the other, it is also worrisome and, at times, dangerous for traders.
Because of this fast-paced digital world, information is power, and ignorance can cost a lot of money. Imagine investing your hard-earned money in what looks like a profitable cryptocurrency business, only to discover later that it is nothing but a fancy scam. This also leads to potential catastrophic emotional and financial consequences for investors.
In this edition of ‘Dumb Ways To Lose Money,’ we will explore the top crypto investment scams that have happened in the past and how you can stay safe from them. From faulty exchanges to Ponzi schemes, we leave no stone unturned. So, read along and get ready to shield yourself against the ever-growing scamming villains!
Types Of Crypto Scams
Scammers find new ways to con investors and transfer their hard-earned money to their accounts. To ensure you’re aware of crypto scams, here’s a table of the types of crypto scams. By carefully analyzing them, you can strategise your methods and shield yourself from them:
Scam Type | Description |
Romance Scams | Scammers get on dating or related apps to lure people, keeping the interactions strictly online. They try and create trust with people online. Over time, they convince the person to offer or buy money, mostly in crypto. Once scammers receive the money, they disappear and clear any traces of their presence. In short, fraudsters fabricate online personas to win over victims’ affection and trust and then trick them into providing money or personal data. Read our blog on how to ditch Romance Scams and stay ahead of the curve! |
Social Media Scams | Scammers use social media channels to disseminate disinformation, phishing links, and fake investment proposals. With the help of bots, there are accounts that post about upcoming cryptocurrency projects which in fact, are mostly fake, thereby luring investors. |
Rug Pulls | Rug pulls in the Bitcoin space happen when programmers (scammers) give up on a project and steal money from investors. Once these scammers steal the money, they disappear with the funding received. The program incorporated in these investments prevents investors from selling cryptocurrencies after purchase. This leaves their (investors) investment meaningless. Thodex Exchange Disappearance is one such example of a rug pull scam. |
Ponzi Schemes | Ponzi schemes offer great profits but use new investors’ cash to pay off previous investors. As there are no legitimate investments, the funds are always in a loop, which eventually crashes. The primary draw of a Ponzi scam is the promise of big riches with minimal risk. However, these investments are always risky, as there are no promises of profits. Some real-life examples of Ponzi schemes are the BitConnect and the Wotoken scams. |
Bitcoin Investment Scams | Swindlers use exaggerated profits as an enticement to trick victims into believing they are investing in Bitcoin. At first, scammers ask traders to pay “upfront fees” to invest in a scheme. The scammers steal the upfront fees collected and ask for the traders’ personal information. They also claim that they are requesting a trader’s personal information to transfer funds, which helps the scammer access a person’s cryptocurrency. |
Faulty Exchanges | Some cryptocurrency exchanges may be unlicensed or lacking in adequate security measures, putting investors’ cash at risk. Scammers may entice investors in with claims of a huge bitcoin exchange. However, there is no exchange, and the investor does not realize it is a scam until after losing their money. Use trusted exchanges like Binance, Coinbase, and WazirX to avoid getting scammed. |
AI Crypto Scams | Scammers advertise fake Bitcoin ventures or investment possibilities using material or identities created by AI. With the help of AI chatbots, scammers can now interact with people by offering false advice and endorsing bogus tokens. Additionally, these AI chatbots are programmed to offer investment schemes that sound real enough to secure investments. |
Giveaways and Fake Celebrity Scams | You must have come across innumerable posts on social media regarding Bitcoin Giveaways. Scammers construct bogus giveaway campaigns, imitating celebrities, influencers, or businesses to steal personal information or money. |
Phishing | Scammers send false emails, websites, or texts to deceive victims into disclosing personal information or installing malware. They do this in an attempt to obtain personal data, particularly data from digital currency wallets. Unlike passwords, the private key for each user’s digital wallet is unique. If this key is lost, resolving the issue will be challenging. Since each key is unique, changing it requires creating a new wallet. |
Cloud Mining | Some cloud mining services could be deceptive. A cloud mining firm offers quick money by allowing you to “rent” its mining capacity. They’ll promise huge profits with little to no work on your end. This requires customers to pay for mining capacity that doesn’t exist or never get the promised profits. Some could even function similarly to Ponzi schemes, paying off previous investors with funds from new ones. HashOcean and Genesis Mining are examples of cloud mining scams. |
Pump-and-dump scams | This scheme involves scammers raising the price of a cryptocurrency through deceptive advertising before selling their holdings, which leads to a plummet in prices. Thereby, scammers swiftly sell their holdings, driving the price to fall and leaving naive investors with bogus tokens. One such popular pump-and-dump scheme example is the FTX scam. |
“Third-party situation” scam | Scammers can steal users’ information when they log into a cryptocurrency account in a public domain. They can also interpret sensitive data like cryptocurrency wallet keys and other account information. By obtaining Wi-Fi signals on trusted networks, fraudsters can use the “Third-party approach”. In this manner, scammers can steal money, alter or intercept transactions, or get unauthorized access to accounts or systems. |
Real-Life Examples Of Top Crypto Scams
Now that you have understood the trending types of scams, now is the time to dive deep into real-life scenarios.
From individuals to organizations, these scammers have left no stone unturned. Read along to understand how intricate and dangerous these scams are:
1. The Fall of FTX
The downfall of FTX is one of the largest and most famous cryptocurrency exchanges that sent tremors through the cryptocurrency industry around the end of 2022. What began as whispers quickly escalated into a liquidity crisis, exposing a convoluted consumer money mismanagement network. This resulted in noticing risky investing and a lack of clear information.
With the FTX scam, investors were cheated of at least $10 billion. Sam Bankman-Fried, FTX’s founder and former CEO, lost his $16 billion fortune in a couple of days when the company declared bankruptcy. Overnight, the crypto poster child had become the symbol of everything wrong with the sector, including greed, arrogance, and insufficient governance.
2. The GainBitcoin Ponzi Scheme Scam
GainBitcoin, a classic Ponzi scam, defrauded approximately one million individuals before collapsing. The GainBitcoin sales pitch, which promised daily profits on investment doubled by the number of recruits, first appeared nearly realistic. But in reality, the whole thing was just a digital take on a pyramid scam.
GainBitcoin attracted various investors from more than 180 countries with its consistent passive income guarantee. This was fueled by “bitcoin mining” and “trading on cryptocurrency exchanges.” Referral bonuses and slick marketing efforts fueled the flames.
In the traditional Ponzi scheme, initial participants profited handsomely for a period by paying with recruits’ money. However, the plan fell apart in July 2017 as funding eventually ceased. The scammers behind the scheme disappeared overnight, stealing around Rs 6,606 crores from investors in an exit scam.
Following that, law enforcement officials were able to locate and bring charges against a few of GainBitcoin’s operators worldwide. But the losses were already irrevocable for the majority of victims.
3. STA Token
Sam Bourji, aka the “Crypto King,” carried out the STA Token fraud. This cautionary tale reminds us that there are no such things as “influencers,” even among ourselves.
In 2018, Initial Coin Offerings (ICOs) became the subject of intense media attention. Bourji introduced STA Token, which he pitched to early investors as a return on investment and a safe cryptocurrency transaction. Bourji also paid for celebrity endorsements, YouTube tirades from supercars, and unwavering assertions that STA Token will soon be valued in the billions.
The price of STA Token briefly rose, which encouraged Bourji’s actions even more. The money from the ICO was used to finance his extravagant house and automobile purchases and the creation of his Bitcoin education program.
However, as news of Bourji taking out tens of millions of dollars surfaced amid radio silence on the project’s objectives, the value of STA Token fell in the middle of 2019. The crypto monarch has virtually yanked the rug out from under the investors, leaving them holding just the bag. Subsequently, investigations exposed that the STA Token business was a complex fraud.
There was never any development or use case beyond the initial coin issue. It was a cunning scam that exploited people’s FOMO for cryptocurrencies. While some of Bourji’s assets were confiscated, he managed to scam investors out of over Rs. 1,000 crores.
How To Avoid Crypto Scams
Scammers always find new ways to steal your digital assets, despite how aware and safe you are. Here are a few points to know that can help you secure your investments-
Check For Verified Links
It is important to always check if the link you click has HTTPS and not just HTTP. The cryptocurrency exchange or wallet with a verified URL means it has encrypted traffic and is secure.
Beware Of Scammers Offering Free Money
Scammers impersonate celebrities and other public figures who will ask you to invest or offer free money for a certain scheme. Always remember that celebrities do not offer free money. Verify such sources and avoid falling into such traps.
Avoid Falling Prey To Quick Money Schemes
Steer clear from enterprises and fund managers who let you know they can rapidly grow your money. They are mostly bogus, and you’ll end up losing more money.
Never Grant Access To Your Private Keys
Private keys control your access to your crypto wallet. To stay secure, do not let others know of your private keys. If you suspect unusual activity, hold your transaction until you are sure of a secure transaction.
Verify Text Messages And Emails You Receive
A well-known establishment will never send a message or email stating they’ll help you “unfreeze” your account.
If you also get an email or text claiming to be from a government agency stating your account has been frozen, contact a regulatory agency immediately. Instead of reacting to the message or contacting their number, consult an agency’s official website for more information.
(False) Promises Of Converting Cash To Crypto
You may find listings stating that they will convert your cash to crypto and vice versa. Report it. Scammers use this technique to intrigue you and ultimately scam you.
Using Reputed Exchanges And Wallets
Using reputed crypto exchanges while trading is essential as they are secure and verified exchanges and wallets for trades. It is also difficult for scammers to try their tricks on reputable exchanges. Some of the popular wallets you can use are Exodusor MetaMask (hot wallets), Ledger, or Bitbox (cold wallets).
Want to know more about crypto whitelist scams? Read our detailed blog to gain more insights!
Proven Ways to Protect Your Cryptocurrencies
After knowing how to avoid crypto scams, it is also essential to learn how to protect your cryptocurrencies to avoid pitfalls. Here are a few ways to do so:
- Verify when someone promises you quick money or unrealistic profits.
- Do not trade cash for cryptocurrency. Always accept only cryptocurrency as payment.
- Look for grammar and spelling mistakes in emails, posts on social media, and other written communication.
- Look for red flags, such as very little information on investment and money movements. Always research in detail to avoid getting scammed.
- Avoid getting into situations of blackmail and other threats.
- Read the contract documents carefully before you click on ‘I Agree’.
- Avoid making several transactions on the same day.
- Do not fall into fake celebrity or brand endorsements of a certain cryptocurrency.
- Enable two-factor authentication (2FA) and protect your private and public keys.
How To Report A Crypto Scam
If you fall prey to a crypto scam, here are a few resources you can refer to and report the scam:
Residents Of India
If you are residing in India, here are the steps to report the scam:
- Collect evidence like messages, emails, and transaction IDs and complain to your local police.
- Post that, speak about the incident with the nearest cybercrime cell.
- Inform regulatory agencies such as the Securities and Exchange Board of India or the Reserve Bank of India about the Bitcoin scam.
- Use the National Cybercrime Reporting Portal (NCRP). Through their portal, you can complain about cybercrimes.
- Report the fraud to consumer protection agencies so they can provide you with an investigation or step-by-step instructions.
USA And The Rest Of The World
If trading cryptocurrency is legalised in your country, here are the recommended channels for reporting cryptocurrency scams-
1. Reduced Volatility And Risk
The Federal Trade Commission is a government organization that protects consumers from misleading and unfair corporate practices. Their online fraud reporting program allows you to report Bitcoin scams.
2. Commodity Futures Trading Commission (CFTC)
The CFTC regulates the derivatives market, which includes bitcoin futures and options. Through their online complaint system, you may report cryptocurrency fraud, manipulation, or misbehaviour.
3. Securities and Exchange Commission (SEC)
The SEC oversees the securities markets, including some cryptocurrency offerings. You can submit a suspected cryptocurrency fraud involving securities using their online system for tips, complaints, and referrals.
4. Federal Bureau of Investigation Internet Crime Complaint Center (FBI- IC3)
The FBI’s IC3 serves as a single point for reporting criminal activity connected to the internet, including fraud involving cryptocurrencies. By using their IC3 website, you can register a complaint.
Conclusion
A thief never aims at an iron rod but a gold necklace. The very same happens with cryptocurrencies. With their glittering growth and profitable properties, scammers (or online thieves) crave easy money by luring and cheating innocent investors.
However, there are those too who have skipped these pits and holes. Of course, there are ways to shield yourself from such scams and keep your assets safe and secure. Successful crypto traders have learned from mistakes, stayed disciplined and consistent, and extensively researched.
It is also important not to put all your eggs into the same basket. As a crypto trader, diversifying your portfolio is essential to avoid losing your investments. At KoinX, we help traders like you track your extensive trading portfolio. With that, we also help you generate accurate tax reports, filter out spam tokens, and a lot more. So, sign up today with KoinX, explore our sea of features, and stay ahead of all the loops and curves in no time.
We hope this piece of ‘Dumb Ways To Lose Money’ sparked your thoughts on the various ways scammers think of stealing digital assets. As technology evolves, scammers find loopholes to steal more. We shall keep updating our list of the various scams that take place. Till then, stay safe, watch out for more scams, and protect your digital assets.
