In this guide, we will take you through how to tackle the darker side of crypto investments by covering the 5 most common cryptocurrency scams!
The timing of this guide could not be more perfect as right now, the crypto world is in a frenzy as well-known digital currencies such as ETH push through the tail end of a crypto ‘nuclear winter’ that looks to be finally over.
This positive ‘new look’ bull market has also seen the floodgates open for lesser-known cryptos like LEND which is rising the ranks of the crypto world reporting an increase of over 1500% halfway through Q3 of 2020!
Check out our most recent report reviewing the 10 best cryptos for 2020 here…
Unfortunately, where there is good there will also be a small element of evil!
Where there is money, there will always be a select few looking to ruin the party and gate-crash your crypto investment or your hard-earned cash, and most of the time they do not care how they do it. These ruthless individuals and/or groups of crypto extortionists plague the industry using numerous unscrupulous tactics.
There are numerous scams such as Ponzi schemes, fake emails, fake exchanges that simply take your crypto and never exchange it, and there are even fake cryptocurrencies out there claiming to be the next best crypto on the market!
Some get caught, for example, Bernard Lawrence Madoff was handed a mammoth 150-year prison sentence for his part in a Ponzi scheme, while there will always be those that get away with it. If there is one thing that really gets under a crypto investor’s skin, it is those that get away their faceless crime because there is little chance of being caught due to the anonymity of crypto transactions.
If you loath these fraudsters as much as everyone else does within the crypto community, then you should be doing everything you can to make sure the cyber-criminals have ‘zero’ chance of getting hold of your crypto!
This is exactly why we are going to give you the top 5 most common cryptocurrency scams and how you can avoid being a victim!
1. Ponzi Schemes
Although the cryptocurrency market is increasingly regulated, that does not mean that Ponzi schemes are any less of a threat. As recently as 2019 a ‘pyramid scheme’ was uncovered when the BitClub Network was finally exposed for a fraud worth $722 million!
Even in light of Bernie Madoff’s Ponzi scheme, BitClub Network managed to get away with their scam without being detected. However, after a deep look into the ICO, its owners' elaborate plans to rip off investors came to light in a ruse that solicited investment from interested parties by rewarding them with mining pool shares.
On top of this, there was a referral program that gave current investors more shares for bringing in new investors. In the end, this strategy would come to a crashing end and none of the investors could cash in on their newfound shares.
There are numerous other stories out there with similar stories of investors losing their hard-earned cash to crypto Ponzi schemes, and so you will need to be prepared!
How to avoid Ponzi scams:
A. Beware of ICOs that make promises that any regulated investment opportunity would not usually be able to make. That includes promises that seem too good to be true.
B. Be wary of referal programs that give you shares. Make sure you check the terms and conditions. Also, check the planned financial path the ICO plans to take using any such referal programs. The entire financial operation should be transparent.
C. Do your research. Check the ICOs white papers, and also see what other people are saying about this ICO on the web. A pretty website and crypto jargon should not be enough to convince you to invest your money.
D. Check where the ICO is registered, how is it regulated, which jurisdiction does the company fall under, and are you covered by local laws – for example, an ICO with an EU registered company will fall under EU consumer rights, financial, and business laws.
F. Make sure the account will be held in your name and question where the account will be held - such as the custodial service being used by the ICO. You should also be given teh freedom to make withdrwals and cash in on your investment at certain times or time that you choose.
2. Malware Scams
One of the oldest tricks in the book using by hackers is digital Malware. In one way you have to give credit to hackers for coming up with small pieces of code that can gather information on the sly. However, we draw the line when the code is used to defraud people of their money!
Malware cleverly infiltrates any device connected to the net and actively seeks out usernames, passwords, names, addresses, credit card numbers, and your all precious ‘private key’.
That means if you use an online crypto wallet, your wallet could be at risk if you are not protecting your devices against malware.
How to avoid crypto hacks:
Check out our 5 Tips on How You Can Keep Your Crypto Safe where you will learn how to fully protect your devices from hackers using the 5 tips below:
· Use Multiple Crypto Wallets
· Use Strong Passwords With 2-Factor Authentication
· Secure Your Devices & Connections
· Secure Your Private Keys
· Follow Crypto Transaction Best Practices
3. Fake Crypto Exchanges, Casino, and eComm Websites
Crypto transactions are mostly anonymous, so there are tons of websites out there that take advantage of this fact. They claim to be the real deal but in the end, the website is just there to syphon as much crypto out of unsuspecting would-be customers.
Fake Crypto Exchanges
There are not many fake crypto exchanges out there anymore, but they do still exist. Worst of all, they are pretty websites that look legit and make it extremely easy to make an exchange.
Some even go as far as following through on your initial exchanges with amazingly low rates hoping to catch you when you decide to put through a larger transaction, then suddenly your exchange fails and your account is suddenly inaccessible, while support ignores your requests for rectification.
One such firm that got away with this for a length of time was the Korean born exchange BitKRX. The exchange had everything from claiming to be licensed and regulated to low rates on their exchanges to entice people into using their website.
· Once your crypto is on the exchange you may not get it back
· Fake exchanges usually offer attractively low fees
Fake Crypto Casinos
As cryptos are anonymous, there are also plenty of fake websites out there. There are plenty of unlicensed casinos out there that will offer you an unbelievable welcome bonus and either take your crypto without offering any games, deny your crypto came through, or when you do win, they simply do not payout.
· Deny that your transaction was received even though blockchain says it has
· No games available or your withdrwals never prevail
Fake Crypto eComm Sites
Most eComm sites do not need to operate with license so its much harder to perform due diligence. These sites can literally offer you any product, service, gift cards, or digital product. The only scam here is that once you pay by crypto, the goods are a no show and there is no response from support.
· Very difficult to tell if an eComm site is legit
· After your order, your account usually disappears and goods do not turn up
How to avoid fake exchanges, casino, and eComm websites:
A. Test the website's support services to see if they respond to your questions. Sometimes a fake service has no support at all. Albeit some do have a support team that is either knowingly defrauds you, or they think they are offering a legit service and do not know they are working for fraudsters.
B. Look for licensing and jurisdiction information. Check that the exchange is registered with said authorities because most fake exchanges or casinos will claim they are licensed even though they are not. It’s one of the oldest tricks in the book to look legit. People see the branded government licenses, stamps, and logos and fall hook, line, and sinker without doing the proper due diligence.
C. Look for reviews online about the website. If it is scamming people out of their money, then the chances are it is all over the web. The issue is that sometimes you may not spot complaints of fraud because they are not in English so be aware of this too.
D. Most legit crryptocurrency services will have social media accounts, so you can usually find out whether they are a fraud or not just from their Facebook and/or Twitter accounts.
E. Stick with popular well-known exchange services, crypto casinos and eComm websites. There are tons of websites out there that offer advice on ‘the best cryptocurrency exchanges in [Your Country]’. A simple Google, Bing, or Yahoo search will reveal the most trustworthy exchanges to use in your country.
F: If you are very lucky, by entering the wallet's public address into a search engine, you may find other people saying 'never send crypto here'. It is rare, but sometimes this trick can save you a loss.
4. Old School Email Phishing Scams
You may have heard about the recent Paypal scams happening across the globe. Although many other eWallets are also victim to the same scam, the latest PayPal email phishing fraud.
Well, we are going to walk you through this scam. Although PayPal is not a cryptocurrency website, it is a perfect example of how this fraud can and has been pulled off within the crypto sphere. it is a simple scam by design and nature, but one that is unfortunately well executed.
Firstly, an email comes through from PayPal that looks exactly like any other PayPal email. The only way you can tell it is not from the eWallet provider is by closely looking at the email address it came from and how the email addresses you, which by all accounts, all victims of this crime failed to spot.
Now one way to instantly tell this email is a fraud is that PayPal will always address you by your name ‘Hello [Your Name]’ while these emails impersonating PayPal do not use your name or full name!
Usually, the email makes one of the following claims:
· Your account needs further verification
· There is a dispute against your account
· Please verify your personal information
· You need to verify a transaction
There are numerous other reasons given all designed to get you to click on the very ‘PayPal’ looking click-through box which takes you to a PayPal login screen. Now here is the next clever part of this ruthless scam. When you do click through, you will be looking at a carbon copy of the actual PayPal website!
Next, the PayPal user enters his or her username and password. Once done, the person is redirected to the original PayPal website login screen. Confused, the person logins ‘again’, this time to their original PayPal account only to discover there no information about the issue stated in the email. Believing that PayPal made a mistake, they log off and go about their daily business.
Meanwhile, the people that designed this fraud alleviate the account of all funds. As you can imagine, thousands of people are falling for this scam even after widespread publicity, and this could very easily happen to your crypto wallet. Moreover, PayPal will not refund these people either because it was not PayPal that assisted the hackers to gain access.
It is also worth noting, not protecting yourself by using anti-malware can be the cause of this fraud. Via the use of malware, the scammers can usually tell if you have an account with a certain crypto wallet and then device their plan to defraud you via email.
How To Avoid Email Scams:
A. Use Two-Factor-Authentication (2FA) if available. This will be a huge stumbling point even if your account username and password is discovered.
B. Make sure you never use the same password for your crypto account as your email. The hackers next step if met with 2FA will be to try your email.
C. When you set up 2FA, use SMS or an authentication method that is set up on your phone and not your email address.
D. Always check the website URL and email address. Also, look for other common traits of authentic emails that the hackers have not copied such as in the example above we mentioned that PayPal will always use your name.
5. Free Cryptocurrency Scams
Last on our list but also one that seems to catch out a lot of crypto investors is the ‘free cryptocurrency scam’.
These are usually advertised on Twitter and Facebook, as well as crypto forums whereby you will either be given an interest-free loan by sending crypto in exchange for more or literally the scammers, are brazen enough to claim that they are going to give you free BTC or ETH.
Usually, these firms use a famous cryptocurrency influencer to exercise their scam. All you need to do is send 1 BTC and you will receive 5x or even 10x that amount back. It’s pretty amazing to learn that there are tons of people out there that fall this nonsense. There is no way any company is going to give you free crypto in exchange for you sending them yours.
Now the scam here is not the man with a cup in Las Vegas saying “Can I borrow some money and I’ll meet you’re here tomorrow and pay you back double”. Oh by the way “Here take my phone number” – obviously so you can trust me!
Instead, the trick to this scam working for the con artists involved is by looking as legit as possible. They use accounts that look real, and in some cases, they hack real influencer’s accounts to operate their scam.
Some even have websites fully prepared for this, so once they get people off the social media platform and onto a newsletter with email, a live chat app, or some other form of communication, they work their ruthless scam to gain trust resulting in people sending their crypto.
How To Avoid Free Crypto Scams:
There is only really one answer to this. Just never believ that these scams are true. People do not giveaway crypto for free, so there is no need for a long list of bullet points to check if the claim is legitimate because it never is!
In this guide to the '5 Most common Cryptocurrency Scams and How Should You Avoid Them?' there are just 5 scams covered. Be warned that there are tons more out there.
Crypto fraudsters have, and always will have, a barrage of tricks up their sleeves used for siphoning funds from unsuspecting cryptocurrency users. It is very much the same as the fiat currency/banking industry where fraud has long been an issue.
As long as you are aware of how to protect yourself against the cunning trickery of unethical and heartless hackers who do not care how badly stealing your crypto will affect your life, then in theory, you will never fall victim to crypto fraud!