Crypto Scam or Legit? How to Avoid Scams

In recent years, many people have surfed the wave of cryptocurrency excitement. With success stories circulating about the multitudes of people making real money, it’s easy to see why people get excited. If you’re not careful, though, cybercriminals may wield your eagerness against you to make money — they’re certainly not short on ways of doing it. 

Crypto scams come in many shapes and sizes, and affect vulnerable people all over the world. Recent years have seen record highs of crypto scam activity and scammers are raking in the revenue. So, how are cybercriminals doing this? Let’s explore the different types of crypto scams you should be aware of and how to avoid them. 

Understanding Cryptocurrency

Before diving into crypto scams, it’s worth knowing the basics of how cryptocurrency works: Cryptocurrency is essentially a digital currency wherein transactions are verified by a decentralized system using cryptography. It’s created using encryption algorithms and it functions as both a virtual currency and an accounting system. 

Each transaction is recorded on a public “blockchain.” And while it’s often seen as an anonymous method of payment, transactions can be traced back to you if a person has enough information to link you to your digital wallet address. 

New Crypto Coins: “Pump and Dumps”

The term “pump and dump” refers to when scammers intentionally make new crypto coins and get others to invest before “dumping” or shutting down the coin. They might tell you that this new coin is guaranteed to have high return rates, when really they only want to take your money, dump the project, and disappear. 

They will often use Telegram or other social media platforms to target people who are new to the cryptocurrency market. 

By portraying themselves as cryptocurrency veterans, they lure you into trusting their advice. They’ll spend plenty of time chatting with you to build trust and seem genuine. Be extra careful about investing in new and unheard-of coins.

What Are Crypto Scams?

Cryptocurrency scams are schemes that maliciously lure you into transferring your crypto assets or investing in cryptocurrency. Scammers may promise high returns in a short period of time in exchange for your investment in a cryptocurrency or a crypto-related project. 

Many of these scams are pyramid schemes in which early investors earn large profits by recruiting new investors, but the scheme eventually collapses when there are not enough new investors to sustain it. 

Other scams may promise to invest in new or untested cryptocurrencies or to use the investor’s money to purchase goods or services that will be resold for a profit. These schemes often use social media or other online platforms to lure investors, and they can be difficult to spot before it’s too late.

Crypto Scams are Gathering Massive Revenue

According to data published by the Federal Trade Commission, more than 46,000 people in the US have collectively lost over $1 billion since the beginning of 2021. More money was generated from crypto scam revenue than any other type of payment scam. Being highly lucrative and difficult to regulate, crypto scams can easily bypass law enforcement, making them attractive to scammers worldwide. 

Globally, analytics firm Chainalysis reported that cryptocurrency theft increased 516% between 2020 and 2022, resulting in around $14 billion in stolen funds. After scams, one of the biggest causes of stolen crypto funds was theft from cybercriminals who targeted cryptocurrency businesses. Crypto wallet theft and in-transit theft due to bugs in decentralized exchanges have also been major issues for crypto owners to contend with.

Types of Cryptocurrency Scams

Cryptocurrency scammers have a wide array of strategies to catch you in their fraudulent traps. For this reason, it helps to know the different types of crypto scams you might come across to protect yourself from losing your hard-earned money. Below are some of the most common types of cryptocurrency scams you’re likely to see if you want to invest in crypto.

How Are Crypto Scams Possible?

Unlike other types of currency exchange, many world governments don’t have strict laws in place for cryptocurrency. This is partially because cryptocurrency is a relatively new phenomenon but also because people can achieve greater anonymity using cryptocurrency, making it harder to regulate properly. Law enforcement can usually trace money back to a real bank account with regular scams, leading them directly to the perpetrator. 

With cryptocurrency, it’s a lot more complicated than that. Exchanges can be made anonymously and, in general, there’s no modus operandi for tracking down the people behind crypto exchanges. 

While main cryptocurrency exchanges have some fraud protections in place, most of the time, you’re on your own when it comes to stolen funds. Crypto experts also agree it’s better to store your funds in your own wallet than leaving them on the exchange. Not only because exchanges are big targets for cybercriminals, but also because you don’t want a third party to be in charge of your funds. Some exchanges, like coinbase, have frozen people’s accounts in the past.

If you keep your crypto funds in your wallet, you’ll be solely responsible for keeping that wallet secure though. That means, you need to take extra steps to protect the devices you use to store and access funds. That includes following basic cyber hygiene practices, using strong passwords, and securing your connection with a VPN that has premium security features.

Social Engineering Scams

In terms of cyberattacks, social engineering refers to the use of deception to trick people into disclosing personal information which can then be used for fraudulent activity. Scammers use psychological strategies to make their victims’ trust them enough to disclose information or send them money. There are three main types of social engineering attacks that apply to crypto scams: 

1. Phishing: These attacks seek to obtain your personal information by sending you malicious links leading you to phishing landing pages. They often try to incite fear and a sense of urgency to get you to open the link. 
2. Baiting: This is similar to phishing with the key difference that the criminals behind the attacks will try to lure you in with the promise of something for free. In the context of cryptocurrency, they may tell you that you’ll make money by providing your personal details. This is also known as a “quid pro quo” attack
3. Pretexting: Cybercriminals impersonate legitimate bodies, like your bank, and fabricate scenarios wherein you’re required to provide personal details. They then use your details to commit identity theft. 

Romance Scams

Many crypto scams take place on dating platforms where cybercriminals can capitalize on people’s longing for intimate connection. The dating profiles they use are often fake and they are quite willing to spend time building a seemingly genuine connection with victims. 

They gain your trust before eventually asking you to invest or buy cryptocurrency. So, if you meet the person of your dreams on a dating app and they suddenly ask you to invest in a cryptocurrency, ask yourself this: Is this too good to be true? Could this be a romance scam?

Investment Schemes

Many investment scams start with the proposition that investing now will lead to astronomical profits later on. With the cryptocurrency market buzzing with a sense of possibility, it’s easy to want to believe it when someone claiming to be an expert tells you they can guarantee you a big win. Do your research and don’t trust what people tell you.

Remember, crypto is still a volatile investment that can fail at any time, and no crypto coin investment will yield dividends or a guaranteed steady return on profits.

Rug Pulls

These scams involve a team of people raising money for a crypto-related “project.” Once the money is raised they simply disappear with your money or “pull the rug from underneath you.” You lose money with no pathway to recourse. According to a report published in 2021, rug pull scams increased by 81% between 2020 and 2021 and made up 31% of all crypto scams. 

Blackmail Scams

This is when scammers contact you to tell you they have compromising information about you. In exchange for not revealing it to your friends and family, they ask for payment in cryptocurrency. 

Most often, they’ll tell you they have a list of adult sites you’ve visited and unless you pay them, they’ll reveal it to everyone you know (this is commonly referred to as “sextortion”). Don’t respond to these threats, rather, report them to the relevant authority. Blackmail is illegal and should never be entertained. 

Imposter “Giveaway” Scams

These scams typically involve someone pretending to be a well-known figure in the crypto community, such as Vitalik Buterin or Elon Musk. The scammer will then post a fake giveaway of cryptocurrency, promising to double or triple the amount of any coins sent to them. They will often use a fake Twitter or Telegram account to promote the giveaway, and may even create a fake website to look more credible. 

Victims of these scams can lose substantial amounts of money, as there is no way to recover lost funds. Scammers often target people new to the crypto world but may also target people who’ve already invested and are looking for ways to increase their holdings.

Ponzi Schemes

A cryptocurrency Ponzi scheme is a fraudulent investment operation where the operator provides fake or misleading information to trick you into believing that you’ll earn a high return on investment. The operator may use social media and online forums to promote the scheme. 

Once enough people have invested, they’ll make payments to early investors using money from new investors. This creates the appearance of a successful investment, which encourages more people to invest.  Eventually, the scheme will collapse when there are not enough new investors to keep making payments.

Crypto Scam Recovery

Cryptocurrency is a decentralized system, which means it isn’t regulated by most government bodies and there’s often no recourse when you fall victim to fraudulent activities. However, the Blockchain Council recently published advice on increasing your chances of recovering your money. Its advice includes documenting the scam properly and reporting it to the relevant authorities. 

Prevention is still the best form of treatment when it comes to crypto scams. The best thing you can do is educate yourself on the various types of scams, and develop a keen eye for when something seems off.. 

How to Recognize and Avoid Crypto Scams

As someone who has invested and explored the cryptocurrency world, I’m aware of the many pitfalls and truly wish for a world where people can feel comfortable and confident in their investment opportunities. Based on my own experience, and the many warnings I’ve gotten from other investors, I’ve put together 8 red flags to help you recognize a crypto scam:

1. Promises of guaranteed or extremely high returns. Any time someone promises guaranteed profits, it’s a red flag. Cryptocurrency investments are risky, and there are no guarantees in the market.

2. Pressure to buy now. If someone tries to pressure you into making an investment right away, be wary. When someone tries to convince you to act hastily, it’s in their best interest — not yours. A legitimate investment opportunity will still be there tomorrow; a scammer will try to get you to act impulsively.

3. Offers of free or low-cost investments. Free doesn’t exist in the world of investing. If an offer sounds too good to be true, it might be. As innovative as crypto is, it isn’t a magical shortcut to making a bunch of money quickly. If it was, no one would tell you about it!

4. Obscure or complex investment strategies. If you can’t understand how an investment works, be careful before putting any money into it. Scammers often use convoluted language to hide the fact that their offers are really just a gamble.

5. Unsolicited offers. If you didn’t ask for information about an investment opportunity, be suspicious of any unsolicited offers you receive. These could be “pump and dump” schemes designed to exploit novice investors. Legitimate investment opportunities stand on their own merit and don’t need to resort to spam tactics to attract investors.

6. Lack of transparency. Before investing in anything, you should know who’s behind the opportunity and where your money will be going. If a company isn’t willing to provide basic information about itself, it’s probably not worth your time or money.

7. Guarantees of anonymity or privacy. In general, investments that guarantee anonymity or privacy should be avoided. These could be Ponzi schemes that rely on new investors to keep the scheme going — until it eventually collapses and everyone loses their money.

8. Name-dropping or celebrity endorsements. If a scammer name-drops or claims to have celebrity endorsements, do some research before handing over any money. These could be faked testimonials designed to trick you into thinking the investment is legitimate. 

Can CyberGhost VPN Protect You?

VPNs are the digital version of Harry Potter’s famous invisibility cloak.When you connect to a VPN, your traffic is routed through a server before it reaches its destination. This server encrypts your data and masks your IP address, making it impossible for cybercriminals to snoop on all your online activity.

You can browse the web without websites being able to track your location or device IP address. This can be helpful if you stray onto fake cryptocurrency sites containing malware or for keeping important transaction details safe. If you’re investing in cryptocurrency, keeping your wallet ID and exchange login details hidden from snoopers should be a top priority for you.

CyberGhost VPN is a powerful tool that offers advanced encryption and IP address protection to protect your crypto payments. With 116 server locations in 91 countries, 256-bit AES encryption, and a strict No Logs policy, you can feel confident that your connection and location information will be safely concealed, so snoopers can’t steal your crypto credentials. 

Yet, even the best VPNs can’t protect against social engineering scams. Once the scammers have this information, they can gain access to your account and steal your coins. To protect yourself from these scams, it’s important to be aware of how they work and to never reveal your personal information to anyone.

Treading Carefully In the Crypto World

The internet opens you up to many different types of scams and cybercriminals know that legal systems in most countries have a limited capacity for tracking them down. Due to its anonymous nature, cryptocurrency is no exception, and many investors have reported being scammed. To protect yourself from these types of crimes, it’s important to educate yourself about the most common strategies crypto criminals use. 

While we can only protect you against social engineering attacks by educating you about them, we can protect you against a number of common online attacks by encrypting your connection and concealing your IP Address. CyberGhost VPN is known for its military-grade encryption, fast browsing speeds, and high reliability. Protect yourself today with CyberGhost VPN.

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