Don’t trust people who promise you can quickly and easily make money in the crypto

If you meet someone on a dating site or app, and they want to show you how to invest in crypto, or asks you to send them crypto, that’s a scam.

Initial coin offerings (ICOs) are an important element of the cryptocurrency ecosystem, providing a strategic opportunity for investors to get in on the ground floor of a particular asset while enabling cryptocurrency startups to secure the requisite levels of funding to launch their coins or tokens. Typically, the anatomy of an ICO scam is quite simple and involves: 1) creating a token, 2) hyping it via false and/or misleading claims, 3) providing limited or opaque information, and, finally, 4) diverting the funding in order to use it for other purposes.

Luckily, there are a number of red flags that you should never ignore. In fact, the presence of any of the following means that you should proceed with extreme caution (or abandon your interest entirely). These include a lack or a white paper (or one short on details), limited, if any, details about the actual team members and their respective backgrounds and qualifications, embellished or baseless claims (often seasoned with a pinch of FOMO or “fear of missing out”), an unrealistic budget structure, unrealistic projected returns, and a general lack of feasibility.

As their name suggests, peer-to-peer transactions can often involve removing the intermediary (in the case of crypto, the exchange platform) from the trading equation, leaving you free to buy and sell crypto directly. While there is nothing inherently wrong with this approach, it does result in certain levels of exposure, which can increase your chances of inadvertently falling prey to scammers. As with most things, caution is key.

Of course, there are a range of clever tricks that scammers can use to dupe unsuspecting traders on peer-to-peer trading platforms, from mixing dots and commas (e.g. 2,900 versus 2.900), the use of ghost platforms and address spoofing to chargebacks and man-in-the-middle attacks, among others.

Remember that e-mail from our Nigerian friend promising millions at the beginning of this article? That’s a classic phishing scam in which the sender attempts to reel you in by tricking you into providing private information that can then be used to compromise your financial accounts and personal identity. However, Nigerian lawyers and princes flush with millions in recent cash don’t have the market cornered when it comes to phishing scams. The crypto space is swimming in phishing scams (see what we did there) and below we take a look at some of the more prevalent ones.

In 1996, Dolly the sheep was the first mammal to have been cloned successfully from an adult cell—the same animal but nevertheless an entirely different one. Clone sites operate under the same principle—a site that seems the same, but is completely fake. Scammers will take a legitimate site and clone it, hoping that unsuspecting traders won’t be able to spot the differences before entering and uploading their personal information. One way to avoid this scam is to pay close attention to the website’s URL. If there are any anomalies, then you might very well have identified a phishing site. Don’t feel too bad, though, if you find yourself having a hard time discerning crypto fact from crypto fiction. Even Google has been unable to keep up with the increasing number of websites that are clones of the official web page from companies that provide mining device sales, wallets, full nodes, paper wallet tools, and popular trading platforms.

However, there’s more to phishing scams than spoofing websites. In 2017, for example, the South Korean government and local financial authorities warned investors about the emergence of fake cryptocurrency and Bitcoin exchanges. The fake exchange “BitKRX” was named after Korea Exchange (KRX), the largest financial trading platform in South Korea, which had been established by KOSDAQ, South Korea Futures Exchange and South Korea Stock Exchange. Through a bit of clever branding, the fake exchange was made to look like the largest trading platform in the country, but it was as real as a Louis Vuitton bag in a Chinese marketplace. According to one estimate, there are approximately 643 crypto exchanges currently in operation (as of this writing). That’s a lot of exchanges, and choosing the safe and secure one to meet your needs can be confusing. As a helpful primer, we’ve written an article covering the best ones for 2023 based on criteria such as reputation, fees, payment options, KYC verification and geoblocking.

However, there’s more to phishing scams than spoofing websites. In 2017, for example, the South Korean government and local financial authorities warned investors about the emergence of fake cryptocurrency and Bitcoin exchanges. The fake exchange “BitKRX” was named after Korea Exchange (KRX), the largest financial trading platform in South Korea, which had been established by KOSDAQ, South Korea Futures Exchange and South Korea Stock Exchange. Through a bit of clever branding, the fake exchange was made to look like the largest trading platform in the country, but it was as real as a Louis Vuitton bag in a Chinese marketplace. According to one estimate, there are approximately 643 crypto exchanges currently in operation (as of this writing). That’s a lot of exchanges, and choosing the safe and secure one to meet your needs can be confusing. As a helpful primer, we’ve written an article covering the best ones for 2023 based on criteria such as reputation, fees, payment options, KYC verification and geoblocking.

By now, everyone should know that any confidential information already stored by traditional financial companies and fintech or cryptocurrency platforms will never need to be “verified” by someone from that company or service, especially by e-mail. As with cloned websites, scammers will try to make the e-mail message look official by borrowing logos, creating an e-mail address that seems almost identical to the company’s address and using similar usernames. When in doubt, always communicate directly with the platform and verify any and all communication to ensure the safety of your confidential information.

Vishing is just like phishing, you’re thinking to yourself. Well, you’re partially right. Vishing is phishing using a phone, but scammers can deploy high-tech methods such as automated voice simulators and harvesting information that might have been leaked on the dark web. But there’s more to vishing than meets the eye.

Some vishing scammers will not contact you directly, but rather your phone company. After finding out your phone number and even your identification number and address thanks to something as benign as a stolen invoice, the attacker contacts the company to transfer your line to a new SIM card, which they control.

“Giveaway gangs” are thriving. During the first three months of 2021 alone, they’ve already hauled in more than $18million (analysts estimate the total for 2020 was in the region of $16million), with tens of thousands of people falling victim to these scams annually.

Earlier this year in March, the BBC covered the case of a German man from Cologne named “Sebastian,” who clicked on a Twitter notification from what he thought was Elon Musk’s account. His click landed him on a professional-looking website with the giveaway already underway. Fearing that he might miss out on the opportunity to double his holdings, he sent 10 Bitcoin. And waited. And waited. As the sweepstakes timer wound down to zero, Sebastian was forced to face the reality of the situation: the Tweet, website and sweepstakes were all one big scam.

A coin or token is hyped by a group of individuals through an e-mail blast and social media such as Telegram, Facebook and Twitter. Fearing that they might miss out (FOMO) on this incredible opportunity, traders rush to buy up the coins, thereby driving the price up until the coins are eventually dumped by the group of scammers. A crash ensues, with the value of the asset plummeting. Pump and dump schemes have attracted a great deal of attention in the crypto sphere.

99% of crypto signal providers are fake, and beginning traders should be especially wary. Crypto trading signals groups are targeting you in particular because of your limited experience, hoping that you’ll trade your hard-earned coin for an “easy” or “certain” pathway to trading success.

First they’ll gain your interest and trust and then charge you a monthly subscription fee for their “service.” Not only will you not learn anything from having others spoon-feed you information or strategies, but you’re also opening yourself up to things like pump and dump scams (be particularly wary of Telegram signals groups). You also have little idea where these groups are actually getting their information and have no way of determining if their performance record has been manipulated.

Instead, focus on learning and education in order to become a knowledgeable and informed trader rather than one that relies on dubious, anonymous groups selling snake oil signals.

Apps have become one of the latest ways that scammers can get their digital hands on your crypto wallet

“Phillipe Christodoulou wanted to check his bitcoin balance last month, so he searched the App Store on his iPhone for “Trezor,” the maker of a small hardware device he uses to store his cryptocurrency. Up popped the company’s padlock logo set against a bright green background. The app was rated close to five stars. He downloaded it and typed in his credentials. In less than a second, nearly all of his life savings — 17.1 bitcoin worth $600,000 at the time — was gone. The app was a fake, designed to trick people into thinking it was a legitimate app.”

Unfortunately, this scam seems to be proliferating, with increasing numbers of victims. Let’s hope the corresponding increase in coverage will educate people about the dangers of fraudulent apps.

Unless you have access to geothermal energy (yes, we’re looking at you, readers from Iceland), then mining crypto might make you consider taking out a loan to pay your electricity bill.

One company, Mining Max, saw an opportunity to scam investors and set up a pyramid scheme to carry out its fraud. South Korean authorities, however, caught on to the scam, indicting over two dozen company employees, who were accused of “embezzling about $250 million from 18,000 investors in 54 countries, including the United States, South Korea, China and Japan.”

Last but certainly not least in our list of crypto scams are DeFi rug pulls. Can’t tell a rug pull from a Persian rug? Well, according to CipherTrace, rug pulls were crypto’s top fraud scheme in 2020. This type of attack is specific to decentralized finance exchanges (DEXs) in which a vulnerability to the smart contract is exploited (the vulnerability means that the contract can be bought but never sold). As a result, the token loses all of its value.

As CipherTrace’s report indicates, “Half of all 2020 crypto hacks were of DeFi protocols—a pattern that was virtually negligible in all prior years—and nearly 99% of major fraud volume in the second half of 2020 stemmed from DeFi protocols performing “rug pulls” and other exit scams in a pattern eerily reminiscent of the 2017 ICO craze. In a rug pull, which is similar to a pump and dump, some investors will liquidate the entire DeFi pool, leaving the remaining token holders with no liquidity and unable to trade, wiping out the remaining value.”