The year 2022 was, as it were, horrible for crypto as it suffered a dramatic plunge. In addition to high volatility and sharp dips in the value of cryptocurrencies, crypto scams were on the rise. As CertiK, the leader in smart contract and blockchain security, disclosed in its 2022 Web3 Security Report, 2022 was the most unfavorable year regarding losses in Web 3.0 protocols.
Namely, in 2022, losses due to crypto scams, hacks, and exploits reached an all-time high of $3.7 billion. This figure stands for an increase of 189% compared to the $1.3 billion recorded in 2021. The numbers are, without a doubt, alarming.
Given the facts that there have been so many frauds, one can’t help but have prejudice towards cryptocurrencies, believing they are an insecure asset class. The reality, however, is strikingly different.
Is crypto really unsafe?
For those who aren’t quite sure what cryptocurrencies are, those are, to put it simply, virtual currencies that implement cryptography to secure transactions, guarantee authenticity, and prevent copying. They function owing to blockchain technology and are kept and managed by means of digital wallets.
In contrast to conventional money, crypto isn’t supported by central banks or other financial institutions. Likewise, they aren’t regulated either by governments or authorities, nor do they require middlemen to perform transactions.
One of the primary features of blockchain is that data recorded on the blockchain stays there for good. It can’t be modified, changed, or deleted. Thus, once you carry out a transaction such as purchasing or selling crypto, you can’t cancel it or intervene. Another main characteristic is that blockchain and crypto are fully transparent, allowing you to monitor every single transaction.
It’s precisely due to these main features that crypto as technology is completely safe and not prone to any scams. As Igor Mirković, Mass Media Manager at ECD.rs crypto exchange explains, the full transparency enables more effortless monitoring of everything.
“If we recall the level of skepticism and fraud that occurred during the transition from cash to payment cards or online banking, we can conclude that the main problem and foundation for scammers lies precisely in the insufficient knowledge of innovative crypto technology,” says Mirković.
He proceeds to remind that financial scams are not uncommon. There have been numerous frauds in the past that many people fell prey to. Today, only the ambience is different, while people are still an easy prey, mainly owing to the lack of awareness, information, and education.
According to research by companies that analyze crypto transactions, cryptocurrencies are actually used in an extremely small percentage compared to other methods of fraud.
Igor Mirković, Mass Media Manager at ECD.rs
Why do crypto scams seem to be so frequent?
According to Mirković, the primary reason for the large number of scams in the crypto industry is the lack of knowledge and education. It is not about formal education but about being familiar with basic security principles for both investing and behaving on the internet. “Safeguarding cryptocurrencies on hardware wallets, purchasing projects that you understand, having realistic expectations, and using verified services and partners are all essential,” notes Mirković.
Contrary to traditional payment methods, cryptocurrency payments lack legal protections or government assurances. This makes crypto holders an especially attractive target for scammers. Furthermore, there is no centralized authority or regulatory body to flag suspicious crypto transactions. “It is precisely the lack of regulation in the cryptocurrency market that has allowed many individuals with dishonest intentions to become part of the crypto industry and run crypto businesses,” Mirković states.
Lastly, the inability to alter or cancel a transaction once it’s carried out makes things more difficult. What’s even worse, there are cryptocurrencies with specific characteristics which make it practically impossible to trace their origin. As for Mirković, this is a common method of “exiting” a successful scam.
Types of crypto scams
Scammers use various tactics to deceive individuals and obtain sensitive information. The creativity and effort they invest sometimes make it challenging to identify and avoid crypto scams. As a result, crypto scams continue to proliferate, while naïve and careless crypto holders are losing their funds.
Igor Mirković shares some of the most frequent types of scams and how to recognize them.
“Scams can be technical, implying that there are hacks in the underlying code of a cryptocurrency or a platform. In case a cryptocurrency is poorly developed, holders can be robbed of their funds. To avoid this type of risk, it is recommended to use trusted sites and buy well-known cryptocurrencies that are widely accepted.
Frequent scams were seen in the users’ funds management by crypto exchanges. Users were holding funds at the exchanges, while they misused the funds for their own needs, which resulted in losses and lack of funds. Protection against such risk is using a crypto wallet storing your funds completely offline.
Fake financial advisors and investment platforms are also traps that many fall into. Wanting to make quick and easy profits, users often deposit money to fake companies and advisors who disappear when it’s time to pay out the supposed profits (which actually never existed).
To protect yourself against this impulse, it is advised to conduct thorough research on cryptocurrencies and make investment decisions based on more realistic expectations. It’s necessary to take into account that this is not an industry where you will get rich overnight.”
Crypto scams to pay attention to
The Fedeal Trade Commission (FTC) compiled a list of the most frequent scams to watch out for and avoid falling victim to them.
Scams involving blackmail and extortion
Scammers may try to trick you by claiming that they possess embarrassing personal information, such as compromising photos or videos, to lure you into a trap. They may threaten to make the information public but will offer to keep it private if you comply with their demands. Typically, they will ask you to send a cryptocurrency transfer right away to make the problem disappear.
These scams can come in various shapes and forms, but the general premise is that someone contacts you with a tempting business opportunity that promises to make you rich. They may even claim they can provide you with guaranteed, high returns on your cryptocurrency investment, sometimes even doubling or tripling your assets overnight.
However, it’s important to remember that there are no guaranteed returns, particularly when it comes to digital assets. If someone contacts you with an offer that sounds too good to be true and promises quick wealth, it’s likely a scam. Don’t respond and don’t invest your cryptocurrency.
Crypto-related job offer scams
Another type of scam involves fake job listings or unsolicited job offers that aim to deceive unsuspecting victims. These job postings or offers may claim to be in the cryptocurrency industry, such as crypto mining or recruiting other crypto investors.
However, these job opportunities always require you to make a payment in cryptocurrency before starting work. After that, the scam can take on various forms. The scammers may ask for more payments, or they may deposit money into your bank account and ask you to send them cash, only for the initial deposit to fail or be reversed.
If you come across a job offer that requires you to make a payment in cryptocurrency, it’s best to be cautious and verify the legitimacy of the opportunity before taking any action.
One common crypto scam involves scammers impersonating celebrities or influencers to trick people into sending them digital assets. These scammers use social media platforms and video content to impersonate individuals, making it difficult to distinguish what is real and what is fake.
For instance, scammers may create a fake “giveaway” on behalf of a public figure, offering free crypto to anyone who signs up or follows a certain set of instructions. In reality, these scams are just a ploy to steal people’s digital assets.
Impersonation scams are a common tactic used by crypto scammers to gain credibility and trick victims into handing over their assets. One common variation is when scammers pretend to be from the government, law enforcement agencies, a well-known company or even your bank.
They may claim that your accounts or assets are frozen as part of an investigation and ask you to pay in crypto to resolve the issue.
In this type of scam, con artists reach out to you with an amazing investment opportunity through various channels like email, phone calls or social media. They often pretend to be experts in the crypto world and ask for an immediate investment of your digital assets.
In some cases, the scammers create sophisticated websites that use buzzwords to convince you to invest with them. Once you’ve deposited your assets, they may make it impossible to withdraw your funds or ask you to pay high fees to access them.
Phishing scams are a common tactic used by cybercriminals to obtain sensitive information, such as login credentials or personal details.
In the context of crypto, these scams often involve an attacker posing as a legitimate company or service provider in order to trick victims into sharing their private crypto wallet keys. This can be done through a convincing email that prompts the victim to log in to their account, or by directing them to a fake website that looks identical to the real thing.
Pump and dump schemes
This scam occurs when a group of individuals band together to persuade others to invest in a specific coin, frequently by creating hype on social media. From there, con artists cooperate to raise the asset’s price until they all cash out at once, leaving all the new and eager investors empty-handed.
Believe it or not, romantic frauds are prevalent in the cryptocurrency industry. Scammers create fake profiles on dating websites or social media and try to establish a romantic connection with unsuspecting victims.
They may spend weeks or even months building a relationship and gaining the victim’s trust before requesting cryptocurrency payments or investments. These scammers often use fake identities and may even use stolen photos to create a convincing profile. In the end, the victim is left heartbroken and without their cryptocurrency.
An example of an (almost) perfect crypto scam
All the theory sounds nice, but how are you to recognize a scam in real life, you may ask. Here’s one almost perfect example of a crypto airdrop scheme.
It all starts on twitter, when you get tagged in a post like this.
At first glance, everything seems legit – the profile of the airdrop organizer, celebrating a significant partnership with Polygon, a household name in the crypto world. For those who are not familiar, Immutable is pioneering blockchain technology designed specifically for games, and is a perfectly authentic platform.
Upon opening the airdrop organizer’s profile, you won’t notice anything suspicious. Once again, the profile looks pretty genuine.
When you follow the link to the airdrop, you will be taken to what is supposed to be Immutable official website – www.immutable.com. Here, you’ll be invited to choose from three options: proceed to the website, visit Immutable on Twitter and visit Immutable on Reddit. So far, so good – everything seems fine, right?
Upon selecting the first option, the meticulously beautiful Immutable website opens, inviting you to claim $IMX. And this is where things become suspicious.
First of all, the native token of the Immutable blockchain is IMX, not $IMX. Second of all, check out the link in the address bar – it has a spelling “mistake,” as the official URL is immutable.com.
Having navigated to the official website (the genuine, not a fake one), you’ll notice that the home page is completely different. There isn’t a single word about IMX airdrop.
Now, remember the Twitter profile which seemed okay? Well, it’s not – this is the original one.
How to recognize a crypto scam
In the example above, how are you supposed to know if this is a scam and not an actual airdrop? There are a few details which gave away fraud:
- The Twitter profile – all official Twitter profiles have checkmark as a verification sign. Plus, they are followed by significantly more people than fake ones.
- Check out the name of the native crypto. Refer to sites like CoinMarketCap to see if the coins actually exist and find more information about them.
- Pay attention to the hyperlinks. Those leading to malicious websites will be misspelled (immutalbe.com instead of immutable.com)
- Never trust any offer you receive via social networks either via DM or in a post. Legitimate platforms will never announce any giveaways or airdrops that way. Instead, they will post them on their official profiles for everyone to see.
Other telltale signs you should pay attention to include:
- Offers that are too good to be true: Nobody is going to give you free cryptocurrency for doing almost nothing. Conducting little research can help you identify bold claims that lack supporting evidence.
- “Pay to play” job offers: You should never ever pay to get a job. If you receive such an offer, run as fast as you can.
- Promises of guaranteed returns: No one can guarantee how much you will earn on your investments, be it crypto or traditional financial investments.
- Unexpected communications: If you ever receive an email, a phone call or a text from someone asking you to log into a crypto account, send crypto to solve a problem or get involved in a business opportunity, just ignore it.
Cryptocurrencies are a decentralized asset available to everyone and know no limits or censorship. Anyone can buy, sell, hold, or send them, regardless of their place of residence or time zone. Having this in mind, it’s not much of a surprise why con artists use cryptocurrencies for their malicious deeds.
Furthermore, considering that lucrative crypto investing requires a lot of knowledge and research, it’s little wonder that beginners and inexperienced users fall prey to crypto scams most frequently. To lure in gullible individuals effortlessly, scammers use various methods, promises, and opportunities to gain the interest and trust of new users.
“Prevention is simple and consists of a few good practices. Buying cryptocurrencies through a reliable, licensed, and verified service, purchasing some of the most well-known cryptocurrencies, keeping cryptocurrencies on a trusted wallet, preferably a hardware one, and, finally, selling through an authorized service.
These basics, combined with additional research about cryptocurrencies, provide excellent protection to ensure that we remain secure in this innovative industry,” concludes Igor Mirković, Mass Media Manager at ECD.rs