A cryptocurrency is a form of digital currency which generally only exists electronically. It is a huge unregulated market and one which is open to lawlessness.
It is constantly expanding, and new cryptocurrencies are always being added and developed. In the fast-changing world of cryptocurrency, scams and hacks can go largely unnoticed for some period of time, and in 2021, the largest number of cryptocurrency crimes was reported, with scammers taking around $14billion worth of crypto tokens in the year alone – almost a 50% increase on the $7.8billion taken in 2020.
With so much interest in cryptocurrency and this interest only increasing over the past 18 months, it’s not surprising that scammers and hackers are taking advantage of new and inexperienced investors. With that in mind, let’s look at some of the most common cryptocurrency scams to watch out for.
What Are Some Common Cryptocurrency Scams?
Cryptocurrency scams typically fall into two different categories, either they are initiatives set up that aim to target digital wallets and authentication credentials, or they occur when a cryptocurrency transfer is taking place directly from an unwilling investor to a scammer as the result of impersonation, fraudulent investment, or malicious business activity.
1. Crypto Only Payments
If you’re dealing with a seemingly credible person or establishment who claims that they can’t accept any form of payment other than Bitcoin or cryptocurrency, then it is highly likely a scam. Bitcoins and other cryptocurrencies fluctuate wildly, so many credible businesses don’t accept them as a form of payment. If anyone is requesting that you pay them in Bitcoin or cryptocurrency, then it’s likely that they’re trying to build up a good stock level and capitalize on its fluctuating value.
2. Digital Game Tokens
Sophisticated cryptocurrency hackers often can create new worlds and games on the blockchain which take off really quickly in terms of popularity. The reason behind doing so is because new and exciting gamers will be likely to buy coins or tokens for a game and, if enough people drive up the price, this gives the scammers the opportunity to sell all their holdings.
Unlike other currencies, there is no such thing as fraud or scam protection for blockchain technology and, once money has been stolen, the only way to retrieve it is for the recipient to pay you back directly, which if you’ve been the victim of a scam, is highly unlikely to happen.
3. Cryptocurrency Investments
New forms of cryptocurrency are being constantly created and when new coins are added to the blockchain, this is known as an initial coin offering. But ICOs are huge opportunities for scams. Companies or individuals might say that they have once in a lifetime opportunity to invest in a new form of cryptocurrency, often with the promise of 1,000% returns. Then, investors will be pressured into depositing new coins into a digital wallet that has been compromised in some way.
4. Phishing Scams
Phishing scams are just as old as the internet, but with cryptocurrencies, there are some new implications. Just as normal phishing attacks would work, scammers will send emails in an attempt to bait unsuspecting recipients into clicking links or entering their personal details, often in an attempt to secure their crypto wallet details. Unlike most passwords, you only get one single key to a crypto wallet, meaning that your funds are at risk of attack.
How To Protect Your Cryptocurrencies?
Even the most experienced and advanced crypto experts are aware that there are many evolving risks in the world of crypto trading. Some may have been victims of scams themselves or dealt with volatile assets. It’s important that, if you are new to crypto trading, then you keep holdings under 5% of the total portfolios and you should never invest in crypto if you’re looking to save up for certain events, such as a wedding, or for emergencies, or if you’re paying off debt.
Some red flags of cryptocurrency scams include:
- Grammatical or spelling errors in emails, social media posts, or during any form of communication
- Promises to multiply your investments
- Fake influencers or using well-known celebrities as endorsements
- Manipulation, including blackmail or extortion
- Vague details about the investment or where your money is going
If you believe that you may have been the victim of a cryptocurrency trading scam, then it’s important that you halt all further trades. Reach out to an investment fraud lawyer, who may be able to trace your funds.
Remember, almost all traders have lost money during their trading and investment careers, so it is nothing to be ashamed of and is just, unfortunately, part of the journey. Whilst governments across the globe are working to regulate cryptocurrency and add some further protection for traders and investors, it might be a few years yet before standard practices are in place, meaning protecting yourself and your investments whilst you can be recommended.