The idea of the American Frontier, also known as the Wild West, often draws on visions of anarchy and expansion into new unknown territory. This period is often characterized by volatility, risk, reward and loss. A sense of what it was like in the Wild West often comes close to home for those who find themselves within a period of history where new markets, manufacturing processes, or technological innovations overturn traditional ways of living or doing business. .
Today, the rapidly changing state of the cryptocurrency market and the kind of impact it has on the future of commerce triggers many similarities to those sentiments described above. As the attention of retail investors, speculators and various types of institutional investors continues to shift to lucrative cryptocurrency markets, so too do scammers and fraudsters.
From October 2020 to March 31, 2021, reports of crypto-related scams skyrocketed to nearly 7,000 people reporting losses of more than $80 million, according to the Federal Trade Commission’s Consumer Sentinel. These figures show a 12-fold increase in the number of reported losses and a nearly 1,000% increase in reported losses compared to the same period a year ago.
Given the exponential increase in crypto scams being reported, it is important to be aware of the common types of scams and the types of things you can do to protect yourself from being deceived.
- The mad rush in cryptocurrency over the past several years has attracted the attention of all kinds of investors, but it has also caught the attention of scammers.
- Crypto scams are often targeted to obtain private information such as security codes or to trick an unknown person into sending cryptocurrency to an included digital wallet.
- Social engineering scams such as giveaways, romance scams, phishing, extortion emails, and others mentioned in the article are a problem in wider society, but they are particularly prevalent when it comes to cryptocurrency.
Types of Cryptocurrency Scams
Generally speaking, cryptocurrency scams fall into two different categories:
- Targeted Initiatives to Gain Access to a Target’s Digital Wallet or Authentication Credentials: This means that scammers seek to obtain information that gives them access to a digital wallet or other types of private information such as security codes. In some cases, this also includes access to physical hardware.
- Transfer cryptocurrencies directly to a scammer through impersonation, fraudulent investment or business opportunities, or other malicious means.
social engineering scams
Social engineering scams are those in which scammers use psychological manipulation and deceit to gain control over important information related to user accounts. The premise of these types of scams is to trick people into thinking they are dealing with a trusted entity such as a government agency, well-known business, technical support, community member, or friend. Scammers will often use any angle or timing required to gain the trust of a potential victim so that in return they can reveal important information or send money to the scammer’s digital wallet. When one of these trusted connections demands cryptocurrencies for any reason, it can often be a sign of a scam.
Scammers often use dating websites to target people without thinking that they are in a real long-term relationship. Once trust is provided, negotiations often turn into lucrative cryptocurrency opportunities and eventual transfer of coins or account authentication credentials. Nearly 20% of the money people lost in romance scams was in cryptocurrency.
fraudulent and cheap scams
Moving into the sphere of influence, scammers try to masquerade as famous personalities, businessmen or cryptocurrency influencers. In order to attract the attention of potential targets, many scammers promise to match or multiply cryptocurrency in what is known to them as a giveaway scam. Well-crafted messaging that looks like a legitimate social media account can often create a sense of legitimacy and evoke an urgency. This mythical “once in a lifetime” opportunity may prompt people to move money quickly in hopes of an immediate return. For example, in the six months prior to March 31, 2021, there have been reports of more than $2 million in cryptocurrency being transferred to Elon Musk impersonators. According to the FTC, 14% of the losses suffered by all types of fraudsters are now in cryptocurrencies.
In the context of the cryptocurrency industry, phishing scams target information related to online wallets. Specifically, scammers are interested in crypto wallet private keys, which are the keys needed to access funds within the wallet. Their modus operandi is like many standard scams. An email is sent to key holders on a specially created website asking them to enter private key information. When hackers get this information, they can steal the cryptocurrencies in those wallets.
Phishing scams are some of the most common attacks on consumers. According to the FBI, more than 114,700 people fell victim to phishing scams in 2019. Collectively, they lost $57.8 million, or about $500 each.
Blackmail and extortion scams
Another popular social engineering method used by scammers is to send blackmail emails. In such emails, scam artists claim to have records of adult websites or other illegal webpages visited by users and threaten to expose them unless they share the private key or send cryptocurrency to the scammer. . These types of cases represent a criminal extortion attempt and should be reported to an enforcement agency such as the FBI.
investment or business opportunity scams
The adage “if something sounds too good to be true, it probably is” is something to keep top of mind for anyone investing in general, but it is especially true for cryptocurrencies. Countless profit-seeking speculators turn to deceptive websites offering guaranteed returns or other setups where investors need to invest the largest amount of money to guarantee big returns. While funds flow freely inward, these bogus guarantees often lead to financial disaster when individuals try to withdraw their money and find they cannot.
New Crypto-Based Opportunities: Initial Coin Offerings (ICOs) and Non-Fungible Tokens (NFTs)
With the rise of new crypto-based investments such as initial coin offerings (ICOs) and non-fungible tokens (NFTs), there are now even more avenues for scammers to try and gain access to your money. The background of these investments is beyond the scope of this article, but it is important to know that while crypto-based investment or business opportunities may sound attractive, sometimes they do not reflect the actual reality. For example, some scammers create fake websites that direct ICOs and users to deposit cryptocurrency into a compromised wallet. In other cases, the ICO itself may be at fault. Founders may distribute tokens that are unregulated by US securities laws or may mislead investors about their products through false advertising.
Defy Rag Pulls
DeFi Rag Bridge is the latest type of scam to enter the cryptocurrency market. Decentralized finance, or DeFi, aims to decentralize finance by removing gatekeepers to financial transactions. In recent times, it has become a magnet for innovation in the crypto ecosystem. However, the development of the DeFi platform is beset with its own problems. Bad actors have diverted investor funds from such a path. This practice, known as rib pull, has become particularly prevalent as the DeFi protocol has become popular with crypto investors interested in increasing returns by hunting yield-bearing crypto instruments.
Excitement and madness for many…