FREE MEETING: KEY TRENDS AND RISKS IN NFT GAMES– REGISTER

droomdroom-logo-mobile droomdroom-logo-mobile-white
  • Bitcoin
  • Altcoin
  • Metaverse
  • NFTs
  • DAO
  • DeFi
  • Adoption
  • Regulation
  • bitcoinBitcoin(BTC)$23,015.00
  • ethereumEthereum(ETH)$1,600.83
  • tetherTether(USDT)$1.00
  • binancecoinBNB(BNB)$300.97
  • usd-coinUSD Coin(USDC)$1.00
  • rippleXRP(XRP)$0.378086
  • cardanoCardano(ADA)$0.363562
  • okbOKB(OKB)$49.80
  • matic-networkPolygon(MATIC)$1.26
  • dogecoinDogecoin(DOGE)$0.081135
DroomDroomDroomDroom
Aa
  • Bitcoin
  • Altcoin
  • Metaverse
  • NFTs
  • DAO
  • DeFi
  • Adoption
  • Regulation
Search
  • Bitcoin
  • Altcoin
  • Metaverse
  • NFTs
  • DAO
  • DeFi
  • Adoption
  • Regulation
Follow US
© Droomdroom. All Rights Reserved.
DroomDroom > DeFi > 4 Cryptocurrency Scams You Will Inevitably Face
DeFiRegulation

4 Cryptocurrency Scams You Will Inevitably Face

Last updated: 2023/02/21 at 1:31 PM
By Anush Jafer Published December 12, 2022 February 21, 2023
Share
8 Min Read
SHARE

The popularity of cryptocurrency has coincided with a rise in financial scams. Despite the nascent asset class offering many benefits and opportunities for individuals and businesses alike, the surge in investor interest in cryptocurrencies and the astronomical returns it offers have created a highly sought-after option for scammers to take advantage of their users.

Contents
Common cryptocurrency scams1. Phishing attacks2. Exit Scams3. Ponzi Schemes 4. Social Media Impersonation and fake giveawaysClosing thoughts 

From exit scams like rug pulls, impersonations, and giveaway scams to phishing attacks, and Ponzi schemes, there are many methods used to lure in victims. Recognizing these common cryptocurrency scams while being forewarned will help users stay safe in the cryptosphere.

Bitcoin logo and binary code as background.
Source: Shutterstock

A report released by the U.S. Federal Trade Commission claims that between January 2021 and June 2022, over 46,000 consumers lost more than $1 billion to cryptocurrency scams. According to many analysts, the three leading causes of the rise in fraudulent activities within the ecosystem are:

  • The absence of a centralized authority, 
  • Irreversible transactions and, 
  • The pseudonymity associated with cryptocurrencies.

The cryptocurrency industry is still in its infancy since the inception of Bitcoin a little over a decade ago. However, the ecosystem has since exploded, with more than 22,000 cryptocurrencies. Not only is DeFi growing and expanding, but NFTs and decentralized marketplaces have also entered the picture, giving unscrupulous scammers more options. 

Cryptocurrency scams can operate in a few different ways. Typically, scammers convince users to send money directly to their wallet or by a hacker trying to access a victim’s digital wallet. These swindlers use astoundingly inventive methods to defraud their unsuspecting victims of their funds. Therefore, it is crucial to maintain the highest level of caution as users navigate the cryptocurrency world. Awareness of the most common cryptocurrency scams is the first step. 

Common cryptocurrency scams

1. Phishing attacks

While phishing attacks are one of the most common vectors for an attack in the crypto industry, it is also one of the oldest identity and financial theft methods the internet has seen. Phishing is a method of social engineering in which a perpetrator poses as a reputable entity to mislead a user into opening a malicious link in an email or instant message that leads to a fake website. Once the users enter their login credentials or other sensitive information, the attackers can obtain this information.

Within the cryptocurrency realm, phishing scams specifically target private keys (the keys needed to access cryptocurrency) and other sensitive information related to users’ online wallets. Additionally, scammers use various techniques to direct their victims to fake websites. For example, attackers may use emails that appear legitimate, alerting users to account issues but contain a malicious link, or pose as customer service representatives to solve problems to obtain victims’ personal information. Cybercriminals are also using fake browser extensions of popular crypto wallets to deceive users of their funds.

2. Exit Scams

An exit scam is a deceptive practice wherein the developers or promoters of new cryptocurrency projects defraud investors by promising them enormous profits but then keeping the money or abandoning the projects, leaving retail investors empty-handed. Some of the space’s most high-profile exit schemes include Bitconnect, OneCoin, and LoopX. A common type of exit scam includes rug pulls or pump-and-dump schemes.

The term rug pull comes from the expression “pulling the rug out from under” or withdrawing support unexpectedly. Rug pulls involve promotors of a project generating false hype for a project’s utility to attract funding and artificially inflating the price of a coin or NFT project, only to disappear with investor funds, leaving investors with bags of worthless tokens. Although many pump-and-dump schemes have existed in the traditional financial sector for decades, these fraudulent practices have become particularly prevalent in the cryptocurrency space.

Therefore, it makes sense for investors looking to place their funds in speculative small-cap altcoins to conduct the appropriate background research on the project, including looking into the project’s roadmap, tokenomics, the team behind it, and their track records. 

3. Ponzi Schemes 

A Ponzi scheme is a well-known get-rich-quick scam that pays out rewards to initial investors using money from more recent ones. The promise of enormous returns with little volatility or risk is the primary allure of a Ponzi scheme. The funds are never invested as promised; instead, they are used to pay early investors their “guaranteed high returns” until the supply of new investors runs out, and the scheme collapses. Since there are no legitimate investments, the model is a cyclical money-making scam constantly targeting new investors. 

Ponzi masterminds are particularly attracted to the crypto space due to novice investors entering the ecosystem and the regulatory grey area. The absence of traditional regulatory materials like earnings reports, third-party research reports, and audited documents serve as a haven for Ponzi schemers.

Additionally, because of the industry’s rapid growth, average investors are flocking to the sector without a firm grasp of the technology. Unfortunately, this has allowed scammers to present themselves as experts who can take care of that learning curve. 

4. Social Media Impersonation and fake giveaways

Another popular cryptocurrency scam sweeping Twitter and other social media platforms like Discord, Telegram, YouTube, and Instagram is the rise of fake accounts posing as well-known influencers or public figures in the cryptocurrency industry.

Social Media Impersonation cryptocurrency scam
Phishing attacks by fake Vitalik Buterin impersonators.

 

The modus operandi of these scams involves attackers creating fake profiles nearly identical to the ones they are pretending to be to advertise giveaways that promise to double a user’s money if they deposit cryptocurrency assets into a specific wallet address. This, of course, isn’t the case and the user’s funds are irretrievable once sent. 

Closing thoughts 

As the crypto industry grows in scale and complexity, malicious actors are incentivized to siphon funds from unsuspecting cryptocurrency users. Therefore the acronym DYOR (Do Your Own Research) is pertinent to this thriving industry. In addition to recognizing the common scams that plague the ecosystem. Fortunately, there are red flags and preventative measures that users need to be aware of to avoid the most pervasive deceit tactics. This includes promises of guaranteed returns, a poor or non-existent project whitepaper, excessive marketing with free giveaways, unnamed founding team members, avoiding google or social media ads, and ignoring cold emails.

Users can avoid becoming victims of such scams by taking note of these warning signs, taking proactive steps to learn about the ecosystem, and using the best practices for securely storing cryptocurrency assets.

You Might Also Like

What Happens to Crypto if Binance Goes Bankrupt?

Consensus Mechanism: How does Proof of Work and Proof of Stake differ?

Master the Skill of Crypto Trading: Margin vs Futures Explained

A Guide to 5 Effective Crypto Passive Income Opportunities

5 Ways to Beat the Cryptocurrency FOMO Trap

Share
Previous Article World Blockchain Summit The World Blockchain Summit: Bangkok 2022
Next Article Largest Crypto The Largest Crypto Scams in History 
- Advertisement -
Token 2049 Singapore
Discount LinkToken 2049 Singapore
Discount Link

Follow US

Find US on Socials
Facebook Like
Twitter Follow
Instagram Follow
Explore
Cryptocurrency Wallets
Cryptocurrency Wallets: Explained
Hot Wallets
Top Non-custodial Hot Wallets
4 Ways to Identify Crypto Ponzi Schemes
4 Ways to Identify Crypto Ponzi Schemes
Top 5 Crypto Job Boards to Get Hired Instantly
Top 5 Crypto Job Boards to Get Hired Instantly

Subscribe to our newslettern

Get Newest Articles Instantly!

Explore More

A hyper realistic painting of a bitcoin in a crystal ball with a candlestick chart background
Regulation

What Happens to Crypto if Binance Goes Bankrupt?

February 21, 2023
proof stake
DeFi

Consensus Mechanism: How does Proof of Work and Proof of Stake differ?

March 16, 2023
Crypto Trading
DeFi

Master the Skill of Crypto Trading: Margin vs Futures Explained

March 17, 2023
bitcoin tree
DeFi

A Guide to 5 Effective Crypto Passive Income Opportunities

February 16, 2023

Follow Us on Socials

We use social media to react to breaking news, update supporters and share information.

Twitter Facebook Youtube Telegram Linkedin Instagram Rss
Droomdroom Logo Droomdroom Logo

DroomDroom dedicates thousands of hours of research into the web3 industry to deliver you free, world-class, and accurate content.

Company

  • About Us
  • Contact Us
  • Partner
  • Careers
  • Privacy Policy
  • Terms of Service

Subscribe to our newsletter

Get Newest Articles Instantly!

- Advertisement -
Token 2049 Singapore Discount LinkToken 2049 Singapore Discount Link

Copyright © 2023 DroomDroom. All Rights Reserved

  • Bitcoin
  • Altcoin
  • Metaverse
  • NFTs
  • DAO
  • DeFi
  • Adoption
  • Regulation
Welcome Back!

Sign in to your account

Lost your password?