Most individuals who utilize and invest in cryptocurrency today exhibit significant amounts of both optimism and trust – or in many cases, simple greed. While there does seem to be sufficient reason to be hopeful about the future of cryptocurrency, the reality is that the gap of knowledge between those who create cryptocurrencies and those who purchase them is almost always enormous. Unfortunately, this knowledge gap opens the door for scams.
The unfortunate truth is that the cryptocurrency industry has seen more than its fair share of scams. The combination of technology, lawlessness, and speculation that characterize the cryptocurrency space seems to create the perfect environment for unscrupulous individuals to thrive in.
Throughout the years since cryptocurrency’s emergence, we’ve seen scams of all sizes, pulled off in all sorts of ways. For the purposes of education – and helping you avoid getting scammed – this article will present the 3 most popular types of scams in cryptocurrency.
The scam types in this article are so pervasive and common that you’ve probably even encountered some of them. Hopefully you haven’t yet been a victim. Either way, understanding more about these scams will help you remain vigilant against them going forward.
1. Crypto Giveaways
The “Giveaway” is perhaps the most common and pervasive scam in all of cryptocurrency. This scam is attempted countless times on all sorts of different platforms every single day.
How it Works
Perpetrators of Giveaway scams use social media and communications platforms both to find individual targets and to blast out enticing “Giveaway” announcements, hoping to attract hordes of people at once.
The deceptive message is simple: There is free cryptocurrency to be had. In order to claim it, all you need to do is follow a short list of simple instructions. Past this point, the exact method by which the scammer steals from the victim can vary.
Send First, then Receive
In many cases, individuals are told that to participate in the “Giveaway,” they first need to send a specified amount of cryptocurrency to a provided wallet address. Once they’ve sent crypto to that wallet, the promise is that they will then be sent back a larger amount of cryptocurrency.
Quite often, the claim is that you will receive double the amount you sent. For example, if you send 0.1 BTC to the wallet, you will get back 0.2 BTC. Of course, the scammers’ hope is that duped individuals will want to take advantage of this seemingly great opportunity and send large amounts of crypto.
FOMO: A Scammer’s Best Friend
As you read through this information, you might have a thought like, “How could anyone fall for this?” In this section, we’ll explain two key concepts that often sway victims. The first is FOMO, which stands for Fear of Missing Out.
Instructions and information for “Giveaways” is often juxtaposed with some sort of countdown or explanation that the free crypto Giveaway will only be active for a short period of time. In addition to lending some minute credibility to the idea that someone might actually be giving away free crypto as some sort of promotion, this limited time window motivates people to follow scammers’ instructions when they feel that the pain of missing out on a great opportunity may be larger than any instinct they have that says to ignore it.
Appeal to Ethos
Another common tactic in “Giveaways” is the fraudulent usage of the likeness of some celebrity, crypto expert, or public figure.
One of the most commonly seen environments for this Giveaway scam is YouTube live videos. Especially if you view a substantial amount of cryptocurrency-related content on YouTube, you may see a live video from some crypto expert talking about their price predictions, upcoming crypto opportunities, or other related talking points.
Should you click on that live video, you might see a feed of some respected crypto figure giving a lecture – framed by instructions for the “Giveaway.” This makes the giveaway seem related to the crypto figure and the talk. In reality, the “live feed” is nothing more than some stolen content repurposed for the scam.
2. Phishing Attacks
Phishing occurs when scammers attempt to obtain your personal information which they intend to use to access your personal accounts, steal from you, or possibly even blackmail you. Phishing is a more sophisticated method of scamming than the simple “Send and Receive” Giveaway scam, but sometimes Phishing is combined with “Giveaways.”
To continue explaining Phishing, we can revisit the Giveaway scam for a perfect example of how it works.
Input Data, then Get Phished
“Giveaways” that don’t ask you to send cryptocurrency to a wallet usually explain that you need to login to some website or account in order to access your free crypto. In these cases, the scammers have most likely set up some sort of sham portal. In many scams, the hope is that you will use the same passwords or seed phrases to register for their fake accounts that you use for your other crypto accounts or wallets.
In some other scenarios, the scammers may instruct you to click a link or download some software. Doing so might implant keylogger software onto your device, which would log every keystroke you input and send records of such data back to the scammers. If a keylogger were running when you input your own personal login information to financial accounts, that data may be used to access those accounts and drain them.
3. “Rug Pulls”
The Rug Pull scam requires a lot more effort to pull off than smaller scams, like “Giveaways,” but the potential payoff for the criminals behind them are much bigger, as well.
In the cryptocurrency space, Rug Pull scams are attempted when fraudsters promote new, emerging “projects” which are stated to have incredible utility or potential. With a great deal of cunning marketing, social engineering, and lies, innocent individuals are convinced to invest in such projects. When enough money has been accumulated by the scammers or when people are starting to catch on to the trick and doubt is setting in, the people behind the projects simply disappear.
This act – of disappearing and leaving investors shocked and confused – gives this scam its name; the victims of it have had “the rug pulled out from under them.”
Why People Fall for Rug Pulls
Most people familiar with the crypto space understand that emerging products represent the biggest money-making opportunities. In fact, it’s this concept that makes Rug Pulls easier to execute. It goes back to FOMO.
Time and time again, the crypto community has seen smaller “altcoins” shoot up in price by thousands of percentage points, making their investors overnight millionaires. Unless you were one of the lucky investors of one of those successful altcoins, it’s understandable to ruminate over those lost potential gains – especially if you had been considering investing in that altcoin but failed to act.
All of those stories of the new projects that made enormous gains contribute to fear of missing out on new cryptocurrencies. In short, they set the stage for scammers to execute Rug Pulls.
Rug Pull Red Flags
If you’re still interested in investing in less established coins for their potentially excellent yields, you’ll need to proceed with caution. Of course, most investors understand that higher potential returns mean greater risk, anyway. Regardless, there are still several red flags you should be on the lookout for as you investigate tempting new projects. These are the biggest Rug Pull red flags:
- Lofty Promises. One of the reddest flags there is for any investment opportunity is the presence of any promises or guarantees about profits or growth. Legitimate projects will be optimistic about their futures, but they should not make any promises. Be on the lookout for promises of high APY, especially.
- Poor Explanations and Logic. Projects that try to get investors excited and hype them up about future growth will often lack solid materials backing up their claims. Your due diligence for researching projects should include reading their whitepapers and any other materials. If these documents are lacking or nonexistent, it’s a very bad sign.
- Absent or Questionable Team Members. Projects worth investing in will have teams composed of members with considerable experience in the crypto space – and they will publish their credentials. If you can’t find the individuals behind a project, run. And if you can find them but aren’t sure about their past, be very cautious.
Caution is Key
We ended the last section with an urge to be cautious. Caution will help you avoid the 3 most popular types of scams in cryptocurrency: Giveaways, Phishing Attacks, and Rug Pulls. Unfortunately, however, these 3 aren’t the only types of scams out there. On the contrary, there are a myriad of different methods scammers use to steal from people.
It’s extremely important to keep in mind the fact that the cryptocurrency space is still largely unregulated. In the same way that you should be cautious when inputting your credit card information into any new site you’re purchasing from, you should be doubly cautious when dealing with crypto.