Cryptocurrency scams can take many forms. Similar to the money in your bank account, scammers want your crypto and will do anything they can to get it. To protect your crypto assets, it helps to know when and how you’re being targeted and what you can do if you suspect that a cryptocurrency and communications related to it are a scam.
Types of Cryptocurrency Scams
Generally speaking, cryptocurrency scams fall into two different categories:
- Initiatives aiming to obtain access to a target’s digital wallet or authentication credentials. This means scammers try to get information that gives them access to a digital wallet or other types of private information, such as security codes. In some cases, this even includes access to physical hardware.
- Transferring cryptocurrency directly to a scammer due to impersonation, fraudulent investment or business opportunities, or other malicious means.
Social Engineering Scams
For social engineering scams, scammers use psychological manipulation and deceit to gain control of vital information relating to user accounts. These scams condition people to think they are dealing with a trusted entity such as a government agency, well-known business, tech support, community member, work colleague, or friend.
Scammers will often work from any angle or take as much time as they need to gain the trust of a potential victim so that they reveal keys or send money to the scammer’s digital wallet. When one of these “trusted” entities demand cryptocurrency for any reason, it is a sign of a scam.
Scammers often use dating websites to make unsuspecting targets believe they are in a real long-term relationship. When trust has been granted, conversations often turn to lucrative cryptocurrency opportunities and the eventual transfer of either coins or account authentication credentials. The Federal Trade Commission (FTC) found that approximately 20% of the money reported lost in romance scams was in cryptocurrency.1
Imposter and Giveaway Scams
Moving down the sphere of influence, scammers also try to pose as celebrities, businesspeople, or cryptocurrency influencers. To capture the attention of potential targets, many scammers promise to match or multiply the cryptocurrency sent to them in what is known as a giveaway scam. Well-crafted messaging from what often looks like an existing social media account can often create a sense of validity and spark a sense of urgency. This mythical “once-in-a-lifetime” opportunity can lead people to transfer funds quickly in hopes of an instant return.
Many crypto owners are being contacted by impersonators claiming to be from cryptocurrency exchange support and security.2
Within the context of the cryptocurrency industry, phishing scams target information pertaining to online wallets. Specifically, scammers are interested in crypto wallet private keys, which are the keys required to access cryptocurrency. Their method is like many standard scams—they send an email with links that lead holders to a specially created website and ask them to enter private keys. When the hackers have this information, they can steal the cryptocurrency.
Blackmail and Extortion Scams
Another popular social engineering method that scammers use is to send blackmail emails. In such emails, scam artists claim to have a record of adult websites or other illicit web pages visited by the user and threaten to expose them unless they share private keys or send cryptocurrency to the scammer. These cases represent a criminal extortion attempt and should be reported to an enforcement agency such as the FBI.
Investment or Business Opportunity Scams
The old adage “if something sounds too good to be true, then it probably is” still rings true, and it is one to keep in mind for anyone venturing into investing in general. It is especially true for cryptocurrencies. Countless profit-seeking speculators turn to misleading websites offering so-called guaranteed returns or other setups for which investors must invest large sums of money for even larger guaranteed returns.
Unfortunately, these bogus guarantees often lead to financial disaster when individuals try to get their money out and find that they can’t.
New Crypto-Based Opportunities: ICOs and NFTs
Crypto-based investments such as initial coin offerings (ICOs) and non-fungible tokens (NFTs) have given even more avenues for scammers to access your money. What’s important to know is that although crypto-based investments or business opportunities may sound lucrative, it doesn’t always reflect reality.
For example, some scammers create fake websites for ICOs and instruct users to deposit cryptocurrency into a compromised wallet. In other instances, the ICO itself may be at fault. Founders could distribute unregulated tokens or mislead investors about their products through false advertising.
A rug pull occurs when project members raise capital or crypto to fund a project and then suddenly remove all of the liquidity and disappear. The project is abandoned, and investors lose everything that they have contributed.
Cloud Mining Scams
Platforms will market to retail buyers and investors to get them to put up-front capital down to secure an ongoing stream of mining power and reward. These platforms do not actually own the hash rate they say they do and will not deliver the rewards after your down payment. While cloud mining is not necessarily a scam, due diligence must be conducted on the platform before investment.
How to Spot Cryptocurrency Scams
Cryptocurrency scams are easy to spot when you know what you’re looking for. Legitimate cryptocurrencies have readily available disclosure, with detailed information about the blockchain and associated tokens.
Read the White Paper
Cryptocurrencies go through a development process. Before this process, there is generally a document published for the public to read, called a white paper. It describes the protocols and blockchain, outlines the formulas, and explains how the entire network will function. Fake cryptocurrencies do not do this—the people behind them publish “white papers” that are poorly written, have figures that don’t add up, don’t tell you how they envision the money being used, or don’t generally seem like a proper white paper.
Identify Team Members
White papers should always identify the members and developers behind the cryptocurrency. There are cases where an open-source crypto project might not have named developers—but this is typical for open-source. Most coding, comments, and discussions can be viewed on GitHub or GitLab. Some projects use forums and applications like Discord for discussion. If you can’t find any of these and the white paper is full of errors, then it is likely a scam.
Look for ‘Free’ Items
Many cryptocurrency scams offer free coins or promise to “drop” coins into your wallet. Remind yourself that nothing is ever free, especially money and cryptocurrencies.
Examine the Marketing
Cryptocurrencies are generally not a moneymaking endeavor. They are projects with a stated purpose and have coins or tokens designed to be used to help the blockchain function. Valid crypto projects won’t be posting on social media, pumping themselves up as the next best crypto that you shouldn’t miss out on.
You might see cryptocurrency updates about blockchain developments or new security measures taken, but you should be wary of updates like “$14 million raised” or communications that feel like they are more about money than about advances in the technology behind the crypto.
There are legitimate businesses using blockchain technology to provide services. They might have tokens used within their blockchains to pay transaction fees, but the advertising and marketing should appear much more official. They’ll have money to spend on celebrity endorsements and appearances and have all the information readily available on their websites. These businesses will not ask everyone to buy their crypto; they will advertise their blockchain-based services.
How to Avoid Cryptocurrency Scams
There are several actions you can take to avoid being scammed. If you notice any of the signs, you shouldn’t click on any links, dial a phone number, contact them in any way, or send them money. Additionally:
- Ignore requests to give out your private cryptocurrency keys. Those keys control your crypto and wallet access, and no one needs them in a legitimate cryptocurrency transaction.
- Ignore promises that you’ll make lots of money.
- Ignore investment managers who contact you and say they can grow your money quickly.
- Ignore celebrities—a celebrity will not contact people about buying cryptocurrency.
- Meet your romantic interests in person before giving them money if you’re using an online dating website or app.
- Ignore text messages and emails from well-known or new companies, saying your account is frozen or they are worried about it.
- If you receive an email, text, or social media message from a government, law enforcement agency, or utility company stating that your accounts or assets are frozen, and that you’ll need to send crypto or money, contact the agency and ignore the message.
- Ignore job listings to be a cash-to-crypto converter or crypto miner.
- Do not fall for claims about explicit material they have of you that they will post unless you send cryptocurrency, and report it.
- Don’t accept “free” money or crypto.
How to Report Cryptocurrency Scams
Several organizations exist that can help you if you’re a victim of a cryptocurrency scam or suspect one. Use their online complaint forms to seek help:
- FTC fraud report
- Commodity Futures Trading Commission complaints and tips
- U.S. Securities and Exchange Commission fraud reporting
- FBI Internet Crime Complaint Center complaint
You can also contact the crypto exchange you use. They might have fraud prevention or other measures in place to protect your crypto assets and money.