The adoption of cryptocurrencies has brought financial freedom to millions, but its inherently open and accessible nature has also resulted in a surge in the quantity and quality of scams in the digital age.
Indeed, scams are arguably the bread and butter of many an influencer, especially the ones that openly profess their effective altruism for humanity – lovely people. In pursuing such venerable exploits, all from the goodness of their hearts, fraudsters tend to opt for crypto rug pulls, giveaways, traditional Ponzi schemes and phishing scams, and everything in between.
Where money is involved, there will always be a subset of people who choose to knowingly defraud others. To this unsavoury end, bad actors are constantly on the prowl for whichever flavour-of-the-month scam is best for business. The decentralised and pseudonymous nature of cryptocurrencies, a double-edged sword in its own right – opens the door to silver-tongued scammers getting the better of those who may be less knowledgeable and more gullible.
For perspective, between January 2021 and June 2022, over 46,000 people reported losing over $1 billion in cryptocurrency to a number of scams, according to a Federal Trade Commission (FTC) report. The alarming figure includes people who willingly shared this information with the agency.
As such, staying up to date with different types of scams could be the difference between having a full or empty crypto wallet. In this article, we’ll go through the top 10 most common crypto scams in 2023.
Top 10 Most Common Crypto Scams
10. Social media scams
Social media is a popular method for crypto-related fraud. These con artists use social media platforms to promote their schemes by imitating well-known brands or personalities.
Instagram, TikTok and Twitter (X) are among the most popular platforms for such behaviour. While each site has taken steps to curb crypto fraud, bot accounts scams pitching phony crypto ventures are very common, especially in comment sections.
In June, the European Consumer Organization (BEUC) released a report which accused social media platforms of enabling such scams too. The 20-page report emphasised that Instagram and TikTok had loose policies that allowed scammers to target unsuspecting teenagers.
Unfortunately, there has been speculation that in a bid to promote verification online, which would hurt anonymity, it is questionable how some of the largest tech. companies on earth cannot seem to get a handle on bots and fake accounts.
On a positive note, personal protection against crypto scams is not hard. Users must simply remain vigilant when interacting with trending projects and accounts, ensuring that the online handle does not have a modified username, or posting strange out-of-character things online.
9. AI Crypto Scams
The world of tech is abuzz with artificial intelligence (AI). This hype train has allowed scammers to develop new techniques to deceive people. For instance, AI chatbots or virtual assistants engage with individuals, provide investment advice, promote fake air tokens and initial coin offerings (ICOs), or fake high-yield investment products, only as a means to steal their wealth.
The air of professionalism and trustworthiness surrounding AI chat bots is used as a means to take advantage of unsuspecting users, who may believe they’re interacting with a higher consciousness, when it’s merely a chat-bot used towards nefarious ends. The use of rogue AI chat-bot managers can also challenge social proof metrics for projects by creating an illusion of growth, when in reality, it’s bots chatting to each other.
Moreover, by leveraging social media using AI-generated content, scammers can even orchestrate elaborate pump-and-dump schemes, inflating the value of tokens artificially and selling off profits thereafter. The ubiquitous nature of artificial intelligence unfortunately means such attempts will likely increase going forward, since automation and low running costs inherently promote the activity.
That said, it’s worth noting that AI will also be used combat scams – AI vs AI. Researchers at Sand Diego State University have developed a system which detects and exposes crypto giveaway scams on Twitter.
However, it is worth noting that AI can also be used to combat online scams. For example, researchers at San Diego State University have developed an AI system to detect and expose cryptocurrency giveaway scams on Twitter.
8. Fake Endorsements
Scammers can use high-profile persons’ faces to advertise fake endorsement schemes related to crypto (or any) ventures without their consent. Elon Musk, Prince Harry and Meghan Markle, Bill Gates, Mark Zuckerberg, and Sir Richard Branson are among the noteworthy individuals who have been unintentionally implicated in such schemes.
A deep fake video of Elon Musk advocating a fraudulent project is one such example of a celebrity endorsement scam. While presently identifiable, the technology is only getting better, which means video footage alone won’t be enough to figure out whether the source material is true or false in the near future.
In this video, the fake Musk states that he is launching a new cryptocurrency initiative and that participants may get a 30% return on their investment in three months. Naturally, the entire thing is bogus.
As these scams gain traction, protecting yourself from celebrity endorsements will be more important. As such, users should conduct extensive research before engaging in any bitcoin initiative or investment opportunity. They must ensure the project’s validity, team members, and any endorsements linked with it. Typically, fake endorsements do not last very long – word gets out quickly due to their high profile nature.
7. Romance scams
Believe it or not, cryptocurrency romance scams are among the plethora of deceptive schemes that have become a popular choice among bad actors. The goal is to establish a romantic connection with unsuspecting losers online, with the ultimate goal of tricking them into handing over their potentially valuable assets.
These phony relationships frequently have their beginnings on social media platforms or dating apps, where first contact is established. Playing the long game, these con artists could spend days and weeks, if not months, building an emotional bond with their victims.
Using feigned romance (all-be-it one-sided) as their weapon, scammers attempt to dupe victims into sending them crypto payments, or to invest in a bogus startup. They may claim to have personally invested in the scheme and profited handsomely too.
After receiving payment, fraudster may choose to continue the charade to extract more funds, or end the connection and disappear.
6. Classic Investment Scams
Investment scams involve promises of unrealistic profits in exchange for early (often called seed) investments in a new cryptocurrency enterprise. Fraudsters could take on several jobs within the scheme, such as investment managers, founders etc., for the yet-to-be-launched project and make unfounded and ludicrous promises of big returns.
One example from recent history covered by crypto sleuth, Cofeezilla, is the Bryan King Legend saga; the scammer behind SAFUU, SAFUUGO and VULCAN, who regularly duped followers into parting with their coins by lying about his access to funds, burn wallets and other schemes he thought of purely to siphon money from his followers.
Scams often start with an unsolicited invitation to become an angel investor, which then leads consumers to a placeholder website which would contain spurious information about the opportunity. The website might appear credible at first glance, but upon further inspection the scheme tends to fall apart as red flags pop up. Customers are invited to invest quickly and earn rapid returns, which is meant to entice others into doing the same.
To avoid falling victim to these frauds, consumers should be cautious when receiving unsolicited investment or promotional offers via email, online chats or other communication channels.
Genuine investment possibilities exist online, if one knows how to navigate the mixed bag of true opportunities and deadly pitfalls.
5. Fake Exchanges
Another common scam is the use of fake cryptocurrency exchanges, applications, wallets and other platforms which are designed to steal user funds. Typically, a fake website with a domain that’s highly similar to the ones they’re trying to imitate is the tell sign, though it can be difficult to tell one from the other.
The websites seem to function normally at first, and even allow users to withdraw a small amount of money. However, once a victim increases the investment, the website might shut down or deny withdrawal requests for meaningless reasons.
To protect themselves from fraudulent platforms, users should double-check the website’s domain name for any misspelling or text variations that would suggest a fake company. They can also check if the exchange is listed on a credible website like CoinGecko, check trading volumes, the exchange’s history in the press and its official social media handles. While regulators are not exactly trustworthy, certifications of good conduct, detailed proof-of-reserves or reverence by esteemed players in the space is also a plus.
4. Ponzi Schemes
As covered in our ‘is crypto safe?‘ article, finance Ponzi schemes have existed since the dawn of time. A crypto Ponzi scheme is like any other. It is characterised by early investors paying being paid returns with funds from new investors, instead of legitimate profits or investments. Somewhere down the line, the Ponzi scheme inevitably collapses as there aren’t enough new investors to sustain the ever-growing payouts. This results in a financial collapse for participants.
It is worth mentioning that identifying Ponzi schemes isn’t always a simple thing. For instance, the defunct crypto project Terra (LUNA) is viewed as a major crypto Ponzi scheme today. However, prior to the project’s demise in May 2022, it was among the top most projects in the space, going as far as to back its treasury with real Bitcoin prior to its colossal collapse.
Red flags often include promises of high and guaranteed returns, a lack of openness about the investment plan and basic mechanics, pressure to recruit new members, and an emphasis on referral bonuses or multi-level marketing schemes.
3. Giveaway Scams
In giveaway scams fraudsters typically guarantee to match or multiply the amount of crypto sent to them. These claims are nonsensical but have caught steam over the years. They effectively trick people into sending their coins to an address that has no intention of sending anything back; not even a thank you note.
Almost all crypto giveaway scams follow the same pattern of pretending to be a known influencer or organisation before asking unsuspecting users to send bitcoin to them. Transactions are irreversible for most blockchains, so once the funds are sent to the ‘giveaway’ address, they’re gone forever.
The easiest approach to protect yourself is to learn to spot this type of scam. Often enough, the saying “it’s a scam until proven otherwise” can be fairly helpful to avoid falling victim to such schemes. Beyond that, it’s vital to read beyond the promotional headline. This is understandably difficult in a world of TikTok and instant viral videos and entertainment. But when transactions of any kind are involved, it’s worth leaving no stone unturned.
2. Rug Pulls
A rug pull refers to fraudulent activities where developers or individuals closely associated with a project abruptly and intentionally drain liquidity or funds from a (typically) decentralised finance (DeFi) project, leaving investors holding a large bag of odorous financial excrement in the form of useless tokens.
Such rug pulls tend to happen in projects that are built on blockchains like Ethereum, Tron, Solana, where smart contracts govern the operation. Scammers create a seemingly legitimate project, attract investors and encourage investment into a token, only to pull liquidity once sufficient funds are ‘locked’ into the project.
Developers sometimes also build the project out with vulnerabilities only they are aware of in order to claim that the protocol was maliciously attacked. While malicious attacks on networks happen, project developers are the prime suspects when such vulnerabilities are exploited and funds are drained.
Rug pulls share key traits that can help you spot these scams and avoid becoming a victim. For one thing, there is frequently a lack of transparency regarding the identities of the developers or team members in rug pull initiatives. They may utilise aliases or provide insufficient information about their histories.
Furthermore, to entice investors, scammers may make misleading or exaggerated promises about the project’s potential, collaborations, or future advancements. Tokenomics in rug pull initiatives may also greatly favour creators or early investors.
1. Phishing Scams
Phishing is a popular technique which involves sending emails which appear to be from an established organisation like a bank or mortgage firm, or a legitimate company. The goal is to siphon user data, including login credentials and credit card numbers.
While phishing scams are prevalent everywhere, these scams have made their way into crypto too. Scammers target users to discover their wallet’s private keys, which can grant anyone access to funds stored in a wallet.
Scammers send emails with links to bogus websites and ask recipients to enter their private keys to carry out a phishing operation. Once this information is known, crypto can be moved and stolen.
To avoid phishing scams, consumers should exercise extreme caution when receiving unsolicited emails, messages, or conversations, particularly if they want personal information or contain urgent requests.
Crypto users should avoid clicking on embedded links in emails or messages unless they’re sure of their legitimacy.
Crypto adoption comes with challenges and opportunities. Among these challenges is the surge in the ever-changing quantity and quality of scams. Fraudulent ventures can range from a rug-pull and giveaway scam to more traditional forms such as ponzi schemes and phishing scams.
By no means should this knowledge deter enthusiasts or users from venturing into the space. Instead, users should practice a conservative approach when it comes to finance, and understand that fraudster play by a different rulebook.
Their goal is to deceive unsuspecting investors and steal funds. The only way to counter this is by being proactive in the learning process, adhering to common security measures like 2FA (not sms), and understanding tried and tested cryptos before venturing further.