Key Takeaways

• Cryptocurrency scams, such as pyramid schemes, ICO scams, and pump-and-dump schemes, are prevalent due to the large amounts of money involved in the crypto industry.
• Scammers often use advanced tactics, such as impersonation scams and fake websites, to trick victims and steal their cryptocurrency.
• It is crucial for individuals to stay vigilant and scrutinize any crypto platform before using it to protect themselves from falling victim to crypto scams.

Love or hate cryptocurrency, there is an awful amount of money involved. Wherever there are great sums of money, especially money that is easy to disappear, like cryptocurrencies, you'll find scammers—and lots of them.

Crypto advocates love crypto for its privacy and anonymity, but that's also why criminals and scammers love it too. Accordingly, we've seen some enormous cryptocurrency scams over the years, using all types of scamming methods to part users from their crypto holdings.

1. Pyramid Schemes

A pyramid scheme, or Ponzi scheme, is an investment scam involving organizers soliciting people to invest in a program and promising better returns for recruiting other people into the program. Ponzi scheme scams have made their way into cryptocurrency and are now one of the most damaging scams.

For instance, members of a crypto community are promised an unrealistic return for their investment, such as 10% interest per week. The organizers devise a seemingly convincing reason, such as crypto arbitrage activities, to explain how they generate the returns. Once investors join the program, they are asked to recruit more affiliates to increase their earning potential.

Meanwhile, the invested amount moves up the pyramid, with each recruiter getting a cut until it reaches the organizers, who can use it for personal expenses. At some point, the pyramid scheme becomes unsustainable and collapses. According to CoinMarketCap, two of the largest crypto scams, Onecoin and Bitconnect, cost investors a combined sum of $9.3 billion.

2. Initial Coin Offerings

An Initial Coin Offering (ICO) is a fundraising exercise that uses smart contracts and cryptocurrency to automate payments between an organization and its stakeholders. ICOs are used by cryptocurrency companies to raise money from future users. While many great companies have been built using ICOs, many fundraising exercises have turned out to be scams.

ICO scams spend months promoting their fundraising exercises despite not having functional products or services. They employ different techniques, including offering bounties for guerrilla marketing, raising money, and making enticing promises. Then, once they've raised enough funds, they cease all communications with their investors.

Many ICOs seem to be operated by legitimate entrepreneurs with good track records. In many cases, it later turns out that the supposed "entrepreneurs" are faceless criminals using the identities of other people. Some projects go as far as getting the public support of reputable names in the industry.

It's often difficult to distinguish between a legitimate and fake ICO. This is partly because ICOs are carried out online without face-to-face interaction between the organization and stakeholders. Furthermore, even legitimate ICO projects can lose investor money if they get hacked!

3. Pump-and-Dump Schemes

Pump-and-dump scams are not a recent phenomenon, but cryptocurrency technology has made these types of scams much easier to execute. Everything can be done online. A scammer starts by creating a crypto token and setting up the underlying technology with a white paper and everything that would make it seem like a legitimate crypto project.

They add willing social media influencers to private online forums and coordinate buying crypto assets to create a natural market trend with no spikes. Once they're done and ready, they start pumping the assets to their followers on social media. Would be investors buy the token, pushing the token's price further.

Then, the organizers will coordinate a dump (also known as a rug pull), which involves selling the tokens, ensuring anyone in the inner circle makes a profit. Meanwhile, regular folks are left holding valueless tokens, and before they know it, the price of the tokens drops to zero, and the scammers abandon the project.

A good example of a pump-and-dump scam is the Squid Game token. In 2021, the Squid Game crypto token creators disappeared with more than $3 million, but the real cost was much higher. According to Chainalysis, crypto investors lost $4.6 billion buying into suspect pump-and-dump tokens in 2022

4. Bitcoin Mining Scams

Over the years, Bitcoin mining has become much harder to carry out. Now, making a profit from mining operations requires more advanced hardware, which is often more difficult to acquire and use by the average person. This makes people more willing to outsource cryptocurrency mining to others.

Consequently, scammers have taken advantage of people's willingness to employ cryptocurrency mining services. The operators of cryptocurrency mining scams try to convince their victims to invest in their mining pool so that they can gain significant returns. The scammers usually stop responding to their victims' messages after receiving the funds.

The criminals behind Bitcoin mining schemes may also try to convince their victims to bring in new investors. These schemes usually involve money being taken away from new investors to pay earlier investors until the cycle of payments can no longer be sustained.

5. Impersonation Scams

Impersonation crypto scams come in all shapes and sizes but follow a standard sequence of events. The scammer pretends to be someone they are not. They interact with potential victims, employing social engineering tactics. They ask the victims to share personal information—which they can use to gain access to the victims' assets—or contribute cryptocurrency for a fake cause.

For instance, tech support scams occur when scammers pretend to be customer service agents for reputable crypto platforms, interact with customers to get sensitive data, such as private keys, and use it to defraud them.

Senior citizens are especially vulnerable to such scams due to their unfamiliarity with the digital space. The FBI IC3 unit reported over $1 billion in losses for American senior citizens in 2022.

Meanwhile, romance crypto scams involve scammers, often using pseudo-identities, who forge romantic relationships with victims for months. Once they've gained their trust, they use made-up sad stories to guilt their victims into sending cryptocurrency to support them. They continue to solicit more money until the victim catches on, and then they disappear.

6. Cryptocurrency Giveaway Scams

Cryptocurrency giveaway scams use social engineering to convince investors to send their cryptocurrencies to receive a larger volume of tokens. During the non-fungible tokens (NFT) craze, NFT giveaway scams were especially popular. Such scams can be quite convincing, especially when scammers impersonate celebrities to persuade their victims.

All popular social media platforms are used to carry out cryptocurrency giveaway scams. On YouTube, scammers add comments to videos posted by tech influencers. The comments convince some viewers to participate in fake cryptocurrency giveaways. Many people assume that the giveaways are legitimate because of their association with credible names in tech.

Twitter accounts have also been used to steal money from people expecting cryptocurrency giveaways. Criminals impersonate celebrities and high-profile figures in the technology industry to gain the trust of users on the platform. Giveaway posts are made from the scammer's fake profile, their timeline, and the posts of other Twitter users.

7. Fake Websites Scams

Fake website scams demonstrate the ability of the cybercrime industry to continuously find new ways to defraud innocent people. In this case, scammers create full-fledged websites that represent or look similar to legitimate crypto platforms. They then trick investors into connecting their crypto wallets to perform crypto transactions.

The hackers can gain access to cryptocurrency wallet users' data once they obtain their exchange and wallet information. The data can also be used to log into the personal accounts of victims, an activity known as black hat hacking.

Airdrop scams use fake websites and DApps to conduct their activities. Also, other scammers can use fake websites to prompt users to download software. A user, believing they are using a legitimate website, may download malicious software that steals information from their device or install a piece of ransomware.

8. Yield Farming Incentives

Yield farming is a decentralized finance innovation that makes earning returns from staking cryptocurrencies possible. Yet, not all yield farming projects are legitimate. Some are out here to steal from you.

Crypto scammers copy the code of legitimate yield farming projects and add their malicious code to steal funds. Other scammers have gone so far as to pretend to be legitimate for long periods before pulling the rug from investors and fleeing with all the funds.

The faceless nature of the yield farming ecosystem makes it very difficult to ascertain whether a project is legitimate. Even where projects are legitimate, there is always a risk that the code of the project could have bugs exploited for profit.

In more recent times, concerns have grown that more scammers will create fake hacks so that they can shift the blame for the loss of money from themselves to an "unknown" criminal.

9. Email-Based Crypto Scams

It's no secret that online privacy is slowly becoming a hard ball to catch for most of us. Data leaks and privacy-averse user agreement policies have become prevalent in recent years. This makes it much easier for scammers to obtain your contact details from the dark web or from legitimate services that you use.

With your contact details, a scammer can pretend to be of a service you use and send you an email with a malicious link on the email body. The email could contain a description of an issue requiring immediate attention. This is done to make the victim more willing to click on a malicious link or access a fake website, where they may give away their details without realizing it.

Email scams can be very easy to fall for because most people have a lot of trust in the services they use and would not usually expect an email from a familiar service to be malicious.

Staying Safe in the Crypto Wild West

While cryptocurrencies are changing the world, many lives have been destroyed by scams in the sector. It is very important to always look out for red flags (both new and old) when using cryptocurrency platforms.

Cryptocurrency technology has automated many financial processes and put banking in the hands of the people. This can mean that you could be the weakest link in the cybersecurity chain and the target of a crypto scam. Therefore, you should always scrutinize any crypto platform before using it.