Today, the fast-changing state of the cryptocurrency market and the type of impact it will have on the future of commerce is one of much debate. However, it is clear that individual, institutional, and even retail investors are paying a lot of attention into cryptocurrency investment and transactions. Scammers and hackers are paying equal amounts of attention to such investments as well.
According to the Federal Trade Commission (FTC) Consumer Sentinel, from October 2020 through March 31, 2021, reports of crypto-related scams skyrocketed to nearly 7,000 people reporting losses of more than $80 million. These figures reflect a 12-fold increase in the number of reports compared to the same period a year ago and a nearly 1,000% rise in reported losses.
Understanding common types of scams and what kinds of things you can do to protect yourself from being cheated are more important than ever.
The mad rush into cryptocurrency over the past several years has caught the attention of all kinds of investors, but it has also caught the attention of scammers.
Crypto scams most often aim to gain private information such as security codes or trick an unsuspecting person into sending cryptocurrency to a compromised digital wallet.
Social engineering scams such as giveaways, romance scams, phishing, extortion emails, and others mentioned within the article are a problem in broader society, but they are especially prevalent when it comes to cryptocurrency.
Types of Cryptocurrency Scams
Generally, 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.
New crypto-based opportunities: initial coin offerings (ICOs) and non-fungible tokens (NFTs)
With the rise of new crypto-based investments such as initial coin offerings (ICOs) and non-fungible tokens (NFTs), there are now even more avenues for scammers to try to gain access to your money. The background of these investments is beyond the scope of this article, but what’s important to know is that although crypto-based investments or business opportunities may sound lucrative, this 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 tokens that are unregulated by U.S. securities laws or mislead investors about their products through false advertising.
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 funds within the wallet. Their method of working is like that of many standard scams. They send an email leading holders to a specially created website that asks them to enter private key information. When the hackers have acquired this information, they can steal the cryptocurrency contained in those wallets.
Example of such can be seen in MetaMask, Phantom, PancakeSwap platform phishing scam reported by Check Point Research on Nov 4th, 2021; which used google ads and fake URLs to scam away at least $500,000.
DeFi rug pulls
These are the latest type of scam to hit the cryptocurrency markets. Decentralized finance, or DeFi, aims to decentralize finance by removing gatekeepers for financial transactions. In recent times, it has become a magnet for innovation in the crypto ecosystem. However, the development of DeFi platforms is beset with its own problems. Bad actors have made away with investor funds via such avenues. This practice, known as a rug pull, has become especially prevalent as DeFi protocols have become popular with crypto investors interested in magnifying returns by hunting down yield-bearing crypto instruments.
Examples of such can be seen in the NBC News report on Nov 2nd, 2021 where malicious creators of Squid Games themed Squid cryptocurrency cashed out and disappeared with $3 million.
The Bottom Line
For many people, mad rush into cryptocurrencies has evoked feelings of the Wild West. As the crypto ecosystem continues to gain scale and complexity, it will undoubtedly remain a top focus of scammers. As mentioned above, crypto scams generally fall into two main categories: socially engineered initiatives aimed at obtaining account or security information and having a target send cryptocurrency to a comprised digital wallet. By understanding the common ways that scammers try to steal your information (and ultimately your money), you will hopefully be able to spot a crypto-related scam early and prevent it from happening to you.