Top Cryptocurrency Scams to Be Aware Of (And How to Spot Them)

Sep 2, 2021 | Digital Finance, Foundations, Investing

Any time there’s money involved, you can be sure thieves are close behind. Cryptocurrency is no different. To invest safely, you need to be aware of some of the most common cryptocurrency scams to avoid falling prey to them. 

Fake Coins 

With so many different types of coins out there, it’s easy for scammers to try to hook you in with a fake coin. You may be looking to add different types of cryptocurrency for diversification. You may also think that there’s a higher potential return if you invest in a new coin versus one that has already seen its price soar. 

“Fear of missing out, or FOMO, is what scammers prey on. They will tell you to look at Bitcoin and other popular coins and see what they have done – and have you imagine if you bought them early. They’ll then tell you that their coin is the next big thing.” 

Clay Epstein, Chief Information Security OfficerFabriik 

Fake Exchange

Scammers can also fake the exchange itself. The goal of a fake exchange is to get you to deposit your cryptocurrency without you actually investing in anything. Depending on the sophistication of the scam, the scammers may create a convincing website that tricks you into making an initial deposit. A more in-depth scam is to fake trading activity so that you keep depositing money and don’t realize you’re being scammed. 

BitKRX is one of the most famous examples. KRX is a legitimate South Korean trading platform for more traditional investments. BitKRX was a total fabrication that wanted its victims to believe it was affiliated with KRX. Many victims deposited money only to find out that they couldn’t withdraw it. 

ICO Scams 

An ICO is an initial coin offering. This works similarly to fake coin cryptocurrency scams. The scammers announce that they have a new coin, collect funds, and then disappear. Investors never actually get anything of value. 

The distinction from a fake coin scam is that an ICO promises a new coin, while a fake coin scam usually offers a coin that supposedly already exists. Since the coin in an ICO is new, investors never suspect anything is wrong with it not having a trading history.  

The largest ICO scam was the Petro-scam. It took investors for US$735 million. 

Exit Scams 

An exit cryptocurrency scam is the next level of an ICO scam. In an exit scam, the scammers also launch a fake new coin. In a more elaborate scam, the scammers will operate for some time after the initial offering allowing investors to trade the fake coin and even sell to other investors. Here, the scammers are waiting for prices to rise before they start pulling out their money, leaving investors to realize there never was a real coin and it was a scam. 

DeFi100 made the crypto news headlines as a potential exit cryptocurrency scam. There is debate over whether the founders ran off with US$32 million raised in an ICO or if hackers have temporarily disrupted operations and took the money while the founders were continuing to try and get the new coin going. 

Impostor Websites 

Another tactic scammers use involves trying to replicate a legitimate website so that you give your money or sensitive information to them instead. They will create a near replica with a URL that is often just one character different from the real URL. 

One common way for scammers to get you onto an impostor website is via email. They send an advertising offer or pretend to be giving you information about your existing account. If you click the link thinking the email is legitimate, you may not realize that you ended up on a scam website instead. 

Fake Apps 

Fake apps work similarly to impostor websites. That might pretend to be a legitimate exchange or a tool that helps you use a legitimate exchange. The app could also be an entirely fake exchange. Once you download the app, scammers try to get you to deposit money or collect your information. The app may also contain malware. 

The Poloniex exchange has been hit with several fake app scams. Even with the exchange working with the app stores, fake apps keep slipping through until defrauded users start flagging them. Be sure to look for apps with the correct credentials and double-check third-party sources to confirm. 

Technical Support Impersonators 

There are two types of technical support impersonators. Some are trying to get you to find them, and others reach out to you. 

One version of the scam is to create a website giving solutions to common problems. For example, you may have forgotten your password, or the website may not function correctly on your browser. The website will have at least a partial answer to rank in search results, but the scammers place their own phone number or email address on it. When you call in thinking you’re talking to the exchange, the scammers tell you they need your account information to help you and use it to drain your account or commit other identity theft. 

Other scammers will contact you. They may have found your email or phone number, or they could just be spamming everyone and hoping people with accounts respond. They tell you that there is a problem with your account and that they need to verify your information. 

Extortion 

Cryptocurrency is a good medium for extortionists because it’s irreversible and hard to trace. The scammer will threaten to do something unless you pay them in cryptocurrency. This could be to release your private photos or to drain even more money out of your bank account that they say they have the password to. 

One common extortion scam is the IRS scam. The scammer, usually in another country, says that you owe tax and will be arrested if you don’t pay immediately. 

Pump-and-Dump 

A pump-and-dump is where investors drive up the price of an asset far above its actual value so that they can sell their own shares at a large gain. This is accomplished through combinations of fake news and investors placing trades at inflated prices. The scammers may also use celebrity endorsements. Once the price soars, the scammers cash out and whoever bought last, before the price falls again, loses out. 

Pump-and-dump scams are harder to identify because investing is speculative and unsuspecting investors participate in driving up the price. One way to protect yourself is to have as much information as possible before trading so that you can try to figure out if price swings make sense. 

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