Beware of cryptocurrency scams

Thoughts about the American frontier, also known as the Wild West, often evoke visions of anarchy and expansion into new unknown territories. This period is often characterized by volatility, risk, reward, and loss. Feelings of what the Wild West was like often strike close to home for those who find themselves in a period in history where new markets, manufacturing processes, or technological innovation enhance traditional ways of living or doing business.

Today, the changing state of the cryptocurrency market and the kind of impact it will have on the future of trading trigger many similarities to the sentiments mentioned above. As the attention of retail investors, speculators, and various types of institutional investors continues to turn towards the lucrative cryptocurrency markets, so too is the attention of scammers and con artists.

According to the Federal Trade Commission’s Consumer Sentinel, from October 2020 to March 31, 2021, reports of cryptocurrency-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 last year and a nearly 1,000% increase in reported losses.

Given the exponential rise in crypto scams being reported, it is important to know the common types of scams and what kinds of things you can do to protect yourself from being scammed.

Key takeaways

  • The mad rush towards cryptocurrencies over the past few years has caught the attention of all kinds of investors, but it has also caught the attention of scammers.
  • Crypto scams are often aimed at obtaining private information, such as security codes, or tricking an unsuspecting person into sending cryptocurrencies to an embedded digital wallet.
  • Social engineering scams like giveaways, romance scams, phishing, extortion emails, and others mentioned in the article are a problem in mainstream society, but they are especially prevalent when it comes to cryptocurrencies.

Types of cryptocurrency scams

Broadly speaking, cryptocurrency scams fall into two different categories:

  1. Initiatives aimed at gaining access to a target’s digital wallet or authentication credentials – This means that scammers seek to obtain information that gives them access to a digital wallet or other private information, such as security codes. In some cases, this even includes access to physical hardware.
  2. Transfer cryptocurrency directly to a scammer due to spoofing, fraudulent investments or business opportunities or other malicious means.

Social engineering scams

Social engineering scams are those in which scammers use psychological manipulation and deception to gain control of vital information related to user accounts. The basis of these types of scams conditions people to think that they are dealing with a trustworthy entity, such as a government agency, a well-known company, technical support, a member of the community or a friend. Scammers often use whatever angle or amount of time it takes to gain the trust of a potential victim, in turn revealing key information or sending money to the scammer’s digital wallet. When one of these trusted connections demands cryptocurrency for whatever reason, it can often be a sign of a scam.

Romantic scams

Scammers often use dating websites to make unsuspecting targets believe that they are in a real long-term relationship. Once trust has been granted, conversations often turn to lucrative cryptocurrency opportunities and the eventual transfer of coins or account authentication credentials. About 20% of the money people reported losing to romance scams was in cryptocurrencies.

Imposter and gift scams

Moving down the sphere of influence, scammers also try to pose as famous celebrities, businessmen, or influencers in cryptocurrencies. 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 gift scam. Well-crafted messages from what can often look like a valid social media account can often create a sense of validity and generate a sense of urgency. This mythical “once in a lifetime” opportunity can lead to people transferring funds quickly in hopes of an instant return. For example, in the six months leading up to March 31, 2021, there have been reports of more than $ 2 million in cryptocurrency transferred to Elon Musk copycats. According to the FTC, 14% of the losses reported to imposters of all kinds are now in cryptocurrencies.

Phishing scams

Within the context of the cryptocurrency industry, phishing scams target information pertaining to online wallets. Specifically, scammers are interested in the private keys of the crypto wallet, which are the keys necessary to access funds within the wallet. Their method of working is like that of many standard scams. An email is sent that takes the holders to a specially created website that asks them to enter private key information. When hackers have acquired this information, they can steal the cryptocurrency contained in those wallets.


Phishing scams are some of the most common attacks on consumers. According to the FBI, more than 114,700 people fell victim to phishing scams in 2019. Together, they lost $ 57.8 million, or about $ 500 each.

Blackmail and extortion scams

Another popular method of social engineering used by scammers is sending blackmail emails. In such emails, the scammers 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 types of cases represent a criminal extortion attempt and must be reported to an enforcement agency such as the FBI.

Investment scams or business opportunities

The adage “if something sounds too good to be true, then it probably is” is one to keep in mind for anyone venturing into investing in general, but it is especially true for cryptocurrencies. Countless profit-seeking speculators turn to deceptive websites offering guaranteed returns or other setups in which investors need to invest larger sums of money to guarantee even higher returns. While funds flow freely inward, these bogus guarantees often lead to financial disaster when people try to get their money out and find they can’t.

New Cryptocurrency-Based Opportunities: Initial Coin Offerings (ICO) and Non-fungible Tokens (NFT)

With the rise of new cryptocurrency-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 to these investments is beyond the scope of this article, but what is important to know is that crypto-based investment or trading opportunities may seem lucrative, but sometimes they don’t reflect a real reality. For example, some scammers create fake ICO websites and instruct users to deposit cryptocurrency in a compromised wallet. In other cases, the ICO itself may be at fault. The founders could distribute tokens that are not regulated by US securities laws or mislead investors about their products through false advertising.

DeFi Carpet Pulls

DeFi carpet pulls are the latest type of scam to hit the cryptocurrency markets. Decentralized finance, or DeFi, aims to decentralize finance by removing the gatekeepers of financial transactions. In recent times, it has become a magnet for innovation in the crypto ecosystem. However, the development of DeFi platforms is fraught with its own problems. Bad actors have taken investors’ funds through such avenues. This practice, known as carpet tugging, has become especially prevalent as DeFi protocols have become popular with crypto investors interested in increasing returns by looking for yield-generating crypto instruments.

The bottom line

For many people, the excitement and mad rush towards cryptocurrencies has brought wild west feelings to the surface. As the crypto ecosystem continues to gain scale and complexity, it will undoubtedly continue to be a main focus of scammers. As mentioned above, crypto scams generally fall into two main categories: social engineering initiatives aimed at obtaining account or security information and having a target send cryptocurrencies to a composite digital wallet. By understanding the common ways that scammers try to steal your information and ultimately your money, hopefully you can catch a crypto-related scam early and prevent it from happening to you.

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About the author

Mark Holland

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