How to Spot and Avoid Crypto Scams

Fraudulent schemes have existed for as long as we can remember. The internet is a notable tool used by these perpetrators to scam people of their hard-earned funds. It is no surprise that with cryptocurrencies becoming such valuable assets, fraudulent schemes to scam people of their crypto funds has been on the increase.

Cryptocurrency adoption has increased worldwide as people have come to accept digital currencies as a hedge against fiat currencies. Cryptocurrencies aren't just a better alternative to fiat currencies, but they are also considered assets. The meteoric rise of cryptocurrencies like bitcoin has gotten a lot of interest, as people are fascinated by the tales of early adopters who were able to turn thousands into millions. However, several may fall into the hands of fraudulent schemers while seeking an avenue to harness this fortune. Cryptocurrency scams refer to all fraudulent activities geared towards duping people of their crypto funds.

An amazing feature of cryptocurrencies is that their transactions cannot be reversed. This means that once a transaction is completed, it cannot be called back. This has helped safeguard the interests of persons performing business transactions, so no party defaults with payments. However, this may also come as a detriment to individuals who fall victims to cryptocurrency scams. This is because there is no way to reverse the funds transferred, which means the cryptocurrencies remain lost.

Cryptocurrencies scams are on the increase, with masked perpetrators duping people of their currencies online. The fact that transactions cannot be traced and are irreversible has made this a ripe business for scammers. Therefore there is a need to identify these crypto scams targeted at the crypto community.

Here are popular crypto scams to watch out for:

1. Social media scams

Everyone loves freebies which is why you would often find people super excited about crypto giveaways. It is not uncommon to find crypto companies or enthusiasts hosting a giveaway session. However, this has also created an avenue for crypto scammers to thrive. Social media scams are giveaway scams held on social media to lure crypto users. Crypto users are reeled in with promises of their cryptocurrencies being doubled. They are told to send in cryptocurrencies to an address with promises of their cryptocurrencies being doubled or even tripled.

This offer often seems too mouth-watering to be missed, which is why a lot of crypto users may be tempted to jump right in without thinking twice. These are usually a clone of popular crypto companies that you have come to trust. In order to validate their claims, you would see several false messages on their comment session confirming that they have indeed benefitted from such a giveaway. However, this is just a ploy to scam you of your hard-earned crypto funds.

It is doubtful that a legitimate giveaway would require that you send your crypto funds first before getting your prize. This is why you should be cautious so as not to fall into these scams. Suppose perhaps they look like they are from a genuine service provider. In that case, you should contact their customer support or visit their direct website to confirm the details of the giveaway.

Earlier in July 2020, high profile Twitter accounts of Joe Biden, Elon Musk, Bill Gates, and Barrack Obama were hacked, among several others, and one of the biggest crypto scams was pulled. Crypto users were asked to send bitcoin to a particular address with promises that it would be doubled. Several persons fell for that scam because of the popularity and personalities of these individuals.

2. Ponzi schemes

It is often said, especially when it comes to investment, "if it sounds too good to be true, then it most likely is." Perhaps, whoever said that might have had Ponzi schemes in mind. Ponzi schemes are investment opportunities with high profits but with promises of little to no risks. In fact, when you are being convinced of this investment scheme, you are informed that your profits are guaranteed. Investments come with many risks, which should be the first red flag you would notice in these investment schemes.

The interest or profit gained is not from the actual investment, but it is gotten from other investors' funds. The organizer sets up an "investment plan" promising investors a certain percentage for investing. The funds received from the investor are then added to a pool. In order to pay the older investors, they would need to add newcomers to the pool. A cut of the new entrants' funds is then paid to the old investors. Therefore, to pay investors their capital and interest, new entrants must be added to the pool. However, this is not sustainable as the inability to convince investors to participate in the scheme would lead to the collapse of the scheme.

3. Pyramid schemes

Pyramid schemes have the same base structure as a Ponzi scheme but involve a larger percentage of people, and it is more organised and structured. The organiser who is at the top of the pyramid hires new entrants who form the second tier of the pyramid. Each participant in the second tier of the pyramid hires a new set of entrants, forming the third tier of the pyramid. The pyramid grows and expands as new entrants are added to the "investment" scheme.  The person, an investor, introduces to the pyramid to earn his profit is known as a downline.

However, the remuneration structure is very much different from that of the Ponzi scheme. In order to participate in the pyramid scheme, investors are convinced to pay a certain amount for the rights to market a particular crypto product, token, or service. The organiser who brings in the second tier takes a cut from each participant's investment. The same goes for the second tier, which makes their profits from cuts from the third tier. However, it doesn't stop here; the organiser takes an amount from each participant brought in from the second tier, third tier, and so on. The second tier is also entitled to a cut from the third tier, the fourth tier up until the pyramid's end.

Through this structure, the wealth trickles upwards, and only stipends go to those at the lower bottom of the pyramid. Like the Ponzi scheme, the pyramid scheme is prone to dissolve because its source of revenue depends on finding new investors to make back your capital and some profits. Crypto projects that have faced the backlash of the public for allegedly running pyramid schemes include PlusToken, Bitconnect among others.

4. Phishing scams

Crypto scammers would leave no stone unturned to get access to your account, and they are often able to do that through phishing. Phishing scams are one of the most popular cryptocurrency scams designed to steal your personal information to access your crypto wallet. Newcomers in the crypto space are often more prone to phishing crimes.

The scammer, in this case, impersonates a trusted person or company to extract personal information from the victims. Phishing crimes can occur through messaging apps like telegram, websites, SMS, emails, and even telephone calls. The scammer can achieve this through spoofing, which involves creating a website clone or disguising an email address to imitate the legitimate company. They may alter some details, which is often not so evident, so the crypto users cannot detect these changes.

The scammer then proceeds to send you an email informing you about a problem with your crypto exchange. You are requested to provide your credentials to have this problem resolved. They prey on the fear of crypto users about having issues with their crypto wallets that may threaten their cryptocurrencies. Immediately you provide them with these details, they can log into your account and then steal your crypto funds.

One popular means through which crypto scams can perpetuate their crime is by lurking around in the official groups of crypto exchanges or wallets as members. When a user reports a problem, they mask as a customer support member and contact the member directly. In the disguise of solving the user's issues with their account, they urge them to disclose their personal details. You may get emails notifying you of something wrong with your exchange account, which requires you to follow a link to fix the problem. That link will redirect to a fake website – similar to the original one – that will prompt you to log in. This way, the attacker will steal your credentials and possibly your cryptocurrencies. It is vital that you don't take any unsolicited assistance from anyone but only from the official support team of your service provider.

Phishing scams are perpetrated by scammers in various ways. Some include:

Email

While Yellow Card’s support email is support@yellowcard.io, a phisher might disguise themself by sending you an email from support@yellowcard.xyz or yellowcardcenter@gmail.com. Make sure you ONLY mail support@yellowcard.io for legitimate Yellow Card Customer Support.

The aim of such an email is to get you to either send your personal details in response to the mail or click on a malicious link that is part of an elaborate scam.

What to note

SMS

You may receive a text message that looks like it was sent from Yellow Card but isn’t. Usually, these text messages invite you to click a link to win a prize or stop an authorised transaction on your account.

What to note

Telegram

Telegram is a social messaging platform that allows communities to stay in touch, pass useful information and help one another. However, scammers have turned to this platform to prey on members of crypto communities by sending phishing messages to them.

These messages usually offer unsolicited assistance and request for your personal information such as your Yellow Card account phone number, email address or password.

What to note

Website

Scammers go to great lengths to design websites that mirror a legitimate site and direct unsuspecting users to such fake sites via emails, SMS or social media. They then collect sensitive information when users interact with these fake sites.

Such websites have URLs that closely look like the real website’s. For example, any webpage on any domain other than yellowcard.io is most likely a phishing site, no matter how closely it resembles our website just like in the example below.

What to note

Learn more about phishing and how to avoid them.

It would help if you kept in mind certain tips that would safeguard you against exploitation by these crypto scammers and protect other crypto users.

It is essential that in no circumstance should you reveal your account details to anyone on social media. If you have any problem with your account, you should contact the company's official support group. You should also ensure that the email address is the correct one by confirming on the company's website. Most crypto exchanges or wallets wouldn't request your password or crypto address before solving their issues. They have your account information on their systems. They can easily confirm your identity without you having to provide such sensitive information.

Once you note any phishing account or profile, it is your responsibility to report and block these accounts to protect other crypto users' interests, so they don't fall prey to such a cryptocurrency scam.

A good tactic is to bookmark the official website of your service provider, so you don't mistakenly log into a clone website. You should also follow only the official social media accounts of your service provider to stay informed about the happenings in the company of your service provider.

Cryptocurrency scams are on the increase, which means you have to be more cautious to identify and avoid them. Firstly, as impressive as a giveaway may sound, if it requires that you send any crypto first before you can benefit from it, then it is best you steer clear from it. You should never reveal your details to anyone because they could use that to steal your funds. Cryptocurrencies have enough risks without you having to worry about being scammed.