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The volatility of cryptocurrencies in recent years has led to an influx of investors looking to cash in on the emerging asset. And cryptocurrency-based assets and systems, like non-fungible tokens (NFTs) and decentralized finance (DeFi), may add to the allure with potential new ways to make money. But with cryptocurrencies becoming more mainstream, the Federal Trade Commission (FTC) has also seen cryptocurrency investment scam losses skyrocket. Between October 1, 2020, and March 31, 2021, the FTC received 6,792 cryptocurrency investment scam reports, with over $80 million in reported losses.
This potential for fraud might encourage you to use caution when making cryptocurrency investments and managing your crypto portfolio. Here are some of the common cryptocurrency-related scams to watch out for.
1. Phishing Scams
Phishing is a classic scheme in which a scammer attempts to get your personal information, such as your name, address, Social Security number and passwords. Or, if you're a cryptocurrency investor, a scammer's efforts might be focused on nabbing the seed words or private key from one of your cryptocurrency wallets.
Phishing scams can take different forms and may originate from a seemingly innocuous phone call, text or email. Cryptocurrency phishing scams are also common on forums, messaging apps and social media sites.
The scammer will often impersonate someone else, such as an authority figure or company representative. They'll then try to trick you into sharing your info.
For example, if you post that you need help with a cryptocurrency platform, the scammer might reach out to you and pretend to be part of the customer service team. They might ask you to fill out a form or share access to your computer so they can help. Once they get an opportunity, however, they'll take your information and potentially transfer your digital assets to an account they control before you even know what's happening.
2. Giveaway Scams
High-profile celebrities and businesspeople often legitimately discuss cryptocurrencies online. Giveaway scams build on this established trend to extort victims. The scammers will often pose as well-known people, even creating social media profiles with their pictures and bios.
The scammer might declare that they're giving away cryptocurrency tokens. To qualify for the "giveaway," you have to send them money, and then they'll send you back even more. In reality, they'll simply take your money and disappear.
3. Investment Scams
You'll also want to watch out for phony investment pitches. The scammers might tell you to visit a website to learn more about the potential "opportunity," or they may ask you for money directly. They could also be impersonating someone else—scam methods might be built on top of one another or combined to create new scams.
Exit scams and "rug pulls" are two common types of investment scams in the crypto space.
- An exit scam could be when a company raises money with an initial coin offering (ICO), but then quickly exits and steals the funds without creating an actual product.
- A rug pull is a specific type of exit scam that happens in the DeFi space's decentralized exchange (DEX). With a rug pull, a new coin is created and listed on an exchange—they might try to heavily promote it online as well. Once people swap their cryptocurrencies for the new coin, the coin's developers pull out of the project and leave investors with worthless coins.
You also have to watch out for more traditional scams, such as Ponzi and pyramid schemes, and people who promote projects simply because they have a financial stake. You might even be contacted by an unsuspecting person who got caught up in the scam and doesn't realize they're spreading an illegitimate opportunity.
4. Fake Apps and Websites
Cybercriminals may create fake websites and apps, complete with names that are nearly identical to well-known and trusted cryptocurrency services.
If you mistake these websites for the real thing and enter your personal or account information, the scammers may be able to steal your identity or cryptocurrency. In some cases, you might inadvertently use the service to send your cryptocurrencies directly to the scammers' wallets.
5. Blackmail Scams
Some criminals will try to blackmail you with incriminating or embarrassing information that's either real or entirely made up. For instance, they might threaten to send compromising videos or pictures of you to everyone in your phone or email contact list. Or, they may keep the threat vague, saying that they'll share "a secret" without naming it specifically.
Cryptocurrency comes into the mix because the scammers will often demand payment via Bitcoin or another cryptocurrency. You can report these extortion or blackmail attempts directly to the FBI.
6. Cryptocurrency Twists on Established Scams
Many scams may not target your cryptocurrency assets specifically, but simply use cryptocurrencies as a way to collect money from their victims. These scams usually aren't unique to cryptocurrency investors. Common scams include:
- Romance scams: When someone forms a personal (romantic or platonic) relationship with you and then asks for money.
- Employment scams: When you're offered a job but have to pay for an initial training, software or other products before you can start.
- Marketplace scams: When you're asked to send cryptocurrency for an item you're buying through an online marketplace.
No matter the initial approach, in the end, you'll be asked to send the other party cryptocurrency payments. In some cases, the scammers may ask for more (romance scams can be dragged out for months or years) before they stop responding.
Follow a Few Key Rules
Cryptocurrency scams can be trickier to identify than other scams because the technology and terminology may be unfamiliar to many people. And fraudsters might use victims' lack of understanding about cryptocurrencies to appear more menacing or legitimate. There may also be an added sense of pressure to act quickly—before you "lose out" on an opportunity.
Here are a few guidelines that can help protect you:
- Never share your private keys or seed phrases with anyone.
- Don't send cryptocurrency to people claiming to work for a government agency or large corporation.
- Enable multi-factor authentication when it's an option.
- Ignore anyone who promises to give you free money or says you're guaranteed to make money on an investment.
If you're unsure, you can search for the details related to the website, app or cryptocurrency in question and "scam" or "review" to see what other people have reported.
How to Report Cryptocurrency Scams
If you've fallen victim to a cryptocurrency scam, you can report it to the FTC, Commodity Futures Trading Commission (CFTC) and U.S. Securities and Exchange Commission (SEC).
You may also want to report the scam to the cryptocurrency project or platform that's being utilized in the scheme. If you're approached on a messaging or social media platform, you could also report the person to a group administrator who can ban the user or warn others about the person who tried to scam you.
Monitor and Protect Your Identity
Many scams don't involve complicated hacks or technology. Instead, they rely on social engineering—when the perpetrator tricks you into sharing your information or sending them money. Because cryptocurrency transfers can't be reversed, victims might not have a lot of recourse. All the more reason to be extra careful.
To help keep your finances safe from bad actors, you could look into identity theft protection services that alert you if your personal information is compromised. Some programs, including Experian Premium membership, also come with identity theft insurance, which can help cover the cost and process of restoring your identity if it's stolen.