Thoughts of the American border, also known as the Wild West, often conjure up visions of anarchy and expansion into new, uncharted territory. This period is often characterized by volatility, risk, reward and loss. Feelings of what it was like in the Old West often strike first those who find themselves in a period of history when new markets, manufacturing processes or technological innovations are disrupting traditional lifestyles or commerce.
Today, the rapid evolution 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 shift to the lucrative cryptocurrency markets, so does the attention of crooks and cheaters.
According to the Federal Trade Commission’s Consumer Sentinel, from October 2020 to March 31, 2021, reports of crypto-related scams skyrocketed to nearly 7,000 people reporting losses of over $ 80 million. These figures reflect a 12-fold increase in the number of reports compared to the same period a year ago and an almost 1,000% increase in reported losses.
With the exponential increase in reported crypto scams, it’s important to be aware of the common types of scams and the types of things you can do to protect yourself against fraud.
Key points to remember
- The crazy cryptocurrency rush over the past few years has caught the attention of all kinds of investors, but it has also caught the attention of crooks.
- Crypto scams are most often aimed at obtaining private information such as security codes or tricking an unsuspecting person into sending cryptocurrency to a built-in digital wallet.
- Social engineering scams such as giveaways, romance scams, phishing, extortion emails and others mentioned in the article are a problem in society at large, but they are particularly prevalent in regarding cryptocurrency.
Types of cryptocurrency scams
Generally speaking, cryptocurrency scams fall into two different categories:
- Initiatives to gain access to a target’s digital wallet or credentials: This means that crooks seek 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 identity theft, fraudulent investment or business opportunity, or other malicious means.
Social engineering scams
Social engineering scams are those in which crooks use psychological manipulation and deception to gain control of vital information relating to user accounts. The basis of these types of scams conditions people to think they are dealing with a trusted entity such as a government agency, well-known company, tech support, community member, or friend. Scammers will often use any angle or time needed to gain the trust of a potential victim to in turn reveal key information or send money to the scammer’s digital wallet. When one of these trusted connections demands cryptocurrency for some reason, it can often be a sign of a scam.
Scammers often use dating sites to trick unsuspecting targets into believing that they are in a real, long-term relationship. Once trusted, conversations often turn to lucrative cryptocurrency opportunities and the eventual transfer of coins or account credentials. About 20% of the money people said they lost in romance scams was in cryptocurrency.
Scams by impostors and giveaways
Going down the sphere of influence, crooks also try to impersonate celebrities, businessmen or cryptocurrency influencers. To capture the attention of potential targets, many scammers promise to match or multiply the cryptocurrency sent to them in what is called a free scam. A well-crafted post from what can often look like a valid social media account can often create a sense of validity and trigger a sense of urgency. This mythical “once in a lifetime” opportunity can cause people to transfer funds quickly in the hope of an instant return. For example, in the six months leading up to March 31, 2021, it was reported that over $ 2 million in cryptocurrency was transferred to Elon Musk impersonators. According to the FTC, 14% of losses reported to impostors of all types are now in cryptocurrency.
In the context of the cryptocurrency industry, phishing scams target information related to online wallets. Specifically, the crooks are interested in the private keys of crypto wallet, which are the keys needed to access the funds in the wallet. Their method of working is similar to that of many standard scams. Primary card holders are emailed to a specially created website asking them to enter private key information. When the hackers have acquired this information, they can steal the cryptocurrency contained in these wallets.
One of the most common attacks against consumers is phishing scams. According to the FBI, more than 114,700 people were victims of phishing scams in 2019. Together they lost $ 57.8 million, or about $ 500 each.
Blackmail and extortion scams
Another popular social engineering method used by scammers is to send blackmail emails. In such emails, the crooks claim to have a record of the adult websites or other illicit web pages visited by the user and threaten to expose them unless they share private keys or send messages. cryptocurrency to the scammer. These types of cases represent attempted criminal extortion and should be reported to a law enforcement agency such as the FBI.
Investment or business opportunity scams
The adage “if something sounds too good to be true then it probably is” is one to keep in mind for anyone venturing to invest in general, but it is especially true for cryptocurrencies. Countless profit-seeking speculators turn to deceptive websites offering guaranteed returns or other setups where investors have to invest the larger sums of money to secure even bigger returns. As funds flow freely inward, these bogus guarantees often lead to financial disaster when individuals try to get their money out and find they can’t.
New crypto-based opportunities: initial coin offerings (ICO) and non-fungible tokens (NFT)
With the rise of new crypto-based investments, such as Initial Coin Offerings (ICOs) and Non-Fungible Tokens (NFTs), there are now even more possibilities for crooks to try and gain access to your money. The context of these investments is beyond the scope of this article, but what is important to know is that crypto-based investments or business opportunities may seem lucrative, but sometimes they do not reflect real reality. For example, some crooks create fake websites as ICOs and ask users to deposit cryptocurrency into a compromised wallet. In other cases, the ICO itself may be at fault. Founders could distribute tokens that are not regulated by US securities laws or mislead investors about their products through false advertising.
DeFi Mat Handles
DeFi Mat Draws are the latest type of scam to hit the cryptocurrency markets. Decentralized finance, or DeFi, aims to decentralize finance by removing the controllers of financial transactions. In recent times, it has become a hub of innovation in the crypto ecosystem.
However, the development of DeFi platforms faces its own challenges. Bad actors got rid of investor funds through such avenues. This practice, known as “rug pull”, has become particularly prevalent as DeFi protocols have become popular with crypto investors who wish to increase returns by seeking out yield-bearing crypto instruments.
The bottom line
For many people, the excitement and mad rush for cryptocurrency has surfaced from feelings of the Wild West. As the crypto ecosystem continues to grow in scale and complexity, it will undoubtedly remain one of the top priorities for crooks. As mentioned above, crypto scams generally fall into two main categories: social engineering initiatives aimed at obtaining account or security information and targeting sending cryptocurrency to a composite digital wallet. By understanding the common ways that crooks try to steal your information and ultimately your money, you can hopefully quickly spot a crypto-related scam and prevent it from happening to you.