What Are Cryptocurrency Scams And How To Avoid Them?

So, you’ve been investing in cryptocurrency for ages, and thanks to your hard work and knowledge, you own a great deal of assets as well. But one day, you click on the wrong link and suddenly, all your money and hard work is drained away.

This sounds terrifying, we know. But that’s the harsh reality of the crypto market. Since 2015, crypto scams, such as social engineering and phishing, are incessantly growing in numbers, which has resulted in a loss of $5.6 million in the USA. The worst thing is, that the chances of cryptocurrency scam recovery are zero, unlike traditional banking. 

But how is this happening on even the safest networks of blockchain? 

Because… Scams And Hacking Are Not The Same 

The robust security system of blockchain can prevent basic hacking techniques, which focus on exploiting vulnerabilities in a network. Yes, someone may still get unauthorized access to your account through brute force attacks or cryptojacking, but you can fend them off by using some crypto scam prevention techniques, like 2FA integration. 

However, scams usually don’t rely upon brute force alone. Instead, they exploit something much more vulnerable – human trust.

Most fraudulent cryptocurrency schemes often manipulate emotions, lack of awareness, or urgency to trick investors into handing over their account credentials willingly. 

For example, a phishing scam usually begins with you getting an email from whatever exchange platform you’re using. Here’s an example of how the mail may look like –

Source: SecureList 

These types of emails feed off our habit of fear of missing out (FOMO) and make us provide our account information after clicking on the link. 

On the other hand, social engineering techniques, like Ponzi schemes, offer false promises to investors. Here’s a visualization of how this works –

Source: Nature

So, in a Ponzi scheme, a person will come to you., presenting themselves as an expert crypto investor. They’ll ask you to invest with them, and in return, you’ll get 2x return. These people sit on the ‘first layer’ of the scheme, and you are in the ‘second layer.’ 

The people in the ‘third layer’ are new joiners who have fallen into the trap of the scammer and started investing with them.

Now, one part of their money will be provided to you as promised, and the other part will be taken by the person in the first layer. These layers will keep on piling up until the funds of the investors are all drained up and there’s nothing else to invest. 

How Do I Even Know That It’s A Scam? 

Spotting a crypto scam is never easy. However, if you know the red flags of these schemes, it’ll be easier for you to be, at least, susceptible to a few actions. Like, if someone’s guaranteeing huge returns for low investments or risks, they’re probably trying to lure you into a Ponzi scam. 

Even if your exchange is planning to include a new feature in their system, they’ll let you know about it at least a week before through their website or an email.

So, if you ever come across a ‘limited time offer’ or ‘change your password now to access your profile’ – don’t believe them. Instead, go to your exchange’s official website to verify the message first and talk to their customer service if possible. Never click on the link provided in the email, ever! 

Even if your exchange sends you a mail and asks you to put in your credentials, they’ll never ask for three things – 2FA authentication codes, private keys, and seed phrases.

So, in order to protect your crypto assets, don’t ever share these with someone, even if they are your family members. Instead, you can keep them in cold storage or write down the codes in your diary. 

Finally, always thoroughly research the crypto project you’re considering investing in and check if it’s verified or not. Vague team details or anonymous developers are extremely common in rug pull schemes where projects vanish overnight after creating a significant investment pool. A legitimate crypto project will have a transparent roadmap and a well-documented whitepaper like this: 

Source: Agente 

What Can I Do If I’ve Fallen For A Cryptocurrency Scam Already? 

If you’ve lost control of your account, it’ll be incredibly hard to recover it. However, we’d still suggest you do your part for cryptocurrency scam recovery and hope of the best.

So, first things first, change your passwords immediately if you’ve shared those with someone and enable 2FA on your account. Scammers usually target multiple platforms after gaining access to your login credentials, so updating security settings across emails, exchanges, and wallets is a must. 

Now, report the scam to the relevant authorities. For example, if you live in the USA, talking to the FTC (Federal Trade Commission) and IC3 (Internet Crime Complaint Center) immediately and telling them about the incident is key.

Agencies like FCA (Financial Conduct Authority) and Europol can help global investors deal with scam-related activities. 

Once you’ve informed the authorities, it’s time to do some detective work. 

While you can’t reverse a transaction on the blockchain network, you can certainly track it on the relevant network’s public ledger. Use tools or services like Scam Sniffer, CipherTrace, and Chainalysis to find out the scam wallet where the stolen coins are kept. Letting law enforcement know about the wallet can help you blocklist or flag it. 

Final Thoughts 

Falling in the trap of fraudulent cryptocurrency schemes and losing your hard-earned crypto for a simple mistake feels devastating. But there’s no need to give up. Sometimes, scammers tend to return the money they’ve stolen, or you may also successfully go through the cryptocurrency scam recovery process by yourself with some assistance from relevant authorities. Still, it’s important to be careful from your side and stay vigilant.