Popular cryptocurrency scams. How to protect your investment


When business entities begin to use new digital monetary mechanisms, in particular such well-known ones as cryptocurrency, it does not take long to realize that such transactions are associated with financial risk that does not depend on market volatility (variability).

That is why, when considering investing in a variety of startups and exchange platforms, you should be aware of the possibility of losing your investment in buying cryptocurrency.

When searching for companies and startups in the field of cryptocurrencies, experts recommend checking whether they really work on the basis of the blockchain, because this is what means that there is a traceability of all transaction data.

You should also pay attention to the presence of reliable business plans, companies must indicate their liquidity in digital currency and ICO rules, real people must be behind the company, etc. Therefore, if the startup under study does not have some of these characteristics.

consider your decision even more carefully. After all, crypto fraud is not an innovation of 2020/2021, since the market capitalization of cryptocurrencies, although it has exploded recently, however, fraudulent schemes have been used since the advent of bitcoin (BTC).

At the time of publication of the material, their whereabouts were unknown. According to Bloomberg, the first problems began back in April 2021, when the price of bitcoin was at a record (April 17-18, bitcoin reached a price record of more than $64,000 per coin). It was then that Amir Kaji told investors that the system had been hacked.

However, one of the largest cryptocurrency scams in history today remains the 2017 OneCoin scam, which, according to US prosecutors, is valued at 4 billion euros.

In particular, there are less visible but more frequent cases (including email phishing and social media scams) that happen to unwary investors.

International experts on cryptocurrency scams note that their number in 2020 increased by 40% compared to the previous year to 400,000 cases. At the same time, based on the current level of malicious activity, which may indicate potential fraud, a further increase to 75% is predicted in 2021.

That is why, in order to help potential investors avoid becoming the prey of cryptocurrency scammers, this article describes the most common fraudulent schemes (scams) with cryptocurrency. This will help you navigate the usually unregulated and still immature features of the activity in the cryptocurrency market.

How cryptocurrency scams work

One of the contributing factors to cryptocurrency investment scams is the anonymity that transactions take place within the permission of the blockchain. Because scammers can convince their victims to send them a certain amount of crypto tokens, and then disappear without a trace in a cloud of complex code.

There are many types of crypto-fraud – from the so-called ragpool (rug pull, which literally translates from English as “pulling the rug”; the practice of increasing the value of the created token at the liquidity limit, followed by a sharp withdrawal of funds.

which leaves other providers with assets that have lost value) , which typically happens in the realm of decentralized finance (Defi), to social media and social engineering scams that take advantage of mass psychology to get investors to buy supposedly promising tokens simply to increase their price, and then sell a significant portion of such cryptocurrency .

Despite the variety of schemes implemented by fraudsters in practice, the purpose of such fraud is primarily as follows:

– increasing the value of a certain token, and then selling such a cryptocurrency to careless investors;

– persuading investors to invest, promising to return a much larger amount;

– gaining access to the wallet in order to withdraw from it all the available financial resources.

As the crypto system continues to evolve, the methods used by scammers are likely to evolve as well, but their ultimate goal will remain the same – to deprive investors of their hard-earned money.

These scenarios should raise doubts among investors if they are asked to invest in cryptocurrencies, in particular:

– The website lacks security credentials, which are often required for secure data transfer.

– receiving an email offering a reward or any other form of compensation from the company, especially if the email comes from an unknown domain that is different from the official website of the company;

– a link for registration or access to a crypto wallet is received on social networks or by e-mail, but this link is different from the official website

– an offer to participate in the first coin offering whose investors are unknown parties without social media profiles, links or business strategies;

– request to provide a wallet PIN, private keys and other similar confidential information to pay for a specific product or service purchased on the Internet.

While these are just a few of the many warning signs that can help an investor identify potential scams and methods used by criminals to defraud investors, being aware of them can greatly reduce the chance of falling for such scams. At the same time, the US Securities and Exchange Commission’s Office of Investor Education and Advocacy recommends that traders and investors carefully check the investment opportunities offered by websites that advertise their cryptocurrency services. Some of them may contain so-called. red flags of fraudulent activity, including promises of high investment returns and low financial risk.

The Seven Most Common Cryptocurrency Scams

Forewarned is forearmed, so to help a potential investor protect themselves, let’s take a look at how some of the most common scams work in practice.