Top 5 Cryptocurrency Scams (And How To Avoid Them) (2024)

The cryptocurrency space has unfortunately become a breeding ground for scams due to several reasons:

Lack of regulation: The cryptocurrency industry still lacks clear and well-thought-out regulation designed to protect investors effectively. This has made it easier for scammers to operate through loopholes without fear of being caught or prosecuted.

Cross-Border Payments: As cryptocurrency is a borderless payment system, it brings overseas scam activity to everyone’s doorstep. Cryptocurrency payments make it easy for scammers to receive funds from anywhere worldwide and make them extremely hard for authorities to recover.

Anonymity: Transactions in the cryptocurrency space can be anonymous, which makes it challenging to track down scammers and recover lost funds. This anonymity can also make it easier for scammers to disguise their identities and appear legitimate.

Lack of knowledge: Many people are attracted to cryptocurrency due to the potential rewards, but they may not fully understand the technology or the risks involved. Scammers take advantage of this lack of knowledge to lure people into investing in fraudulent schemes.

High volatility: Cryptocurrencies can be highly volatile, with their value fluctuating rapidly. Scammers often take advantage of this volatility by making false promises of high returns or using misleading information to manipulate the market. The hype surrounding cryptocurrencies and the fear of missing out (FOMO) can make people more vulnerable to scams.

It’s essential for investors to be aware of these risks and to do their own research before investing in cryptocurrency. They should also be cautious of any unsolicited offers or high-pressure sales tactics and be wary of promises of guaranteed returns or quick profits. By taking these precautions, investors can avoid falling victim to crypto scams and protect their hard-earned money.

Binance’s Regional Compliance Officer for APAC, Wilson Cheung, told Forbes Advisor: “Prevention is the best course of action for most scams, and in the crypto world this stands true.

“Given blockchain transactions are irreversible, it’s not always possible to recover funds if you’ve fallen victim. So, taking precautions to safeguard your crypto investments should be top of mind for all users at any level of investment experience.”

Here are five common crypto scams to be aware of:

Crypto Investment Schemes:

The basic idea behind these scams is to convince investors to invest their money in the scheme, promising high returns in a short amount of time. They use various tactics to lure people into their schemes, such as social media marketing, celebrity endorsem*nts, and promises of exclusive investment opportunities.

Once the investors send their money to the scammer, the funds are typically not invested as promised. Instead, the scammers often use the money to pay off earlier investors or keep it for themselves. This is known as a Ponzi scheme, where new investors are used to paying off earlier investors, creating a cycle that collapses when new investors are no longer available to keep the scheme going.

Phishing Scams:

Crypto phishing schemes aim to steal investors’ cryptocurrency by tricking them into giving away their login credentials or private keys to their digital wallets. These scams typically use email, social media, or other online communication channels to impersonate a legitimate company or service provider, such as a cryptocurrency exchange or wallet provider.

Typically, a phishing scam consists of similar steps. There is initial communication, which appears to be from a legitimate cryptocurrency exchange or wallet provider. The message will contain a link that takes the recipient to a fake website that looks identical to the real one. The message may ask the recipient to verify their account details or take other action, such as resetting their password or downloading a software update. Once entered, the scammers will use this sensitive information to steal their funds.

Fake ICOs:

Initial coin offerings (ICOs) are a common way for new cryptocurrencies to raise funds. Fake ICOs can take many forms, but they typically involve creating a website and marketing materials that look professional and legitimate, with promises of high returns, low risks, and innovative technology. They may use fake endorsem*nts, false testimonials, and other tactics to build credibility and convince people to invest.

Once investors send money to the fake ICO, the organisers may use various techniques to steal the funds. They may simply take the money and disappear, never delivering the promised cryptocurrency or token. Alternatively, they may use the funds to create a fake cryptocurrency or token that has no real value and cannot be sold or traded on an exchange.

“Before investing into any crypto or blockchain project users should always do your own research. By remaining sceptical you can identify a scam for what it is before potentially losing your funds or giving away personal information,” says Cheung.

“Things to look at includes who is behind the project such as investors and the leadership team; are they already an established company with a viable product or is it still conceptual; what is the vision and roadmap for the future; and what is the market telling you about supply, competition, trading volume and liquidity.”

Malicious Smart Contracts:

If you are holding crypto in a wallet and dabbling with decentralised finance platforms or NFTs, it is important to be aware of malicious smart contracts. Malicious smart contracts are programs designed to trick people into giving up their digital assets or personal information. These contracts are often created to look like legitimate ones, but instead of fulfilling their intended function, they have hidden code that is intended to exploit user wallets and steal funds.

One common way malicious smart contracts can scam people is through “phishing attacks.” In a phishing attack, the malicious contract will mimic a legitimate contract, such as a token sale or a decentralised exchange. Users will be prompted to connect their wallet and often have to complete an “approval” type transaction. While this is also the case with legitimate smart contracts, malicious contracts will use an ‘approve-all’ type function, essentially allowing all assets held in the wallet to be taken at once.

Honeypot Tokens:

Honeypot tokens are malicious tokens listed on decentralised exchanges with another legitimate token, such as ETH, for liquidity. The token’s creators will often create fake trading volumes and use various tactics to make it appear as if the token is in high demand. They may use bots to trade the token with themselves or offer incentives for people to buy and hold the token. This can create the illusion of demand and price appreciation, leading investors to believe they are making a smart investment.

However, after purchasing the token by trading some legitimate cryptocurrency, they will find the token cannot be sold. In other words, the unlucky trader has bought something worthless that can never be sold. This leaves the investors with worthless tokens, and the scammers walk away with the legitimate tokens that were traded in return. You can check if a token is a honeypot using a checker service such as DetectHoneyPot.

Here are some red flags that may indicate that an offer is a crypto scam:

Promises of guaranteed high returns: If an investment opportunity promises guaranteed high returns, it’s likely too good to be true. There is always risk involved with any investment, and no one can guarantee returns.

Unsolicited offers: If you receive an unsolicited offer from someone you don’t know, be wary. Scammers often send unsolicited messages or emails to try to get you to invest in their scheme.

Lack of transparency: If the people behind the investment opportunity or project are not transparent about their identity, credentials, or how the project works, it could be a red flag.

Pressure to invest quickly: If you are being pressured to invest quickly without giving you enough time to think it over and do your own research, it could be a sign that it’s a scam.

Unverifiable claims: If the investment opportunity makes claims that cannot be verified, such as partnerships with well-known companies or celebrities, it is likely a red flag.

Fake endorsem*nts: Scammers often use fake endorsem*nts from celebrities or industry experts to give their scheme credibility. Do your own research and verify any endorsem*nts before investing.

If you have been scammed, there are several steps you can take to try to recover your funds and protect yourself from further fraud. Here are some general guidelines:

Report the Scam to the Authorities

Depending on the type and severity of the scam, you may need to report it to law enforcement agencies, financial regulators, or consumer protection organisations. Unfortunately, as many scams are perpetrated overseas, law enforcement can only do so much. There is a list of contacts below, which will help you find who to contact if you have been a victim of a scam. One relevant contact that is missing is your cryptocurrency exchange—if the scam used the exchange in any way, be sure to let the exchange know what happened.

Cheung adds: “Knowing how to report a scam is just as important as identifying one. Because there’s several steps involved to ensure all the right institutions are informed it can sometimes seem overwhelming for users, however, it is necessary to launch a full investigation.

“These steps include reporting the incident to the bank or credit card company, law enforcement, the dedicated customer support channels of the digital asset exchange and to Scamwatch. A formal request by law enforcement is needed for a digital asset exchange to investigate, identify, and target malicious actors with further analysis and action.”

Change Your Login Credentials and Passwords

If you provided the scammers with your login credentials or other sensitive information, change your passwords immediately and monitor your accounts for any suspicious activity. Even if you provided a password for one account, it is worth completing a security check of all your devices and updating passwords as required. If possible, utilise 2-factor authentication.

Be Cautious of Further Contact

Scammers may attempt to contact you again, posing as authorities or lawyers offering to help recover your funds. Be wary of any unsolicited contact and always verify the identity of the person you are speaking with before providing any further information or funds. If you ever received communication you feel is genuine, always close the communication you received or hang up the phone and head directly to the official website of the organisation. Once there, reach out to the support services available and check if the communication was genuine. By doing this, you always know you are speaking to an official representative of the organisation.

Contact A Counselling Service

In case you or someone you know has fallen victim to a scam, it is recommended to speak with a trusted GP, local health professional or someone you trust. Additionally, you may also consider seeking support from a service such as LifeLine or beyondblue.

Unfortunately, there is no guarantee that you will be able to recover money lost in a crypto investment scam. The likelihood of getting the funds back depends on each individual case, as well as how quickly you respond to the incident. The first thing to do is to report the scam to the appropriate agency, such as the crypto exchange, banking institution or card provider in case there is a chance to freeze any stolen funds. Next, it is important to report the incident to the relevant authorities. This can help to bring the scammers to justice and prevent others from falling victim to the same scam.

While acting fast in taking these steps increases the likelihood that some funds could be rescued, nothing is certain and the best method of recovering stolen funds is to keep them from getting stolen in the first place.

“After a formal request from law enforcement is made to a digital asset exchange, it is still not a simple process to recover money from scammers. And importantly, it’s not always assured that funds will be recovered,” Cheung says.

“Robust transaction monitoring tools are needed to detect, identify, and investigate crypto transactions such as suspicious wallets, dark web, and blacklisted addresses. It is a very collaborative effort between law enforcement and digital asset exchanges to track down funds and take action to combat financial crime,”