Unmasking Crypto Scams: Ways to safeguard your investments.....by Gurjot Singh Kaler

Chandigarh: Scammers are always looking for an opportunity to steal your money and if you have heard of cryptocurrencies, it is time for you to learn about crypto scams and frauds. Cryptocurrency is a type of digital currency crafted to track and authenticate transactions within a decentralized, unregulated framework known as a blockchain. 

Cryptocurrency is a digital form of currency typically existing solely in electronic form. Transactions involving cryptocurrency are commonly conducted using smartphones, computers, or specialized cryptocurrency ATMs.

 Individuals utilize cryptocurrency for various purposes, including facilitating swift transactions, circumventing the transaction fees imposed by traditional banks, and seeking a degree of anonymity. Additionally, some individuals hold cryptocurrency as an investment, with the anticipation of its value appreciating over time

 Cryptocurrency can be purchased via exchanges, apps, websites, or cryptocurrency ATMs. Alternatively, individuals may acquire cryptocurrency through a process known as "mining," involving sophisticated computer equipment to solve intricate mathematical puzzles. 

Cryptocurrency is kept in a digital wallet, which can be online, on a computer, or stored on an external hard drive. Each digital wallet comes with a unique wallet address, often a lengthy alphanumeric code. 

However, if any mishap occurs with your wallet or cryptocurrency holdings—such as the shutdown of your online exchange platform, sending cryptocurrency to the wrong recipient, forgetting your digital wallet password, or experiencing theft or compromise of your wallet—there is typically no avenue for assistance to recover the funds. 

Cryptocurrency payments do not come with legal protections and these payments are typically not reversible. Cryptocurrencies, such as bitcoin, differ from digital currencies as they utilize blockchain for verification and lack central authorities like banks, making theft recovery more challenging. 

The rise in popularity of cryptocurrencies such as Bitcoin and Ethereum has drawn significant interest from investors entering this rapidly evolving market. While digital coins offer advantages like decentralization and anonymity, they also present unique challenges and risks.  

Unfortunately, the cryptocurrency market often becomes a playground for scammers and fraudsters who target inexperienced investors seeking quick gains. With the rise in crypto scams, it's vital to acknowledge the risks and hurdles associated with investing in the cryptocurrency market. 

This article aims to discuss common crypto scams, how to recognize them, and measures you can take to protect yourself. 

From January 2021 to June 2022, more than 46,000 individuals disclosed to the Federal Trade Commission (FTC), USA, losing in excess of $1 billion in cryptocurrency to a variety of scams. It's important to note that this statistic only accounts for those who voluntarily provided this information to authorities.

A cryptocurrency scam refers to a deceptive scheme crafted to trick individuals or organizations into relinquishing their digital assets. These scams come in various guises and frequently exploit emotions such as fear or greed. 

Cryptocurrency fraud generally encompasses two main aspects. Firstly, it involves employing deceitful tactics to acquire cryptocurrency through illegitimate means. Secondly, it entails fabricating or misrepresenting crypto related products or operations with the intention of soliciting investments in other assets dishonestly. 

Cryptocurrency scams possess a distinctive nature due to the nascent state of the industry. The complexity and novelty of blockchain technology often leave individuals inadequately informed to shield themselves from scammers. 

Additionally, the perceived anonymity of blockchain transactions enhances the allure of cryptocurrencies for individuals with malicious intentions. 

What factors contribute to the susceptibility of the crypto industry to scams? 

The very features that make cryptocurrencies appealing, with their vast potential for real-world applications, also expose them to significant risks:

1) Privacy: Transactions conducted on a blockchain are pseudonymous, meaning they can be traced back to digital wallets but not necessarily to specific individuals. 

2) Irreversibility of Transactions: Blockchain transactions, even those that are illicit, are typically irreversible and it is almost impossible to get one’s money back. 

3) Lack of Regulation and decentralised: Cryptocurrency regulations are lacking or inconsistent across most jurisdictions. In regions with weak or absent government regulations, scammers can operate without fear of repercussions. Due to the absence of a centralized authority tasked with monitoring and identifying suspicious behavior, cryptocurrency scams often remain unnoticed and unreported.

4) Technological Complexity: Blockchain technology is highly complex, leading to a lack of understanding among many cryptocurrency holders. This knowledge gap creates opportunities for exploitation by individuals seeking to exploit others. 

5) High Profit Potential: The allure of substantial returns attracts investors seeking quick wealth to risky digital assets. This pursuit of profit can sometimes cloud judgment, rendering investors more susceptible to fraudulent schemes promising unrealistically high returns. 

6) Rapid Industry Growth: The rapid expansion of cryptocurrency as an asset class and industry poses challenges in monitoring new market entrants. This can make it difficult for investors to distinguish between legitimate opportunities and sophisticated scams. 

Common types of Crypto Scams – 

Despite the myriad types of cryptocurrency scams, they generally fall into one of two primary categories: 

A) Access scams: Aim to acquire access to a digital wallet or its private keys. 

B) Manipulation scams: Seek to persuade users to transfer cryptocurrency directly to the scammer. Some scams may fit into both categories, as scammers may target both cryptocurrency funds and access credentials. 

It's imperative for cryptocurrency investors to be adept at discerning scams from legitimate operations. Common red flags include demands for payment exclusively in cryptocurrency, assurances of guaranteed profits, blending investment advice with online dating interactions, requests for cryptocurrency keys, receipt of dubious texts or emails impersonating reputable entities, and attempts at blackmail leveraging explicit materials. If any of these warning signs manifest or if unsolicited investment advice or give-away cryptocurrency is received, it's essential to remain vigilant as you may be targeted by a cryptocurrency scam.

While there exist numerous forms of cryptocurrency scams, many scammers rely on similar tactics to deceive users. 

These tactics include: 

1) Guarantees: Offering promises of substantial payouts on investments. 

2) Out-of-the-blue contact: Initiating contact with users through unsolicited messages via text, email, or social media platforms. A scammer contacts you and presents a deceptive cryptocurrency investment website. They persuade you to invest by fabricating potential growth prospects. Often, it's only after a  

considerable investment period that you realize the funds cannot be withdrawn. 

3) Celebrity impersonation: Pretending to be celebrities and offering fake giveaways or raising false concerns. 

4) Romance scams: Assuming false identities as romantic partners online to manipulate victims. A scammer initiates contact with you on a dating app or social media platform, often beginning with a romance scam and later transitioning into an investment fraud scheme, which could result in significant financial losses for you. These are also called as pig-butchering scams. 

5) Free offers: Luring victims with promises of free funds, coins, or items. 

6) Lack of transparency: Providing vague explanations about a currency or organization with no proper white paper. 

7) Business impersonation: Pretending to be business leaders, partners, or other individuals associated with a business. A scammer targets you by gaining access to your friends' social media accounts. Due to the belief that you are communicating with a trusted individual, you may be more inclined to consider making the investment. 

8) Fake job opportunities: Creating false employers, employees, or job listings to deceive individuals. You encounter a cryptocurrency investment advertisement on social media. After clicking on it and providing your contact information, the scammer reaches out to you by phone and persuades you to invest. 

These tactics are commonly employed by scammers seeking to exploit unsuspecting users in the cryptocurrency space.The following is an exhaustive list of various types of cryptocurrency scams 

1) Malware Scams 

One type of cryptocurrency scam revolves around the exploitation of malware by fraudulent individuals to steal cryptocurrency from unsuspecting victims. Examples include compromised cryptocurrency wallets, phishing emails, and counterfeit mobile applications. To mitigate the risk of falling victim to malware scams, it is advisable to obtain software and applications from trustworthy sources and employ reputable antivirus software to protect your devices. In addition to keeping your antivirus and system firewall up to date, it's crucial to ensure that you're accessing a secure and reputable platform. Be cautious of platforms that automatically initiate the download of .exe files or prompt you to download suspicious attachments 

2) Pump-and-dump schemes 

Pump-and-dump schemes involve market manipulation tactics where scammers utilize misleading information to artificially inflate the value of a cryptocurrency, only to sell off their holdings once the price peaks. In a pump and-dump scheme, a scammer employs various strategies to artificially boost the price ("pump") of a digital asset. Once the price is inflated, the scammer swiftly sells off ("dumps") their tokens in the market. This sudden surge in token supply leads to a sharp decline in price, allowing the scammer to profit. 

Scammers achieve a price increase in low-value tokens by disseminating false or deceptive information while purchasing significant amounts of the token simultaneously. GIZMOcoin serves as an example of an early pump-and-dump scheme employing this strategy. 

Remain vigilant for sudden price spikes and conduct thorough research independently before investing to steer clear of pump-and-dump schemes. 

3) Phishing Scams and social engineering attacks - 

Phishing scams represent a form of cyber fraud wherein perpetrators impersonate trustworthy entities like cryptocurrency exchanges or wallet 

services to extract sensitive data from their targets. To thwart phishing attempts, it's essential to verify the legitimacy of emails or website URLs by cross-referencing them with official sources. Additionally, refrain from clicking on dubious links or disclosing confidential details such as your private key. 

A social engineering attack involves manipulating individuals to reveal confidential information or execute actions that grant a scammer access to their cryptocurrency. One common form of social engineering attack is phishing, where scammers impersonate trusted entities to solicit sensitive details like usernames, passwords, or private keys. 

Phishing attacks targeting cryptocurrency holders often manifest as fraudulent emails, messages, or websites. Another tactic used by scammers is creating misspelled URLs, such as the case where the crypto exchange platform Bittrex.com was cloned by scammers who targeted users who mistakenly visited "Bilttrex.com". 

4) Crypto Ponzi schemes 

Crypto Ponzi schemes are fraudulent investment schemes promising investors unusually high returns. However, these schemes do not generate genuine profits; instead, they depend on new investors' funds to fulfill payment obligations to earlier investors. Identifying Ponzi schemes can be challenging as they often present themselves as legitimate opportunities. 

A cryptocurrency Ponzi scheme entices investors with the promise of substantial returns, utilizing funds from new participants to fulfill the promised profits. Similar to conventional Ponzi schemes, crypto Ponzi schemes mislead investors into believing that genuine activities are driving investment returns. 

Bitconnect serves as an illustration of a cryptocurrency Ponzi scheme. The fraudulent platform guaranteed returns of up to 40% per month on Bitcoin investments, necessitating investors to swap their Bitcoin for the platform's native coins. The scheme was exposed as a Ponzi scheme when it collapsed, failing to sustain operations.

5) Fake cryptocurrencies 

At times, scammers fabricate counterfeit cryptocurrency trading platforms or replica versions of genuine crypto wallets to deceive unsuspecting individuals. These fraudulent websites often possess domain names that are nearly identical to their legitimate counterparts, making them challenging to distinguish. 

Despite their similarities to authentic sites, these fake platforms aim to mislead users and exploit their trust. Fraudsters are fabricating counterfeit coins or tokens and marketing them as genuine investment opportunities, posing a significant challenge in the cryptocurrency realm.

 To safeguard against such scams, it's imperative to thoroughly investigate any coin or token before committing funds, verifying the credibility of the team behind it. 

6) Giveaway scams 

These are highly prevalent in the crypto sphere, and it's crucial to remember that there's no such thing as a "free lunch," particularly in this competitive environment. Whenever individuals encounter offers of free cryptocurrency, unsolicited financial advice, or other enticing offers, it's important to approach with skepticism. 

7) Fake ICOs (Initial Coin Offereing) 

A fraudulent initial coin offering (ICO) mimics the appearance of a genuine ICO but lacks the essential technology and infrastructure. Essentially, it involves the creation of a cryptocurrency that exists only in name. 

While a legitimate ICO aims to introduce a new cryptocurrency to the public, with funds raised intended to bolster the cryptocurrency network, a fake ICO concludes with the disappearance of the developers along with the raised funds, exposing the entire venture as a deception. 

For example- Centra Tech, a fraudulent initial coin offering (ICO), amassed $25 million. The perpetrators falsely claimed to provide a cryptocurrency debit card supported by Visa (V) and Mastercard (MA), garnering endorsements from boxing champion Floyd Mayweather and music producer DJ Khaled.

 However, the purported partnerships with Visa and Mastercard were subsequently exposed as fraudulent.

8) Fake Wallets 

A scam involving fake wallets deceives users into thinking they are utilizing a genuine digital wallet for storing their assets. These fraudulent wallets prompt users to input their private keys, which should never be disclosed. 

Subsequently, scammers utilize these private keys to pilfer users' cryptocurrency holdings. Fake wallet applications may be found in app stores or promoted via phishing emails. For instance - Many users fell victim to a counterfeit version of the Trezor digital wallet found on the Google Play store. Trezor, a reputable producer of hardware wallets, was targeted by scammers who created a fake mobile app closely resembling Trezor's authentic application. 

9) Cloud Mining Scams 

Offering cloud mining services, also referred to as mining-as-a-service, is a valid enterprise. However, there are instances of fraudulent cloud mining companies. These companies may advertise cloud mining services, often with enticingly high returns, in exchange for an initial payment. Despite promises of returns, the company may lack any mining equipment to fulfill these claims. 

Cloud mining scams essentially operate akin to crypto Ponzi schemes. For instance, HashOcean offered no crypto infrastructure but enticed new members with a substantial signup bonus. 

Cloud mining presents an opportunity for everyday investors to engage in cryptocurrency mining without the need for costly hardware. This method can indeed be profitable, particularly when considering the ability to mine altcoins like Bitcoin from the comfort of one's home without the necessity of investing in expensive equipment.

 However, exercising caution is essential when registering for cloud mining services. Prioritize the security of your data and system integrity before connecting to a shared server online. 

10) Cryptojacking 

Cryptojackers are individuals who clandestinely utilize your computing device to mine cryptocurrency without your consent. Mining cryptocurrencies like Bitcoin through proof-of-work algorithms demands significant energy and computational resources. The intention of cryptojackers is to reap the benefits of cryptocurrency mining without bearing the associated costs, leaving your device burdened with excessive energy consumption and diminished performance. This form of fraud involves scammers utilizing another person's computer to mine cryptocurrency by enticing victims to click on a malicious link.

 This action installs cryptomining code onto the computer, enabling the scammers to either pilfer cryptocurrency from digital wallets or exploit the hijacked computers to mine valuable coins. 

Your computer or phone can become infected with malicious code from a cryptojacker by visiting a compromised website or downloading infected software. In the past, users of the widely-used web plug-in Adobe Flash were targeted by scammers who distributed a fraudulent update containing mining software. 

11) Blockchain-wide attacks  

Fraudulent actors deploy a variety of strategies to target individual cryptocurrency holders and entire blockchain networks. Common forms of attacks affecting cryptocurrency ecosystems include: 

i) 51% attacks: These occur when a single entity seizes control of more than half of a blockchain's mining power or cryptocurrency. 

ii) Sybil attacks: In such instances, a lone entity creates numerous fictitious identities (nodes) to maliciously influence network operations. 

iii) Routing attacks: Here, malicious entities manipulate data routing information to illicitly intercept, modify, or obstruct communication among blockchain nodes. 

iv) Timejacking attacks: Nefarious actors tamper with the timestamps of a network's nodes, introducing confusion and potentially facilitating double spending of cryptocurrency. 

v) Eclipse attacks: Scammers isolate select blockchain nodes to disseminate false information, deceiving the isolated node.

vi) Long-range attacks: These theoretical schemes involve establishing a new blockchain fork from a distant historical point, aiming to validate fraudulent transactions. 

vii) Selfish mining attacks: Miners execute a new block processing but withhold broadcasting the information, clandestinely initiating mining for the subsequent block. Although not yet observed, this scenario remains theoretically possible. 

12) Rug Pulls 

In the realm of cryptocurrency, a phenomenon known as a "rug pull" unfolds when project members collect capital or cryptocurrency to support a venture, only to abruptly withdraw all liquidity. Subsequently, these individuals vanish and become untraceable, leaving investors empty-handed as they abandon the project. 

How to report the cryptocurrency frauds - 

Reporting cryptocurrency fraud is essential, despite the challenges of recovering lost funds. Contacting relevant authorities not only raises awareness about the scam but also increases the likelihood of a thorough investigation leading to the apprehension of the perpetrators. In the United States, victims can reach out to several organizations, including the Federal Bureau of Investigation (FBI), the Federal Trade Commission (FTC), the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), and the Internet Crime Complaint Center (IC3). Additionally, victims should promptly notify their financial institutions and police officials to prevent further misuse of their credentials. Consider reporting the scam to the cryptocurrency project or platform involved in the fraudulent scheme. If the payment has been transferred through the bank, it is essential to immediately inform the bank so that they can withhold or reverse the payment if it has not been released or transferred. Additionally, if you encounter the scam on a messaging or social media platform, you can report the individual to a group administrator. They can take action such as banning the user or issuing warnings to others regarding the individual attempting to perpetrate the scam.

How to prevent yourself from becoming a victim of Crypto Scams : 

1) Conduct proper research and educate yourself 

Prior to investing in any coin or token, ensure it boasts a credible and transparent team. Seek out reliable assessments and ratings, and exercise caution when encountering coins or tokens promising substantial returns with minimal effort. 

2) Be wary of rapid price increases – 

Exercise due caution when observing abrupt price surges, as they may signal a pump-and-dump scheme in progress. Prior to making any investment, conduct thorough research independently and refrain from making impulsive decisions driven solely by market excitement. Always invest in reputable, recognised and safe exchanges. Beware of the fake cryptocurrency exchange platforms. 

Trading cryptocurrencies mirrors the process of stock trading and occurs on specialized platforms known as exchanges. Numerous crypto exchanges exist, boasting significant trading volumes and continuing to grow. Among the top contenders for the safest and most reputable crypto platforms are Kraken, Gemini, Coinbase, Crypto.com, and Binance. Kraken, in particular, offers widespread coverage, spanning 99% of the globe, and boasts a dedicated cybersecurity team to enhance security measures. 

3) Avoid unverified and unsolicited offers – 

It's advisable to steer clear of unsolicited offers, whether received through email, social media, or other channels. Scammers often use enticing promises of unrealistic returns or free coins to lure individuals into fraudulent schemes. Exercise caution and verify the legitimacy of such offers before taking any action. 

If somebody pressurises you to pay in cryptocurrency only, it can be a sign of a potential scam. If you receive unexpected emails or phone calls from individuals expressing urgency about discussing cryptocurrency investments, it's likely a scam. It's advisable to disregard messages from unknown sources and only engage if you can verify the legitimacy of the individual and situation.

4) Use trustworthy wallets – 

Always opt for well-established cryptocurrency exchanges and wallets known for their strong reputation and robust security measures. Prioritize platforms that offer features such as two-factor authentication (2FA), multi-factor authentication, cold storage, and additional protective tools to enhance the security of your assets. 

5) Safeguard the confidential key -

The private key to your cryptocurrency wallet is crucial, as its loss could lead to the forfeiture of all your funds. Safeguard your private key at all costs and refrain from disclosing it to anyone. 

Explore the option of utilizing a hardware wallet, a physical device designed to securely store your private key offline. While web-based, mobile, or desktop wallets are considered "hot storage," opting for cold storage can enhance the security of your assets. You can choose to store your cryptocurrency in a hardware wallet, a compact device kept at home, ensuring that you maintain control over your crypto keys at all times.  

Commonly referred to as a cold wallet, this form of digital wallet is stored on an offline platform, ensuring protection against unauthorized access, cyber attacks, and other vulnerabilities inherent in internet-connected systems. 

6) Validate contact details – 

When contacted by your bank or another institution you have dealings with, refrain from responding directly to the email or phone number provided, as it could be fraudulent. Instead, independently verify the company's contact information on their official website and reach out to them through those channels. No reputable business will ever require you to send cryptocurrency upfront, whether it's for purchasing a product or safeguarding your funds. Such demands always indicate fraudulent activity. 

Apart from above strategies, it is advisable to follow the following tips and suggestions in order to prevent becoming a victim of cryptocurrency frauds:

a) Beware of individuals who guarantee huge profits or significant returns on investments with little to no risk. Any promises of quick and effortless earnings in the crypto markets are typically made by scammers. 

b) Avoid intertwining online dating with investment advice. If someone you meet on a dating platform attempts to offer crypto investment guidance or requests cryptocurrency transfers, it's likely a scam. 

c) To safeguard yourself against cryptocurrency scams, refrain from sending money or engaging with unfamiliar users.  

d) Secure your private keys from any unauthorized access. Don't access your cryptocurrency accounts or transact on public Wi-Fi networks 

e) Ignore cold calls and disregard unsolicited contact from unknown individuals. If you receive unsolicited contact offering a crypto investment opportunity, exercise caution as it may likely be a scam. Refrain from disclosing personal information or transferring funds to individuals who approach you in this manner. 

f) Avoid clicking on unusual links. Download applications solely from legitimate platforms such as the Google Play Store or Apple App Store. While counterfeit apps occasionally infiltrate these stores, obtaining apps from recognized sources is typically more secure than acquiring them from other sources. 

g) Keep your cryptocurrency and bank accounts separate. 

h) Conduct thorough research on businesses before considering investment or partnership and read the white paper carefully of the cryptocurrency before investing in it to understand how it has been designed and how it will work. Take expert financial advice from knowledgeable individuals who work in the sphere of cryptocurrency. 

i) Verify HTTPS in the URL of cryptocurrency exchanges or wallet addresse, but nowadays, even that is also not a foolproof guarantee of safety. 

j) Watch out for grammatical errors and misspelled words in communications, whitepapers, and marketing materials. 

k) Invest gradually rather than all at once. Do not be in a hurry to take a decision. 

l) Avoid jailbreaking smart devices as it can severely compromise the security of the device.

m) Exercise caution when dealing with romantic partners online and insist on meeting them in person before any cryptocurrency transactions. 

n) Contact relevant agencies directly if someone claims your funds are frozen. o) Vet job opportunities and recruiters specializing in cryptocurrency. p) Decline offers of free items or funds. 

q) Be wary of excessive marketing tactics and glossy websites. 

The above-mentioned steps can help protect you from falling victim to cryptocurrency scams. 

While cryptocurrency is not inherently fraudulent, its potential for profit and technological vulnerabilities can attract individuals with nefarious intentions. Although legitimate investment opportunities do exist in cryptocurrency and other assets, scammers often employ high-pressure tactics to prompt quick investment decisions. Before committing to any investment, take the time to research the companies thoroughly. 

Preventing cryptocurrency scams requires adopting proactive measures and staying vigilant. Before investing, thorough due diligence is essential, including understanding the cryptocurrency's technology and team. It's crucial to assess a cryptocurrency's online presence for authenticity and legal compliance to ensure adherence to relevant regulations.

 Be cautious of offers promising unrealistic returns and favor reputable platforms to mitigate risk. Safeguard personal data by practicing safe browsing habits and never sharing private keys. Stay informed about industry changes and seek assistance from financial professionals if needed. 

Remember, knowledge is key in avoiding crypto scams, so remain skeptical and remember the adage: if it sounds too good to be true, it probably is. Cryptocurrency scams typically fit into two main categories: socially engineered schemes aimed at acquiring account or security details, and tactics designed to convince a victim to transfer cryptocurrency to a compromised digital wallet. 

By familiarizing yourself with the typical methods used by scammers to obtain your information and funds, you can detect crypto-related scams early and take steps to prevent falling victim to them. 

Keeping yourself well-informed about crypto scams and following best practices serves as an effective strategy to safeguard against fraudulent schemes.

February 11, 2024