Cryptocurrency investment scams and how to avoid them
Cryptocurrency investment scams are on the rise — fueled by volatility in the crypto space and fears over inflation. Here’s what you need to know:
Types of cryptocurrency investment scams
Not all crypto investment scams are the same. Here are some of the most common versions to watch out for (courtesy of investment news site MoneySense):
2-for-1 and giveaway scams: The scammers promise victims that they’ll receive double their crypto back — if they send some cryptocurrency to an anonymous wallet address. Alas, anyone who sends cryptocurrency to the scammers’ wallet address will never see their money again.
Mining pool scams: Crypto mining pools are a legitimate way for people to pool their computational resources and mine cryptocurrency as a group. However, there is a scam version of the cryptocurrency mining pool: in essence, a cryptocurrency Ponzi scheme. New “miners” are paid dividends using funds provided by older members of the fraudulent mining pool. The gains are fake, but the eventual losses will be real.
Phishing scams: Scammers use cryptocurrency investment as a lure in phishing scams. Sometimes targets are sent emails offering free coins from a new cryptocurrency (an “airdrop”). Sometimes they’re approached by a scammer impersonating support staff at a legitimate crypto trading platform. The end goal is the same: Get the target to provide sensitive information over email or via a fraudulent website — or get them to click on or download something malicious.
Spotting a cryptocurrency investment scam
Crypto scams can be tricky to identify. Why? Precisely because they operate in an unregulated and decentralized environment: namely, the world of cryptocurrency! There really are free giveaways of new cryptocurrency and NFTs — just as there are legitimate crypto investment groups forming all the time.
Still, there are reliable ways to spot a cryptocurrency investment scam. In a recent email to clients, financial services firm Charles Schwab offered some helpful tips:
Don’t trust guaranteed returns. There is no such thing as a guaranteed return on an investment — including cryptocurrency investments. Anyone promising you a guaranteed return is either a scammer or a fool. Either way, don’t give them your money!
Look for social engineering. Many crypto investment scams start with the scammer reaching out to a target via social media or dating websites. Be aware that this is a common phenomenon. If your new online “friend” suddenly wants to tell you about the joys of cryptocurrency investing, they’re probably a scammer.
Watch for phishing attacks. If you’re involved in cryptocurrency, sooner or later you’ll encounter a phishing attempt. Be on guard — and make sure you know how to recognize phishing when you see it.
Beware of fake account statistics. Scammers sometimes try to legitimize a cryptocurrency investment scheme by showing people an account that has skyrocketed in value. However, these accounts, and their impressive gains, are phony. If someone shows you an account that has performed suspiciously well, be aware that those numbers may be fake!
Learning more about cryptocurrency
It’s good to learn about all the scams and dangers out there. But the best way to keep yourself safe when approaching a new technology is to educate yourself. To learn more about cryptocurrency and security, check out the following resources:
