How to Spot and Avoid Crypto Scams

From transactions and games to art and social media, cryptocurrency is everywhere, and with the emergence of the so-called Web 3.0 and the metaverse, it seems like we haven’t seen anything yet. For something that’s just getting started, crypto, with its sudden explosion and massive growth in the past two years, has already given so many opportunities to a lot of individuals, giving rise to countless success stories. However, on the other side of the cryptocoin, this phenomenon has also birthed many opportunities for a new breed of criminals to employ age-old tactics to steal people’s money.

A report by Chainalysis showed that the value of crime proceeds related to cryptocurrency rose from $7.8 billion in 2020 to $14 billion, an all-time high, in 2021. Most of those who become victims or potential targets of these crypto crimes are people who are clueless or new to the crypto world. So, if you’re planning to invest in crypto and don’t know anything about it or if you’re just brushing up your knowledge on its many jargons, acronyms, memes, and terminologies, here are some important crypto terms you need to know.

Knowing your way around crypto, however, is not enough to stop cyber thieves from opening your wallet and stealing all your currency, digital or otherwise. The first step in avoiding crypto scams is to identify them. Here are common cryptocurrency scams you should look out for:

Rug pull 

This DeFi exit scam, which accounted for 37% of all crypto scam profits in 2021, involves a crypto developer, usually packaging themselves as an insider or influencer, promoting or pitching a big, brand new crypto project or NFT to clueless investors, before pulling out or disappearing even before the project begins and taking with them millions of dollars in investment money.

There are multiple ways to avoid this kind of scam, such as asking developers for proof of locked liquidity; verifying the identities of the team, founders, and developers behind the project and avoiding anonymous ones; and staying away from crypto projects with unrealistic projected returns on investment, among others.

Romance scams

An e-girl who only has one display picture on their account and who you met on Reddit, Discord, or some random dating site or app asked you for crypto or offered you unsolicited NFT investment advice. Bro, I hate to break it to you, but you’re being scammed. The flirty emotes, endless chatting, and caring about what you do are all a social engineering ploy to steal from you, including the suggestions and offers to assist you in investing in cryptocurrencies. Once you hit that send button, whether it be info on your digital wallet, cryptocurrency, or any other kind of cash, it will be lost and most likely not be returned. Oh, and the e-girl suddenly ghosts you and disappears without a trace.

A lot of down bad crypto bros still get swindled by dating scammers in 2022. So, it may sound elementary, but to protect yourself from this kind of scammer, a few reminders: Never share personal details with people who you don’t trust or you just met online (yes, even if they’re nice to you); never send or receive money; use only trusted dating websites; and, please, for the love of god, think thrice before using your webcam as this often leads to blackmail.

Investment schemes

In a common crypto fraud scheme, a business or person will claim to give you (yes, you!) a life-changing chance to invest in a new form of cryptocurrency, with assured (yes, assured!) 1,000% returns. It might seem suspicious at first, with all the red flags signifying a fraudulent token or a sketchy ICO, but you go for it, anyway, because the guy promoting it seems so charismatic and you’re afraid of missing out. Well, it’s all a scam and you just dumped all your life savings to a failed ICO and a dying, if not already dead, cryptocoin. The scam doesn’t stop there, these greedy scammers will also pressure you to add several new coins to a compromised digital wallet or "pump and dump" by accumulating the coin and selling it when its value soars.

Aside from exercising basic caution, smart crypto investors should examine the ICO’s whitepaper, which is the project’s foundational document that serves as an outline of its history, objectives, strategic plan, issues, and implementation schedule; monitor the token’s sale progress; and gauge the feasibility of the project. 

Ponzi schemes

The Ponzi scheme is a close relative of the pyramid scheme, they’re sort of like brothers in the scamming world. In crypto, this scheme basically rewards older investors, or those who came in early, through proceeds from new investors coming in late. Cryptocurrency con artists will often use bitcoin to entice new investors. As there are no reliable investments, the scheme is a money-grabbing money pit that keeps on going in circles.

The assurance of enormous profits with such little risk is the main appeal of a Ponzi scheme. In reality, it’s the opposite as there are always risks (big ones) associated with these investments, and no returns can actually be guaranteed.

Avoiding scams and protecting your coins

Cryptocurrency investment is already hard because of its speculative and unstable nature, don’t make it harder by falling into scams and schemes. Investors should know when to open and use their crypto wallet and keep track of their wallet keys. They must practice good digital security hygiene like using strong passwords, utilizing VPNs and super secure connections, and selecting safe storage.

Last but not least, remember the adage "If it sounds too good to be true, it probably is," even when it comes to cutting-edge technology like cryptocurrency.

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