Cryptocurrency scams: 8 crypto cons to avoid

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Crypto investments can be an opportunity, but watch out for traps.

© rdaniluk/stock.adobe.com

If you’ve heard about cryptocurrency, then you’ve probably heard about crypto scams. Decentralized technologies are reshaping the financial landscape. Unfortunately, the rapid innovation, still-evolving regulatory structure, and complex nature of the industry is attracting plenty of digital asset fraudsters. The crypto industry is often compared to the Wild West or a gold rush.

Still, cryptocurrency itself is not a scam. Its profit potential and technological loopholes may attract those with malicious intent, but there are plenty of legit opportunities to be found. Staying informed about crypto scams is a great way to protect yourself against crypto con games.

A cryptocurrency scam is a fraudulent scheme that’s designed to deceive you (an individual investor or an organization) into parting with your digital assets. Crypto scams can take myriad forms and often play on emotions like fear or greed.

Cryptocurrency scams are somewhat unique because of the emerging nature of the industry. Blockchain technology is so new and complex that many people don’t understand it well enough to protect themselves from scammers. Furthermore, blockchain transactions are perceived as anonymous, making crypto even more attractive to those with criminal intent.

The same things that make crypto so alluring, with so much real-world potential, are the sources of its greatest risks:

Cryptocurrency scams can occur in many different forms. Knowing all the ways that digital asset theft can happen is a great way to reduce your risk of becoming a victim. Let’s review eight common types of cons in the cryptosphere.

A fake initial coin offering (ICO) has all the trappings of a legitimate ICO but with none of the supporting technology or infrastructure. In other words, it’s like launching a coin that exists in name only.

The purpose of a real ICO is to release a new cryptocurrency to the public for the first time, with the expectation that the coin’s developers will use the proceeds to support the cryptocurrency network. A fake ICO ends with the developers vanishing with the ICO proceeds, revealing that the entire thing was a deception.

For example, Centra Tech was a fake ICO worth $25 million. The scammers claimed to offer a crypto debit card backed by Visa (V) and Mastercard (MA), and even received endorsements from boxing champion Floyd Mayweather and music producer DJ Khaled. The Visa and Mastercard partnerships were later revealed to be fake.

A fake wallet scam tricks users into believing they’re using a legitimate digital wallet to store their assets. The fake wallet asks users to enter their private keys—information that should never be shared, by the way—and then scammers use those private keys to steal users’ crypto holdings. Fake wallet apps may live in app stores or be promoted through phishing emails.

A fake version of the Trezor digital wallet in the Google Play store impacted many users. Trezor is a well-known producer of hardware wallets, and the fake wallet was convincingly designed to seem like Trezor’s mobile app.

A crypto Ponzi scheme is one that offers high returns by using capital infusions from new investors to pay the promised gains. Just like traditional Ponzi schemes, crypto Ponzi schemes deceive investors into believing that legitimate activities are fueling investment returns.

Bitconnect is an example of a crypto Ponzi scheme. The fraudulent platform promised returns on Bitcoin of up to 40% per month, requiring investors to exchange their Bitcoin for the platform’s own coins. The platform was revealed as a Ponzi scheme when it failed to continue operating.

A social engineering attack manipulates people into divulging confidential information or performing actions that can give a scammer access to your crypto. Phishing for sensitive information—such as usernames, passwords, or your private keys—by pretending to be trustworthy is a type of social engineering attack.

Phishing attacks that target crypto holders may take the form of fake emails, messages, or websites. Misspelled URLs are another entry point for scammers. For example, the crypto exchange platform Bittrex.com was maliciously cloned by scammers, who simply targeted anyone who visited “Bilttrex.com” by mistake.

A scammer using a pump-and-dump scheme leverages various tactics to artificially inflate (or “pump”) the price of a digital asset. With the price inflated, the scammer immediately sells (“dumps”) their tokens into the open market. The rapid increase in the token supply causes its price to fall precipitously, but not before the scammer collects a profit.

Scammers can cause a low-value token’s price to increase by making false or misleading statements and simultaneously buying massive quantities of the token. GIZMOcoin is an example of an early pump-and-dump scheme that used this combination of tactics.

Providing cloud mining services—otherwise known as mining-as-a-service—is a legitimate business, but some cloud mining companies are fraudulent. A company may claim to offer cloud mining services, perhaps with the promise of attractively high returns, in exchange for an up-front payment. The promised returns may never materialize, as the company owns no mining equipment.

Cloud mining scams are essentially a type of crypto Ponzi scheme. An example is HashOcean, which owned no crypto infrastructure but paid a generous signup bonus to attract new members.

Cryptojackers are scammers who secretly use your computing device to mine cryptocurrency without your knowledge. Proof-of-work mining for cryptocurrencies like Bitcoin is highly energy intensive, requiring significant power and computational resources. Cryptojackers aim to get all the benefits of cryptocurrency mining with none of the expenses, while you’re left with a device that hogs energy and operates poorly.

Visiting an infected website or downloading compromised software can cause your computer or phone to receive malicious code from a cryptojacker. Some users of the popular web plug-in Adobe Flash previously fell victim to scammers, who distributed a fake update that secretly installed mining software.

Scammers can target individual crypto holders or entire blockchains. Some of the most common types of attacks affecting whole cryptocurrency networks include:

What can you do to avoid becoming the victim of any type of cryptocurrency scam?

Anyone can become the victim of a cryptocurrency fraudster. But knowledge is power—and that’s especially true when it comes to avoiding crypto scams.

You can reduce your risk by staying informed about the common types of digital asset scams and following key best practices. And always remember: If it sounds too good to be true, then it probably is.