What Is A Crypto Scammer

By David Krug David Krug is the CEO & President of Bankovia. He's a lifelong expat who has lived in the Philippines, Mexico, Thailand, and Colombia. When he's not reading about cryptocurrencies, he's researching the latest personal finance software. 12 minute read

The finance world is currently buzzing with talk of cryptocurrency investments. Many people use cryptocurrency exchanges like Coinbase to acquire cryptocurrencies like Bitcoin, Ethereum, and Dogecoin with the expectation of making a profit upon resale.

Investment in cryptocurrency, or crypto, is a real possibility, albeit one fraught with danger. Due to the significant risk involved, large sums of money can be gained or lost in a short period of time. There is, however, a much greater danger associated with it, and that is the possibility of being a victim of bitcoin fraud.

In order to steal your money, hackers will resort to any means necessary, including breaking into your cryptocurrency wallets and even generating counterfeit currencies. As the use of cryptocurrency increases, so are the number of scams involving it.

Over $80 million was lost by U.S. citizens to cryptocurrency investment scams between October 2020 and May 2021, as reported by the Federal Trade Commission (FTC).

Kinds of Cryptocurrency Fraud

There are many opportunities for fraud in the cryptocurrency market because of the widespread interest in the sector and the complexity of the technology underlying it.

Speculation in new “altcoins” is booming thanks to the rising value of Bitcoin and the investments of celebrities like Kanye West and Paris Hilton. But most Americans still don’t know what bitcoin is or how it operates.

The FTC warns that this is a recipe for fraud. Lots of people want to go into crypto ventures, but few actually know what they’re doing. By preying on investors’ ignorance, con artists are able to make promises that seem plausible.

Those looking to invest in cryptocurrencies should be aware of the many different types of fraud that might occur. These are some of the most typical scams that people fall for, according to the FTC and Entrepreneur magazine.

1. Theft Through Hacking

In principle, cryptocurrency is a risk-free asset. A blockchain is a distributed ledger that is used to verify the legitimacy of all transactions. Theft would require access to the vast majority of the connected machines in order to breach the system.

The truth is, however, that no system can guarantee complete safety. Exchanges, mining firms that produce coins, and digital wallets are just some of the points of entry that hackers have frequently exploited in the cryptocurrency market.

And since cryptocurrency wallets aren’t protected by the FDIC, once the coins are gone, there’s usually no way to get them back.

To date, the most prominent crypto hacks are:

  • When the Tokyo-based cryptocurrency exchange Mt. Gox was hacked in 2014, $460 million in cash and Bitcoin were stolen.
  • In the 2016 DAO breach, a VC firm using the Ethereum blockchain lost 3.6 million ether, then valued at around $70 million.
  • In 2016, a Hong Kong-based exchange called Bitfinex was hacked, losing more than $60 million worth of Bitcoin.
  • In the 2017 NiceHash breach, criminals gained access to the financial system of a Slovenian Bitcoin mining company and made off with $64 million.
  • Attackers broke into the Tokyo-based cryptocurrency exchange Coincheck in 2018, making off with over $500 million worth of digital tokens.

There is not much you can do to defend yourself from an attack like this. Don’t put all your eggs in one basket, as they say, because that’s the most critical precaution you can take and it makes sense with any investment. Don’t put all your eggs in one basket, because it’s impossible for hackers to wipe out your entire portfolio in a single day.

2. Fraudulent Bitcoin Investments

Scammers use phony bitcoin investment and mining sites to deceive people into sending them money. They use a wide range of tactics to lure potential victims to these locations. Online, they may pretend to be other investors willing to share tips. 

Sometimes they pose as investment managers and send unsolicited letters to potential victims, promising to assist them to increase the value of their cryptocurrency holdings. The use of social media to promote fraudulent crypto investment offers is another way that they can lure unsuspecting consumers. 

To earn their mark’s trust, some cybercriminals break into their celebrity or mark’s close friend’s account. Some con artists combine a crypto scam with an online romance scam by convincing potential victims they are in a long-distance relationship on a dating service.

This can always end the same way, regardless of how it begins. Some of these investment sites employ bogus endorsements and bold claims about potential returns to attract potential victims.

Investors can sometimes choose from a variety of investment tiers, each with increasing rewards. The victims, thinking they’ve struck gold, invest actual money (dollars or cryptocurrency).

These sites might keep investors waiting for years. They maintain contact with victims by sending them phony information about the progress of their investments.

However, when the victim attempts a withdrawal for the first time, all of their money disappears. Or, even worse, they are tricked into paying a withdrawal charge to get their money out and then get nothing in return.

The standard cryptocurrency investment fraud has numerous variants. For instance, some con artists spoof (imitatively recreate) the websites of legitimate bitcoin exchanges rather than creating whole new ones. As one example, the FTC reports that numerous victims have had funds stolen by websites pretending to be Coinbase.

3. Gift-giving scams

The gift scam is another common variation. Con artists pretend to be famous people or prominent cryptocurrency investors and offer assistance to inexperienced traders. When you send them your cryptocurrency, they’ll supposedly add some of their own to help you make a profit.

Actually, any money you send will end up in the pockets of the scammer. The FTC reports that in just six months, scammers posing as Elon Musk stole over $2 million in cryptocurrency from investors.

4. Fake Job Offers

It’s true that not all con artists will try to convince you to buy cryptocurrency. In its place, they offer you a job taking care of it.

Fraudsters will create phony job postings on career sites in an attempt to recruit victims to engage in cryptocurrency mining, online sales, investor recruitment, or currency conversion.

The next steps can vary. Scammers may ask for payment to apply for a job, and if you pay up, they’ll take your identity and your money.

The cash transfers to you may be canceled once they put you to work converting cash to cryptocurrency. This is a new twist on the age-old swindle of “returned checks,” which preys on the vulnerable.

5. ICO Fraud

When a brand-new form of digital currency is introduced into circulation, this event is known as an initial coin offering (ICO). There’s a chance to get in on the bottom floor of what could become the next Bitcoin, and that’s quite exciting.

Due to the unpredictability of initial coin offerings (ICOs), investing in them is fraught with danger. However, there are ICOs out there that are not just dangerous, but fraudulent. Initial coin offering (ICO) frauds can be split into two categories. 

The first example is a completely fictitious currency. Criminals produce an alternative currency that looks innovative and releases it with lots of hype. Then they keep the money that was invested without doing anything with it.

OneCoin was the largest and most publicized crypto fraud. Over 4 billion euros (almost $5 billion) were invested in this fraudulent cryptocurrency, which was promoted via multi-level marketing, the BBC reports.

The U.S. Securities and Exchange Commission (SEC) has put a stop to PlexCoin’s $15 million ICO, labeling it a full-fledged cyber-scam. Second, there is the ICO scam in which the scammers impersonate a real cryptocurrency that is actually holding an ICO.

To solicit funding for their pre-sale, they build a phony website or social media account and send out phishing emails. Investors think they’re getting in on the ground floor of a new cryptocurrency, but in reality, their money is going straight to the con artists.

However, spoofing frauds are not restricted to the blockchain industry. According to Coindesk, scammers used the same tactic in 2017 against anyone who wanted to buy Kik’s new digital tokens when they were first released. Over $20 million in ether was gathered in under 40 minutes.

Researching ICOs thoroughly before investing is the best way to prevent falling victim to these scams. Verify the legitimacy of an ICO on sites like CoinDesk, and be aware of unsolicited emails and social media posts that give you a chance to invest early.

The Securities and Exchange Commission provides some suggested inquiry topics for anyone thinking about participating in an initial coin offering. HoweyCoins is a spoof ICO website designed to raise awareness among potential investors about the red flags that should raise immediate red flags about this investment opportunity.

6. Fraudulent Crypto Wallets

A regular bank account is not a safe place for cryptocurrencies. Use a cryptocurrency wallet, or crypto wallet, for regular storage.

A crypto wallet might be a hardware token, a software client, or a web-based service provided by a cryptocurrency trading platform. It acts as a digital wallet for your cryptocurrency holdings and as a digital signature for any purchases made with cryptocurrency.

As was previously said, crypto wallets have the potential to be hacked. However, not all crooks bother to break into legitimate cryptocurrency wallets.

As a replacement, they peddle bogus versions over the web and mobile app markets. Scammers have complete access to whatever is kept in these phony wallets because they own the master keys.

An excellent illustration of this is the Bitcoin Gold wallet scam that occurred in 2017. Hacker brilliance prevailed in getting the developers of Bitcoin Gold (a recently released, legitimate offshoot of Bitcoin) to recommend the website as a safe place to keep Bitcoin Gold. In addition to more than $3 million in Bitcoin, the site’s creator made off with over $200,000 in fiat currency.

An only trust established services for your cryptocurrency wallets to keep your funds safe from hackers (our favorite is Coinbase).

The best practice is to store the majority of your assets in a “cold” wallet that is not connected to the Internet. When you need to make a trade, move cryptocurrency from there to your online hot wallet.

7. SIM Hacking

Hackers can even access your cryptocurrency wallet by stealing it from your mobile device. SIM hacking, SIM swapping, SIM hijacking, and phone porting are all names for the same con.

The process is as follows; The first thing that hackers do is port your number to a new phone. After that, they can use your device to impersonate you and change your cryptocurrency wallet’s password. Once they have your new password, fraudsters can access your wallet and drain your account.

Because of the irreversibility of crypto transactions, the lost funds are lost forever. Cody Brown, a former CEO of a software company, claims on Medium that hackers stole $8,000 from his Coinbase account using his phone and that he lost the money in less than 15 minutes.

Having a SIM call your wireless provider is a quick and easy way to regain control of your phone. They’ll pretend to be you and contact your carrier to have your number switched. In order to “confirm” their identity, they could ask for specifics about you, including your date of birth (which is a public record) or your Social Security number (obtained through a data breach).

Set a unique PIN and security question for your cell phone account as a safeguard against SIM hacking.

However, hackers can get around this defense by paying off personnel at the carrier to give them access to consumers’ PINs. VICE claims that for $80 to $100, they can obtain this information from store staff and customer service reps.

You should never connect your mobile phone number to your cryptocurrency wallet. Use a third-party authentication software like Authy or Google Authenticator instead of a text message verification code to access your account.

In addition, if you are asked to enter a phone number during the account creation process, we recommend either a fixed-line telephone in your home or a Google Voice number, which is provided at no cost to you.

8. Malware that steals bitcoin

Finally, hackers can gain access to your accounts by infecting your computer with malicious software. Viruses can do a lot of damage, spyware can steal your personal information, and ransomware can hold your laptop hostage.

Numerous malicious programs are created with the sole intent of stealing cryptocurrency. These applications can steal your crypto account credentials, empty your crypto wallet, or hack into your account while you’re processing a transaction.

WeSteal is a recently developed crypto-stealing malware program. Palo Alto Networks claims that its technology operates by scanning what you copy and pasting for traces of Bitcoin or Ethereum wallet IDs. It then offers a new code to use in place of the old one on those wallet IDs. This new, phony wallet will receive all monetary transfers in place of the original.

Taking the same safety measures you would with any other form of malware is the first step in protecting your computer from this type of malicious software. Protect your incoming and outgoing data with an anti-virus program and a firewall.

Strong passwords, or a password manager like Keeper, should be used to secure all of your online accounts. Consider additional security measures for your cryptocurrency dealings on top of this. You can conceal your true Internet service provider by using a virtual private network (VPN) like NordVPN.

An additional layer of security would be to use a special computer that you only use for accessing your crypto accounts.

How to Recognize a Bitcoin Scam

Some of the schemes used to steal cryptocurrency are far older than others. The classic government impostor fraud is just one example of how the bad guys have recycled older tricks.

They claim to be from the Internal Revenue Service or the Social Security Administration and try to scam you out of money by making you believe you have a debt to the government. The FTC reports that numerous customers have used Bitcoin ATMs to pay off fraudsters pretending to be from the Social Security Administration.

Oftentimes, the con artists may resort to outright blackmail. They want cryptocurrency as ransom, claiming they have incriminating evidence about you and intend to release it unless they get it.

The only novel aspect of these scams is the criminals’ insistence on being paid in cryptocurrency, typically Bitcoin. This is their preferred method of payment because the funds are nearly impossible to track back to the sender.

According to the FTC, this is a warning sign. Anyone who demands payment in Bitcoin or some other cryptocurrency is almost probably trying to defraud you. Aside from these red flags, crypto fraud is no different from any other type of financial scam. 

A few examples are as follows:

  • Guarantees of Exorbitant Profits. No investment, no matter how large, can ever be guaranteed a profit. Investing in the real world entails inherent risk, and the only way to earn substantial returns is to take considerable chances.
  • Promotional offers involving free cash. The offer of free cash or cryptocurrency from an unknown source is almost certainly fraudulent.
  • Disappointingly Little Attempt at Clarification. Scams involving cryptocurrency investments frequently fail to adequately explain the basics of the market. When you meet with a legitimate financial advisor, they will likely be eager to discuss how they can help you make money.

How to Avoid Cryptocurrency Scams

The presence of any of these red flags should prompt extreme caution. Prior to making any investments, you should at least familiarize yourself with the firm and the cryptocurrency. Do an online search for the company’s name plus the words “scam,” “complaint,” or “review” to see what kind of feedback you turn up.

Your prospects of getting money back from a cryptocurrency fraud are low if you’ve already lost it. In any case, by reporting the incident, you can assist prevent scammers from harming anyone else.

Reports of such scams can be submitted to:

  • The FTC
  • The SEC
  • The Commodity Futures Trading Commission (CFTC)
  • The cryptocurrency exchange you used to send the money
  • The FBI for crypto-crimes involving blackmail

Bottom Line

As the popularity of cryptocurrency increases, so too will the prevalence of scams involving cryptocurrency. There may likely be further scams that aren’t mentioned here.

Criminals may modify established fraud schemes to focus on cryptocurrencies, such as tax or utility scams. They might also devise completely novel methods, the likes of which are difficult to foresee.

Awareness is the first line of defense against these new scams. First, educate yourself on any and all scams that exist. If you know what to look for, you’ll be able to spot them even if they take on a new form.

Furthermore, a lot of caution should be exercised when dealing with Bitcoin. Before placing money into any form of investment, it’s crucial to learn as much as possible about the company, the product, and the investment advisor. 

Because of the difficulty of recouping cryptocurrency investment losses, all of these precautions take on added significance. Just as it’s crucial to ensure the safety of your bank accounts, so too must your cryptocurrency wallets.

Use extra security measures, such as strong passwords and anti-virus software, to protect your online bank account. To avoid having your cryptocurrency stolen, always use a safe wallet and distribute your private keys in a number of different locations.

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