Most Common Cryptocurrency Scam Methods All Investors & Traders Should Know

During the last years, the cryptocurrency market experienced different hacks and scams that affected the whole system. Of course, they harmed a very enthusiastic community that started to place their bets in blockchain technology and virtual currencies.

But not everyone knows which are the different types of scams in the market. In this article we will be writing about the most common types of fraudulent activities that affected the community.

Fake Initial Coin Offerings

Initial Coin Offerings (ICOs) are a great example of risky investments. But even more, they have been one of the main tools used by scammers to steal funds from investors. In a very recent study, 80% of the ICOs conducted in 2017 were considered as scams.

There are several examples of that, we can mention Confido as one of the most popular scams. Back in November 2017, the company was able to raise $375,000 dollars to start developing products and services. But instead of developing the ideas proposed, the team behind the ICO just disappeared after they gathered the funds.

The token they sold suffered a massive drop from $0.6 to $0.1 dollars in just some hours. After it, the price of the token drop down to zero.

Another shocking scam was the one performed by the ICO Centra, that was able to raise $32 million dollars after being supported by important celebrities such as Floyd Mayweather and DJ Khaled. In the ned, two founders were arrested in April 2018 and the tokens lost almost all their value after it.

In general, it is very easy to create a scam ICO. Individuals hide themselves and create a fake team with stock images. Others directly steal images from other well known figures. After it, they start to sell tokens and escape right after gathering some funds.

Savedroid, for example, cheated the community after they lied to the community saying that they were escaping with the funds. Their page showed an image that read: ‘Aannnd [sic] it’s gone.’ This ICO raised more than $50 million dollars and was using AI to manage users’ investments. In the end, the ICO explained that everything was a marketing campaign to conscientize about the risks of investing in Initial Coin Offerings.

We can mention that even the U.S. Securities and Exchange Commission launched a fake Initial Coin Offering to warn users about these scams.

Is Elon Musk Really Giving Ethereum Away?

This is a very common question that no-coiners usually ask|. No. Elon Musk is not giving away free ETH, at least for now.

In Twitter, fake accounts that impersonate important figures related to different fields. For example, Vitalik Buterin or Charlie Lee inform that they are giving away some ETH. In order to participate it is necessary to send some ETH to the address they provide with the promise that they will give you back three to ten times more the amount sent.

Of course this is fake and nobody will ask you for funds to give Ethereum, if they want to do it.

Fake Websites

This is a very famous way to steal cryptocurrencies from users. If they are not alert every single time they enter to their cryptocurrency exchanges, they may lose the funds they stored, forever.

This happens because a user logs in in a fake website that looks like exactly the same as the cryptocurrency exchange it impersonates. If you enter to Binance.com you should double check that the letters do not include a ‘.’ under a letter or near it. The same about other exchanges.

Ad Scams

There is another way in which scammers can steal your funds. We are talking abou Ad scams. When we search some things in internet, we see that there are some ads that display related content. But it is important to always select the legitimate URL and avoid all the other links shown.

If this happens, individuals may be giving their information to phishing sites that collect information from users.

DNS Hacks

This is a more sophisticated way of stealing cryptocurrency users. A DNS attack takes place when traffic is redirected from one website – the original one – to the scam site that modified the DNS records of the legitimate website.

The user will be entering the correct site, but they will be redirected to another that wants to steal users’ funds. This is very dangerous because even when you enter to the site you wanted (the legitimate one) you may be visiting another one.

If you want to avoid these attacks is important to verify the SSL certificate of he website. If the SSL certificates do not match, then you should be aware.

Fake Emails

This tactic is commonly known as phishing. These fake emails can redirect users to websites that are not real. If the users writes his information down, then they could be hacked after it.

Fake Support Teams

If you were searching for help about a specific topic, never give your private keys or private information such as passwords, ID, etc. Another type of phishing campaign is related to fake support teams that ask for personal information, deposits of funds, or more.

Fake Cryptocurrency Exchanges and Applications

It is always very important to trade in important crypto currency exchanges such as Binance, Kraken, Huobi or Coinbase Pro. Why? Because there are some smaller exchanges, with just a few months, that are not real and that have been created to steal customers’ funds.

Cloud Mining Scams

Cryptocurrency mining activities have also been expanding all over the world. During the last year, due to the price increase that Bitcoin and other virtual currencies experienced. But buying the necessary equipment to mine may be really expensive. This is why, cloud mining platforms have been increasing in popularity.

And yes, they have also been used by scammers to steal funds from cryptocurrency users. There were some platforms, such as MiningMax, that were asking for $3,200 dollars promising daily ROI during two years and very attractive referral commissions.

Apparently, the website was able to scam investors for over $250 million dollars.

Ponzi and Pyramid Schemes

These kind of schemes have been operative in many different industries in the past and are not exclusive to cryptocurrencies. Ponzi schemes involve payment of purported returns to existing investors from funds contributed by the new investors. The most important case was the one related to Bitconnect, in which the company had to give back money to some investors and from one day to the other, the BCC coin lost almost all its value.

The currency moved from $320 dollars to $6 dollars. Indeed, the market capitalization moved from $2 billion dollars to $40 million.

The company has been working for over a year without having problems until it couldn’t resist the pressure anymore.

Malware and Cryptocurrency Mining

We have different forms of Malware in the market. We are talking about malicious software installed in the victim’s device, and the crypto mining malware that does not need to be installed in the victim’s device.

The malicious software installed in users’ devices consumes resources of the computer of mobile device to mine virtual currencies such as Monero (XMR). But the second mining malware does not need to be installed in the victim’s computer, because it operates online. When an individual is using for long period of times some websites, crypto hackers can steal visitors’ power directly from the site.

This tactic is known as Cryptojacking and has been expanding since the last year, affecting an important number of computers and individuals all over the world.

If you want to avoid these problems, you need to use ad blocks and listen to your CPU / GPU if it makes a lot of noise. At the same time, never install software that you do not know who developed it or if it is safe.

Fake Pools and OTC Scams

Due to the fact that cryptocurrencies expanded all over the world, fake pools have been growing as well. These groups offer allocations for upcoming Initial Coin Offerings (ICOs) and ask people to send funds before so as to receive the tokens.

There are legitimate groups that require very strict rules to enter. But in general, most of them are totally scams.

The same happens with OTC (over the counter) scams. A person offers a very attractive asset for a good price. When the money is received by the seller, then it disappears and the money lost.

Pump and Dump Schemes

We have heard these words several times in the past because they had a very deep impact in the cryptocurrency market. Pump and Dump groups operate manipulating the price of a specific token or asset that has low liquidity or less market capitalization.

Every some time, pump and dump organizers decide to buy a specific cryptocurrency to drive the price up, and later, they give information to lower level individuals to dump the virtual currency and make an important difference. In the end, these are a different kind of pyramid schemes, as we have described before.

Phone Hacks

This is also a new strategy to steal the funds of several crypto investors. It is possible for many hackers to take control of the phone number of some individuals that have cryptocurrency assets. The telephone is very important because it can be used for a user to receive 2FA sms codes.

If this is the case and the phone has been hacked, then the crypto user is in danger of being stolen.

How To Be Protected?

There are some typical red flags that should be taken as warnings by cryptocurrency users.

  • Promises of Astronomical Gains: If there is an investment method that for just some few dollars is possible to earn important returns in a short period of time, it should be flagged as dangerous.
  • Invite More Users: If the investment method requires you to invite several more users, then we could be talking about a Ponzi scheme rather than a normal investment system.
  • They Ask for Cryptocurrency Private Keys: The golden rule is ‘Never share your private keys.’ At the same time, do not give your passwords to anybody.
  • Never Invest in Old Scam Sites: If a crypto or blockchain project has been labeled as a scam in the past, then you shouldn’t trust it if it starts operating again.
  • Project Team: Never invest in projects by just taking a look at the website or white paper. It is always important to read the economic model, to know the industry where it operates and search for the team members in social networks.

How to Realize if an ICO is Legitimate or not?

It is very common to believe that an ICO is legitimate but in the end it was a scam. There are some rules that should be followed to avoid these kinds of problems.

The first thing that must be done is to ask: Is there any important figure backing the project?

If the answer is yes, then it is important to confirm this information with the figure itself if it provides information on the matter or not.

At the same time, it is very important to see that the team is active in LinkedIn and / or other social networks. If they are active, the white paper gives clear and detailed information and the important figure is legitimizing the ICO, then it could be a good project to invest in.

If you want to be 100% sure, then it will be a plus to analyze the roadmap and investigate whether the company is following it in time or not. But if the company has a product already developed, then this should be a good sign of compromise.

Taking into account the activity that the project is having is a key part of understanding whether an ICO is fake or not. If the project has been abandoned, then it means that the team will not be looking at it later. If there is just a very few individuals talking in social media on the matter, then,the ICO may have been a scam.

Another ley question that we can ask ourselves when we decide to invest in an ICO is related with the technology used: does the project need to use blockchain technology or the problems shown can be solved in another way?

Finally, it is also important to check if the team has been active during the last months or informing about the development of the ICO.

Conclusion

As you may have seen in this article, there are different crypto scams and frauds in the market. We need to understand that they can affect us at any moment, but it is not necessary to become paranoid about them. It is possible to avoid them following very simple security rules.

The cryptocurrency market could be a much safer place if we all understand that scammers are all there trying to steal our funds. Dealing with finances it is a risky activity and users should be cautious every single time they deal with these matters.

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