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How to recognize cryptocurrency fraud

February 16, 2024
5 minutes
How to recognize cryptocurrency fraud

In recent years, cybercriminals have been increasingly tempting their victims to invest in fraudulent cryptocurrency schemes. They go so far as to use Tinder and similar dating apps for this purpose, where they enter into fictitious relationships with victims. According to the U.S. Federal Trade Commission (FTC), crypto fraudsters stole $139 million from gullible U.S. citizens in 2022.


The same FTC estimates that between the period of 1 Jan. 2021 and 31 Mar. 2022, there are 46,000-plus users who have reported losing more than $1 bln in cryptocurrencies. And that may just be the tip of the iceberg, as not all victims are seeking help.


People considering cryptocurrency investments should realize that there is a higher level of risk involved and proper safety precautions should be taken. This quick guide will familiarize you with the more prevalent crypto fraud scenarios and how to protect yourself from them.


What is fraud in the crypto sphere?

Fraud in the cryptocurrency industry is like every other financial crime, save for the fact that the scammers are going after your crypto assets instead of fiat cash.


Crypto thieves utilize a lot of tactics prevalent in other financial crimes: pump and dump, misleading ads for allegedly high asset prices, and direct stealing of digital coins. The last category of scams can include hacking into a crypto wallet or trying to entice an investor to convert a digital asset into payment for a scam operation or reveal their private data.


Types of crypto scams

Crypto scams may come in various ways. Here are a few of the most prevalent ones.


Investment frauds

As part of an investment fraud scheme, the perpetrator induces users to send their digital currency promising «huge profits». Scammers can play different roles, such as acting as an «investment mentor», a famous person, and even a target for flirting and romantic relationships in on-line dating services. Regardless of the role, criminals promise to maximize your investment.


Investment frauds comprise pump-and-dump patterns.The scammer convinces you to buy a little-known cryptocurrency at a «lowest cost», making claims that the asset’s valuation is soon going to skyrocket.


When you buy the asset, its price goes up, at which point the scammer dumps the asset at a new, higher price, causing the value to plummet. Usually, the newly created asset is valued at a couple of cents or maybe even a few cents. But a small trading impulse can raise its value in the charts, and it seems that the price increase has no ceiling.


Considering the velocity of creating and selling new digital currency on the Internet, some investors in pursuit of quick profits pay attention to reports of fast 3-digit increases in the price of the asset and do not want to miss the chance.


The fraudulent nature of the investment scheme may be indicated by promises of super profits or zero risk. Investment fraudsters often operate in social networks or dating sites, so you should be careful when someone unexpectedly approaches you with an offer to buy cryptocurrencies. Sometimes fraudsters create special subreddits or forums in social networks, where they discuss crypto assets, which they want to promote to the masses. This technique is called community engineering.


Phishing fraud

Phishing has long been a favorite ploy of scammers seeking to gain access to account data and crypto keys of the victim. Scammers in this category offer to click on links to fake websites where they steal account data. Criminals can impersonate renowned corporate representatives, like Amazon, or a bank, public company, and sometimes civil service agency, and they can publish links on social networks or reach out to the potential victim directly.


The fraudsters will email or post text alerts notifying users that the process of withdrawing their funds has been initiated and provide a link to supposedly cancel the transaction. However, this link leads to a fraudulent website that obtains the investor’s account details, enabling the criminals to get entry to the system and withdraw assets.


Software update scam

Constant software updates are the norm, and cryptocurrency platforms are no exception. In the digital age, people are used to regular updates, and scammers try to use this habit to convince cryptocurrency owners to hand over their private keys to them as part of an «update».


Scammers of this type can take advantage of real updates to cryptocurrency ecosystems, such as Merge Ethereum. As such, Merge Ethereum Foundation and Robinhood urge users to be prepared for this type of scam.


SIM replacement scam

Another relatively new fraud pattern is SIM replacement. In this type of scam, the fraudster gains entry to a replica of your SIM and therefore all the data on your phone, including your cryptocurrency wallet’s 2-step authentication passcodes. This allows them to log into your system and withdraw assets.


Fake crypto wallets and platforms of crypto trading

On the Internet, there are spoof crypto exchanges and crypto wallets that promise incredibly lucrative deals and discounts, but are actually owned by scammers. They may offer high profits, but require exorbitant initial fees and constantly increasing investment amounts. When you try to withdraw your funds, everything you have invested becomes unavailable to you.


In addition, there are fake cryptocurrency wallets, which are malware that scammers install on your computer or mobile device. They can steal your secret key or passcode, allowing the scammers full access to your assets.


To avoid such fraudulent schemes, it is important to choose trustworthy exchanges and reputable cryptocurrency wallets. If you find that the website of a little-known crypto wallet bears a visual resemblance to the platform of a well-known brand, it could be a sign of fraud.


Tips to prevent cryptocurrency fraud

In light of the increased dangers posed by virtual assets, it is essential to be careful. It is advisable to take the following tips to avoid the tricks of scammers:


  • Avoid responding to messages from unfamiliar individuals or organizations.
  • Regardless of who is contacting you, whether it is a cryptocurrency broker or a financial institution, it is recommended to refrain from replying. It is best to find the official contact number of the institution and contact them in an independent way.
  • Check links before opening them. Don’t click on hyperlinks or open attachments from unfamiliar senders.
  • Separate cryptocurrency and traditional bank accounts and keep them separate.
  • If you receive a notification of unusual activity on your account, block all transactions immediately.
  • Trust only trusted companies and cryptocurrency storage platforms, such as AlfaBit.

Pay attention to the presence of HTTPS protocol. The presence of «HTTPS» in the website address of a crypto stock exchange or crypto wallet indicates that the connection to the site is secure and the traffic is encrypted.


Can stolen funds be recovered?

It is difficult to recover funds that have fallen prey to fraudsters. Since blockchain transactions are immutable, the likelihood of recovering coins is quite low. However, it is still advisable to report crimes to law enforcement. Ultimately, the most important thing is to take extra precautions to ensure that you do not fall victim to fraudsters again in the future.

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