Crypto Scams

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Crypto Scams are probably one of the biggest bugbears of the cryptocurrency industry. When you scroll through Twitter, Facebook or any other social media channel you will likely find more scams under the crypto-related hashtags than quality content. Scammers love cryptocurrency due to its irreversible nature coupled with pseudo-anonymous transferability. They further pry on the fact that the cryptoverse is filled with targets who do not understand the technology. Crypto scams can take various forms. Furthermore, many people do not even realise they were scammed. They simply believe they made a mistake and lost money. There is very little recourse for the majority of cryptocurrency scam victims.

We cover some of the most prevalent scam tactics employed by fraudsters on this page.

These are:


Pyramid Schemes that Utilize Crypto

A crypto pyramid scheme is where multilevel marketers convince you to join a “business” or start your own. This requires you to buy a “package” or “membership” using cryptocurrency. You then have to build your own business by recruiting others to do the same. Many of these schemes will have no real products or services. They will pretend they do, but these products or services usually tend to be rubbish or highly overvalued upon investigation.

Pyramid schemes are illegal in most jurisdictions. Network marketing experts will try to convince you otherwise using a combination of fear, secrecy and outright bullying. Furthermore, they use legal threats and defamation suits to silence their critics long enough to scoop enough money before moving on to the next scam.

Some notable examples of crypto pyramid schemes are Karatbars, G999 and Bitconnect.


Crypto Ponzi Schemes

A Ponzi scheme is a type of investment fraud that pays existing investors with funds collected from new investors. A crypto Ponzi scheme is no different. Operators of this type of crypto scam have the added advantage that banks can not stop or reverse the transaction. Many investors do not question the crazy claims made by Ponzi operators. This is due to real crypto investors’ huge profits early in the crypto space. These scammers offer returns which in some cases run into the 1000’s percent return per year.

Crypto Scams are Mostly Targeting Arm Chair Investors

Unsophisticated investors see that it works and therefore keep re-investing. This results in the scheme running longer and drawing in more investors. To date, the biggest outright Ponzi scheme is a South African operation called Mirror Trading International (MTI). Johan Steynberg is the alleged mastermind of this crypto scam. Moreover, the operators of MTI reportedly netted over a billion dollars in cryptocurrency in roughly 18months.

Many people believe Bitcoin is one big Ponzi, however by their measure, every FIAT currency is a Ponzi too!


Ransomware Cryptocurrency Scams

A ransomware attack in its simplest form is a computer virus that encrypts a victim’s data. It then requires a cryptocurrency payment to decrypt (unlock) the data. Hackers usually target government or business infrastructure where the virus can spread. The reason is that it may cause enough financial loss to force the data controller to pay the ransom. It could also be something as simple as a computer with family photos which have immeasurable value to the owner.


Cryptocurrency is not only used to pay a ransom to retrieve data. Criminals have been turning to cryptocurrency as a ransom payment in kidnappings across the world. Kidnappers mistakenly believe they will not be caught, due to cryptocurrency’s pseudo-anonymous nature. Authorities have apprehended most of the perpetrators taking this route.


Crypto Scams Involving Direct Theft

Thefts through hacking are probably the most prevalent form of crypto scam. Hackers mostly use social engineering to obtain cryptocurrency from exchanges or centralised wallets. This type of crypto scam is not so much a scam as it is simply theft. The scam part is usually what allows the criminal to get access to the assets. There are many types of thefts, but phishing scams and rug pulls are most prevalent.


Crypto Phishing

Crypto Phishing Scams range from basement computer operations to multi-billion dollar operations. Successful operators plan these crypto phishing scams very well. Аs a result, they make millions. This is in stark contrast to the anguish and suffering that it brings to the victims. Phishing is a big problem for legitimate cryptocurrency exchanges and custodial wallet services. This is due to the fine balance that they have to strike between convenience and security.

Users can only contact the company (where their compromised details have been used). They have no other recourse if they have been victims of crypto phishing scams. If the company’s services have been used or users funds held on an account has been moved, the instant human reaction for the user is to seek help. The service company can not assist the user. This is mostly because the criminals used legitimate, albeit compromised credentials.


Rug Pulls

A rug pull is a malicious act in which crypto developers abandon a project. They then either run away with project funds or sell off their pre-mined holdings. Rug pulls are most common within the DeFi ecosystem. This is because many trading platforms, mostly DEXs, allow developers to list their tokens without any prior verification or auditing. This is simply a result of the lack of regulation or inability to regulate many platforms, services and protocols. You, therefore, have to rely on your due diligence(DYOR) to avoid these types of events.