There are hundreds of cryptocurrencies that have launched over the past several years and thousands more ICOs in 2022.
That means there’s no shortage of investment opportunities in the crypto space, but also no shortage of scams. Here are 10 of the biggest scams you need to know about so you can protect yourself from getting ripped off and losing your hard-earned money.
1) Ponzi schemes
With Ponzi schemes, you give your cryptocurrency or money to someone, who says they’ll invest it for you. Instead of investing, however, they use what you give them for their own gain. They then pay back earlier investors with whatever new money comes in from later investors. Ponzi schemes can grow very large and there have been a number of high-profile instances where tens of thousands or even millions were scammed out of their life savings.
In a typical Ponzi scheme, you would pay into an account and your investments are then placed with other investors’ money. To incentivise you to keep putting money into their accounts, they promise high returns. But it doesn’t take long for them to run out of new investors as word gets around that they are a scam, so they just keep paying back old investors with new ones until it all comes crashing down. It’s important that if you want to invest in cryptocurrencies like Bitcoin or Ethereum, you only do so via well-regulated exchanges or brokers who deal primarily with fiat currencies rather than cryptocurrencies themselves. If someone is offering what seems like an incredible return on investment (ROI), watch out!
2) ICO scams
If a company is new, or simply wants to raise money quickly, an Initial Coin Offering (ICO) is an easy route. It’s a fundraising method that’s somewhat similar to crowdfunding and IPOs. In an ICO campaign, a percentage of the cryptocurrency is sold to early backers of the project in exchange for legal tender or other cryptocurrencies, but usually for Bitcoin. Instead of shares, what is being sold are tokens. This process can be called crowd sale instead of ICO selling because during an ICO sale tokens are issued. However, you can still call it an ICO by changing selling tokens into selling coins and using the ICO acronym accordingly.
In many cases, ICOs are used as a scam tool. Most people can’t tell that what they are looking at is not a stock offering but simply new crypto tokens. They think they can get in and get out with great returns, or speculate on an increase in its value. However, there’s no way to regulate how much money is being raised during an ICO campaign. This makes it even easier for scammers to trick investors into parting with their money in exchange for worthless tokens (or nothing at all). That’s why we need articles like this one so that you can read through and understand what is going on with all those new projects popping up every day.
3) Pump and dump schemes
A crypto wallet is like a bank account for your digital currency. But there’s one major difference between a crypto wallet and a regular bank account: Crypto wallets store your private keys on devices that are not connected to or controlled by an online network, so they are more vulnerable to malware attacks. A type of malware called a keylogger can track what you type when you log into your crypto wallet, allowing hackers to steal your credentials and access your funds. Although there are ways to protect yourself from keylogging malware—such as by moving assets into a hardware wallet and using two-factor authentication (2FA)—there’s no way of knowing whether or not they’ve been compromised until it’s too late.
A pump and dump scheme is a type of fraud that involves artificially inflating a stock’s price through false and misleading positive statements, then selling once investors have bought into it. It’s illegal in some countries but is still very common in crypto. In fact, pump and dump scams are so prevalent that they account for more than $1 billion of all cryptocurrency trading activity every year. The scammers behind these schemes manipulate prices by using multiple accounts on different exchanges—like Twitter and Reddit—to talk up a crypto asset they own or push a coin or token they want other people to buy. They often target low market cap coins because there is less liquidity.
4) Malware attacks on crypto wallets
With at least $1.2 billion worth of crypto being stolen, it’s no surprise that more and more hackers are attacking wallets. Since there are so many different types of wallets out there, with varying levels of security and access control, it can be difficult for users to know if they have their bases covered. Here’s what you need to know about cyber criminals going after your digital cash:
- Hardware Wallets Are Targeted Most The fact that hardware wallets are physical objects makes them vulnerable to a malware attack by hiding malware or installing keyloggers on computers used to create new wallet addresses.
- Software Wallets Can Also Be Attacked If a hacker can get their hands on your private keys, they could send all of your crypto funds to another wallet. Software wallets can also be hacked using keyloggers or malware as described above.
- Phishing For Private Keys Phishing is one of many ways that cybercriminals will try and trick you into handing over your private keys. Malware, phishing attacks and fake software wallets are all common ways for hackers to attempt stealing users’ private keys from wallets where those users don’t have ultimate control over their assets—like hosted wallets like Coinbase and Binance (where private keys are held by these platforms).
Cryptojacking is quickly rising in popularity among scammers and hackers. It’s a form of malware that secretly mines cryptocurrency using someone else’s computer. While most of us are aware we have to protect our computers from viruses, trojans, and other forms of malware, crypto-jacking slips under our radars because we don’t realize it’s happening. And once you start mining cryptocurrency without your permission, it can be hard to stop. Here are some of the biggest scams related to crypto-mining and ways you can avoid them
The rise of cryptojacking has meant that some websites, apps, and even browsers have been known to secretly mine cryptocurrency using your device. A report by Symantec earlier in 2018 estimated that there are over 1.5 million different pieces of malicious software capable of cryptojacking out there – a figure expected to grow throughout 2018. It’s important you stay on top of these developments so you know what to look out for, especially when it comes to public Wi-Fi hotspots, which are particularly vulnerable. Always be sure to update your system with security patches and antivirus tools so you can spot any potential threats quickly before they do too much damage. If you think you might be infected, act fast and conduct a malware scan as soon as possible.
6) Mining scams
A pyramid scheme is an illegal business model that recruits members via a promised payment of money (which is not based on any product sale or inventory loading). New recruits make up the base of a pyramid-shaped structure and must recruit more people into it. The number of levels in such structures can vary, but they rarely include a positive feedback loop (meaning every new member has fewer people above them than below them). Pyramid schemes are often targeted at people with low incomes who may find it hard to resist what seems like easy money. Unfortunately, there’s nothing easy about these scams—people who buy into them often lose everything they invest.
Investing your hard-earned money in a cryptocurrency is always risky and should be done with caution. Sadly, there are unscrupulous people out there who are looking to make an easy buck by scamming unsuspecting investors out of their money. The crypto world is still plagued by numerous scams, many of which continue to dupe people into parting with their money. It’s important that you arm yourself with information before you commit any money to an ICO or other crypto-related venture.
7) Cloud mining scams
If you’re going to get involved with a crypto-scam, it might as well be one that offers other investment opportunities—most scammers will give you an option to double your money or some similar offer. If it sounds too good to be true, it probably is. If a startup has something legitimate, there are lots of ways for investors to get involved: through crowdfunding platforms, initial coin offerings (ICOs), etc. The most surefire way to spot a scam is if they require you use either cryptocurrency or wire transfers as payment methods—that means something sketchy is going on and all legitimacy goes out the window.
Like most good investment opportunities, cloud mining scams can sound too good to be true. If you’re unfamiliar with how it works, here’s a quick rundown: Cloud mining is where you purchase cryptocurrency mining machines (called hardware wallets) and pay a monthly fee for access to that hardware. By signing up and renting a machine, instead of purchasing one outright—you are essentially paying someone else for their cost of electricity, overhead costs and rental space so they can mine your coins for you. Most scammers will offer ridiculously low prices for hardware wallets—if it sounds too good to be true, there is probably something shady going on.
8) Borrowing your coins to lend them out
This is a common scam. How it works is someone will approach you on a message board or chat channel claiming they have coins that they need to borrow. They’ll offer you some kind of incentive (like more coins or discounts) if you lend them your coins for a period of time. To keep things safe, always remember: You can never get something for nothing. If someone promises more coins, better rates, or special discounts by lending them money you don’t have and that person isn’t willing to borrow using their own money then there’s a high likelihood it’s a scam.
An example of how to spot a scam is: say you are approached on a message board by someone who claims they want to borrow your coins but only offers you 1/2 of what your coins are worth as collateral. He or she promises a larger reward for letting them borrow your coins for 1 week. If it’s really true that they have such valuable coins, why not use their own money? Why ask others for help if they’re so rich? The answer is because it’s fake! In reality, someone who has $1 billion USD and is willing to pay $250 million USD doesn’t need your help. So if someone approaches you with an offer like that don’t lend them any money! It’s not worth it!
9) Multi-level marketing schemes
If multi-level marketing (MLM) opportunity interests you, make sure it’s one that you can sell with confidence. Avoid any opportunity that sounds too good to be true, or comes with an extremely complicated compensation plan. Use common sense and research each company thoroughly before choosing one that looks like a promising option. Some MLMs are less reputable than others, so do your homework on every opportunity and have realistic expectations about what you’re selling and who you are selling it to. If someone tries to pressure you into joining or buying something, walk away from them. Don’t worry—there’s no shortage of highly credible opportunities out there for people interested in starting their own businesses from scratch.
Before you sign up for an MLM business opportunity, be sure that you’re not being scammed. Learn how to recognize an MLM scam before it’s too late. Many scams are extremely elaborate and can be hard to spot, but there are warning signs that can help you tell a good opportunity from a bad one. Always check with your local consumer protection agency when considering a business offer, so that you know what to look out for before signing on.
10) Other Investment Opportunities
If you’re looking for a straightforward way to invest, you may want to consider an index fund or ETF. For those who are willing and able, crypto investing can be hugely lucrative, but there are also major risks involved. If a coin falls 50% over three days, don’t sell — it could just be adjusting to changing market conditions. Look out for pump and dump scams too. Unsuspecting investors get excited about a coin as its value starts rising, so they buy more of it on margin (borrowing money from their broker), only for its price to suddenly collapse. This causes other investors — who see that their portfolio is tanking — to start selling quickly as well.
If you’re looking for a straightforward way to invest, you may want to consider an index fund or ETF. The appeal is clear: they track entire markets rather than individual coins, and their fees are low. Yet despite their long history and popularity, some people don’t understand what they do. An ETF holds assets like stocks and bonds instead of a cryptocurrency, so its value does not fluctuate based on one coin’s ups and downs (but remember that it does still involve risk). Finally, keep in mind that most exchange-traded funds track non-crypto markets as well. If you already own stocks or ETFs from other industries — say energy or healthcare — these products can also be used as crypto investments.