The Three Most Popular Cryptocurrency Scams To Watch Out For
By: Shaun Newsum
Tags: ICO, Phishing, Insights, Security, Cryptocurrency

There is a significant amount of money being thrown around when it comes to cryptocurrency, and there’s potential to make massive amounts of money with cryptocurrency if you invest well. Unfortunately, because of the large amount of money in the cryptocurrency space right now, many scammers have entered the field hoping to make quick money off of unsuspecting newbies in the space.

If you want to avoid getting swindled by these scammers, it’s important to be aware of the various scams that are taking place so you can recognize (and hopefully report) them. In this article, I’m going to go over three of the most popular scams in cryptocurrency today so you know what they look like and can avoid them. These scams are the following: phishing scams, social media scams, and ponzi scams/fake ICOs.

Phishing Scams

Phishing is one of the most popular scams in the cryptocurrency field. You might be wondering, what is phishing and how does it work?

Phishing is when a person attempts to get valuable, usually sensitive, information about an individual. This information can include cryptocurrency exchange passwords, private keys, seed phrases for digital wallets, etc.

Phishing is usually done by setting up a fake website that appears to be legitimate, and having unsuspecting victims enter their information in the website so that the owners of the website can steal that information and take advantage of it.

Why is phishing such a popular scam?

Phishing is incredibly popular with scammers because there is a low barrier to entry to do phishing. Phishing requires minimal technical knowledge, and it is very low investment compared to other scams that exist.

All that’s required to do a phishing scam is registering a domain name as well as an email address, meaning it requires very little money to get started with. Meanwhile, the potential return for scammers is massive. Thus, phishing is becoming increasingly popular.

How do victims fall for phishing scams?

Phishing scams are done the following three ways: Online advertisements and email. Let’s look at these in close detail.

Online Advertisement Phishing

Phishing scams through online advertisements are usually done using Google ads. This is one of the reasons why Google decided to ban all cryptocurrency-related ads starting June 2018.

Here’s how it works.

Let’s say you go on Google and look up “MyEtherWallet”, which is a popular wallet for Ethereum and ERC20 tokens. You see an advertisement for MyEtherWallet on top of the Google search results, click on it, and enter your information there. The next day, all the funds in that wallet are missing.

What happened?

When you clicked on the advertisement, you believed you were going to the official “MyEtherWallet” website. However, a scammer setup a fake website called “MyEtherWallettt” that looks similar to “MyEtherWallet” (notice the multiple t’s at the end). The scammer setup the website so that any information entered into “MyEtherWallettt” would be stored so the scammer could use that information to empty funds from the victim’s wallet to the scammer’s wallet.

How do I avoid this?

Avoiding this is rather simple: don’t click on advertisements from Google or any other search engine. Scamming victims through Google ads is incredibly popular, and to ensure you avoid this happening to you all you have to do is to avoid advertisements.

If you do decide to click on online cryptocurrency advertisements, check the URL of the website to see if anything strange or fishy is going on with the URL. Examine the URL closely. Scammers will usually add a few letters or a word to the end of a legitimate website and have that as the URL, and if you don’t look closely you might mistake the website for the legitimate website you’re looking for.

Email Phishing

Email phishing is another popular scam that phishers try to use to profit off of unsuspecting victims.

Here’s how it works.

You’re going through your email, and you see an email from what appears to be Binance support. You click on the email, and the email informs you that unusual activity is happening on your account. In order to verify that it’s you, the email tells you to click on a link and enter your information so that Binance can verify whether it’s actually you or not.

Wanting to feel safe, you click on the link and enter your info. The website thanks you for verifying that it’s ok. You feel safe.

When you check Binance the next morning, you see that all of your funds from your wallet are gone.

What happened?

An incredibly popular method of email phishing is where the scammer sets up an email account with a legitimate sounding name, emailing the potential victim that unusual activity is happening on their cryptocurrency exchange account/wallet, and informing the potential victim that they need to confirm whether or not the activity on the account/wallet is legitimate.

The website appears to be legitimate because it looks similar to the website of the cryptocurrency exchange. When you enter your information on the scam website, however, it logs all that information so that scammers can use that information to login to the real cryptocurrency exchange that it was emulating and steal your funds.

How do I avoid this?

There are several steps that you should take to avoid phishing through email.

First, look at the actual email address of the person sending you the email. Usually scammers will use email addresses that look and seem similar to legitimate email addresses but are slightly altered. For example, let’s say a scammer wants to get your Coinbase login information. They’ll create an email address that appears legitimate, such as “coinbase_customer_support@gmail.com”

Legitimate emails from cryptocurrency exchanges/wallets will always be sent through with an email from the domain name of the exchange/wallet and not using a gmail account. A legitimate email address from coinbase would look something like “support@coinbase.com”

If you still can’t tell, look at the email to see if there are any typos, misused graphics, grammar errors, etc.

If you’re still not sure, don’t click any links from the untrusted email or download attachments from the untrusted email. Cryptocurrency exchanges will usually publicize their support email addresses, so you can look those up and see if they match the email address of the sender.

You can also reach out to the cryptocurrency exchange through official social media channels to verify whether an email is legitimate or not.

Furthermore, activating two-factor authentication for your cryptocurrency exchange account is a good way to have added security for the account.

Social Media Scams

Social media cryptocurrency scams are becoming incredibly prevalent on Twitter, and other social media.

Social Media Giveaway Scam

Here’s how it works.

Let’s say you’re going on Twitter to check updates about different cryptocurrency projects from the leaders of those projects. When you’re scrolling through Twitter, you see a tweet from Changpeng Zhao (CEO of Binance) stating that Binance is doing a giveaway to reward users of Binance. He includes a wallet address, and states “If you send 1 BNB to this address, Binance will give you 10 BNB back”. Thinking that’s incredibly generous of him, you send the BNB token to the address waiting for your reward. You wait… and you wait… and a few weeks later you still don’t have 10 BNB in your wallet address. You were scammed.

What happened?

A scammer hoping to take advantage of a potential victim’s greed sets up a Twitter account that appears similar to a well-known person in cryptocurrency or technology, with a similar account name. Perhaps the twitter handle the scammer chooses is “@vitalikbuternn” which appears similar to “@vitalikbuterin”.

Then the scammer makes a tweet stating that he’s giving away 1 ETH for people who send 0.1 ETH to the address that he includes. This tweet is usually included under other tweets from popular cryptocurrency people on Twitter to gain maximum attention to the tweet.

How do I avoid this?

This scam takes advantage of people’s greed and people’s trust in authority figures within the cryptocurrency space. Remember: if it seems too good to be true it probably is.

Genuine giveaways will never ask you to send cryptocurrency to an address to receive cryptocurrency back. Never send cryptocurrency to an address of a person that you don’t trust, and always verify to make sure that the addresses are correct and safe before sending money to it.

Fraudulent ICOs And Ponzi Schemes

The last popular cryptocurrency scam that we’ll look at are fraudulent ICOs and ponzi schemes. These scams take advantage of people’s greed to put money into a project that will eventually fail. Let’s examine both.

Fraudulent ICOs

Fraudulent ICOs are ICOs in which the aim of the creators of the ICO is to “exit scam”, i.e. abandon the project so that the people who bought into the ICO are left holding the bag.

How do I avoid this?

Although detecting fraudulent ICOs can be a bit more difficult than detecting a social media scam or phishing scam, it’s not impossible. ICOs that plan to perform an exit scam often have similar characteristics, including the following:

No whitepaper, or whitepaper is lacking in detail

Whitepaper provides no technical information about how the ICO will actually work, focuses mainly on promises about large returns

Lack of official social media accounts (e.g. Twitter, Telegram, etc.)

Lack of information about founders, or supposed founders don’t have a LinkedIn account, etc.

This is not an exhaustive list, of course, but these are some key factors to look for to determine whether or not an ICO is planning to perform an exit scam.

To get a more in-depth look on factors you should look at when analyzing an ICO, take a look at our previous article “The Six Key Factors For Analyzing An ICO”

Ponzi Schemes

Ponzi schemes inevitably fail because it is unsustainable. Ponzi schemes also take advantage of potential victim’s greed by promising incredibly high, unrealistic returns.

How do I avoid this?

There are three factors to look for to avoid falling for a ponzi scheme.

The first factor to look for is if you understand what the cryptocurrency does to provide value. If a company offers high returns but you have no idea where that value comes from, then you should probably avoid that company entirely. Same thing applies with cryptocurrencies.

The second factor is if the company offering the cryptocurrency offers an unrealistic return to its investors. You should be wary if the main focus of a company for its cryptocurrency is about how large the returns will be for investors. A good company will focus on building out the cryptocurrency, working on the fundamentals, building out the platform for the cryptocurrency, and leave discussions about returns to speculators.

The last factor to look for is whether or not the company rewards users with higher returns through a referral program. Ponzi schemes can continue to survive as long as more people enter into the scheme. Referral programs bring in more users to the ponzi, which allows the ponzi to continue. Be wary if a company offers to reward you with higher returns for referrals

In Conclusion

Make sure that you do proper due diligence and research online — unfortunately there are scammers in the cryptocurrency space that want to take advantage of others.

As long as you’re careful when interacting with others, you should have a safe and positive experience in the cryptocurrency community.