In today’s world, your cryptocurrency is an incredibly valuable asset for criminals because it is: liquid, portable, and if the user makes a transaction it will be almost impossible to undo. The result of such properties is a new wave of scams (both in the form of long-standing classics and completely new and inherent only to cryptocurrencies scams) sweeping the world of digital currencies.
In this article, we will look at some of the most common types of cryptocurrency fraud.
- Fraud on social networks
It’s amazing these days how individuals show generosity for likes on Twitter and Facebook. Check the responses to a high-interest tweet and you’ll see that one of your favorite crypto companies or influencers is hosting a givaway. If you send them just 1 BNB/BTC/ETH, they promise to give you back 10 times as much! That seems too tempting to be true, doesn’t it? Unfortunately, this is one of the most common types of scams.
It is extremely unlikely that someone is running a real givaway that requires you to send your money first. On social media, you should be wary of such messages, because they can come from accounts whose appearance is completely identical to the ones you know and love, but that’s also part of the trick. As for the dozens of responses thanking said account for their generosity – these are just fake accounts or bots used as part of this givaway.
Suffice it to say that you should simply ignore it. If you are really sure that this givaway is real, look closely at the profiles and you will notice obvious differences between them. In fact, it will turn out that the Twitter post or Facebook profile is fake.
Even in the event that Binance or any other organization decides to host this event, the real representatives of the company will never ask you to be the first to make the transfer.
- Financial pyramids or Ponzi scheme
Pyramid schemes and Ponzi schemes are slightly different, but we put them in the same category because of their similar principle of operation: in both cases the fraud is based on people attracting new participants with the promise of incredible profits.
A Ponzi scheme will tell you about an investment opportunity with guaranteed profits (that’s the first red flag!). In most cases, this scam is disguised as a financial asset portfolio management service, but in reality, there is no magic formula here, because the resulting “income” of such an organization is simply other investors’ money.
The organizer takes the investor’s money and adds it to the pool, where the only cash inflows come only from new entrants. Old investors are recouped through new investments, and this cycle can continue as long as more and more newcomers join. The scheme breaks down the moment the money stops flowing into the pool, because at that stage it is simply incapable of providing payments to the old investors.
Take, for example, a service that promises 10% return on investment per month, you could invest $100 there. The organizer then looks for another “client” who also invests $100. Using the newly acquired money, he could pay you $110 at the end of the month. He would then have to get another client to pay a second one. The cycle continues in this rhythm until the inevitable collapse of the scheme.
In a financial pyramid, those involved are required to do a little more work. At the top of the pyramid is the organizer, and the participants below him will have to recruit a certain number of people to work on the level below them, and each of these people will recruit their own number of people, etc. The result is a massive structure that grows exponentially and branches out by creating new levels (hence the term pyramid).
At this point we are observing a system that may seem like a common scheme for a very large (legitimate) business, but a pyramid scheme is different in that it promises income for recruiting new members. Let’s take as an example an organizer who gives Alice and Bob the right to recruit new members and receive $100 for each, while charging 50% of their subsequent income. In turn, Alice and Bob can offer the same deal to whomever they recruit (they will need at least two recruits to recoup their initial investment).
For example, if Alice brings Carol and Dan (who pay $100 each), she will be left with $100 because half of her income must be transferred to a higher level. If Carol continues to bring in new members, we’ll see her profits go up. Alice gets half of Carol’s income, and the organizer, half from Alice.
As the pyramid evolves, older participants get a larger and larger influx of money as distribution costs move from the lower level to the upper level, but because of exponential growth, such a model is short-lived.
Sometimes participants pay for the rights to sell a product or service. You may have heard of some multi-level marketing companies accused of using pyramid schemes in this way.
In the field of blockchain technology and cryptocurrencies, controversial projects such as OneCoin, Bitconnect and PlusToken have also been threatened by similar qualifications. Users have filed lawsuits against them, claiming that these projects and their developments allegedly involve a pyramid scheme.
- Fake mobile apps
It’s easy enough to overlook and thereby ignore the warning signs on fake apps if you’re not careful enough. Typically, these scams cause users to download malicious applications, some of which mimic popular ones you know well.
After a user successfully installs a malicious app, it may seem like everything is working exactly as intended, but these apps are specifically designed to steal your cryptocurrencies. There have been quite a few cases in the crypto space where users have downloaded malicious apps whose developers masqueraded as large cryptocurrency companies.
In mobile apps the user is given an address to deposit his wallet, which is a common fact, but in the case of a fake app you are actually sending funds to the address belonging to the fraudster. Of course, there is no cancel button after the withdrawal transaction.
Another factor that makes this type of scam particularly effective is the ranking position of fake apps. Despite the fact that they are malicious, some of them may be ranked quite high on the Apple Store or Google Play, which gives them legitimacy. To stay away from them, you should only download them from the official site or from a link provided by a reliable source. You can also check all the information about who published the app in question when using the Apple Store or Google Play.
Even newcomers to the crypto space are undoubtedly familiar with phishing. Basically, it is a scammer posing as a person or company in order to gain access to the victim’s personal data. This can happen in a variety of ways: via phone, email, fake websites or messengers. Messaging application scams are especially common in the cryptocurrency environment.
There is no set set of rules that scammers follow when trying to access your personal information. You may receive an email notifying you that there is something wrong with your account on the exchange, which requires you to click on a link to solve the problem. This link will redirect you to a fake website designed similarly to the original one, which in turn will prompt you to log in. In this way, the attacker will steal your credentials and possibly your cryptocurrencies.
Telegram scammers often hide in official groups attached to certain cryptocurrencies or exchanges. When a user reports a problem in this group, the scammer will contact the user privately, posing as a support service or one of the team members. In the correspondence, they will call to share their personal information or a Sid phrase.
If someone gets hold of your cid phrase, they will have access to your funds. You must remember an important rule: your sid-phrase should be known only to you, and under no circumstances should it be disclosed to anyone else, not even legitimate companies. Wallet troubleshooting does not require knowing your personal information, so it’s safe to assume that anyone asking for it is a scammer.
As for your exchange account, Binance will never ask you for your password. The same applies to most other services. The most sensible plan of action if you receive an unwanted message of this kind is not to engage in a dialogue, but to contact the company through the contact information listed on their official website.
A list of some safety recommendations:
- Check the URL of the sites you visit. Often scammers register a domain that is very similar to the domain of a real company (for example: binnance.com).
- Add your most frequently visited domains to your bookmarks. Search engines can show malicious sites at the top of the list.
- If you have any doubts about a message you have received, ignore it and contact the company or their official representative through the contact information listed in a reliable source.
- No one but you should have access to your private keys or sid-phrase.
- Frauds involving or impersonating real famous people or projects
The acronym DYOR is often repeated in the cryptocurrency industry, it stands for “Do your own research” which means “think with your head” and there is a good reason for that.
You should always think about your decision for yourself, without taking someone else’s word for granted when choosing which cryptocurrencies or tokens you should invest in, because it is impossible to know their true motives. This goes for any random strangers and even popular influencers and personalities, because any of them could be getting paid to promote a particular ICO or have their own big investments. Remember, no project is guaranteed to succeed and in fact many will fail.
In order to get an objective assessment of the project, you must consider a combination of several factors. Everyone has a different approach to researching prospective investments, but there is a list of common questions you should start with:
- How are coins/tokens distributed?
- Is most of the total coin supply concentrated in the hands of a few organizations?
- What is unique about this particular project?
- What projects are doing the same thing, and how exactly is this one superior to the others?
- Who is working on the project? How good is the experience of this team?
- What does the community like? What does the project plan to implement?
- What is the need for this coin/token?
Attackers have no shortage of methods to divert funds from unsuspecting cryptocurrency users. To protect yourself from this kind of fraud, you need to be vigilant at all times and be aware of the schemes used most often. Always check if you are using official websites/apps and remember: if an investment offer sounds too good to be true, it is probably a scam.