How Not to Get Scammed in Cryptocurrencies: Precautions You Should Take as an Investor

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With the cryptocurrency industry revolutionizing investment and financial possibility, it has also brought rise to scammers and scammers schemes. With billions of dollars flooding into digital currencies, fraudsters have continually attempted to prey on unaware investors. An understanding of how to recognize and steer clear of crypto scams is a must for any crypto or cryptocurrency beginners, as well as any experienced traders. This report examines the top crypto scams, including the biggest red flags to look for, the most notorious scams and the asset types whose space you shouldn"t believe, from Ponzi schemes to fair games — and provides tactics on how to defend yourself in the high-risk world of cryptos.

The Rising Menace of Crypto Scams

The popularity of cryptocurrencies like Bitcoin and Ethereum, not to mention thousands of other coins, has brought them into the mainstream spotlight, and with it the risks that come with them. In 2022 alone, the Federal Trade Commission (FTC) reports that consumers lost more than $3.7 billion to crypto-based scams in 2022 alone, and those losses have likely increased as the market for these currencies continues to surge. The decentralized, pseudonymous nature of blockchain technology is a chaos rabbit hole, and scammers make people chase them into it through crypto, through the promise of big riches for little risk.

 

Blockchain is intricate and not controlled by a central body, which makes it hard for authorities to monitor and prosecute the scammers and for investors to trust anything but their own suspicions. By knowing the red flags and using caution, you minimize your risk of falling victim to a cryptoscam.

Common Types of Crypto Scams

Before we dive into the red flags, it may be useful to speculate what the most varieties of crypto scams. These tricks usually exploit the emotional vulnerability of investors — greed, fear or ignorance — and they can take many different forms:

 

1. Phishing Scams: What it looks like: Scammers create phony websites, emails or social media messages that resemble legitimate crypto exchanges, wallets or initial coin offerings in an attempt to steal your money or cryptocurrency. Through these phishing attempts, scammers phish your private keys, seed phrases or login details, which they can then use to siphon off money.

 

2. Ponzi and pyramid schemes: A type of fraud in which the fraudsters often rely on new salespeople or investors to pay earlier contributors in the scheme. They rely on a steady flow of new money, more or less, and they eventually collapse once recruiting dries up.

 

3. Fake ICO or Token Sale: Fraud occurs when fakesters list fake crypto projects with aesthetic websites and whitepapers to match, raise money and disappear.

 

4. Rug Pulls: Developers promote a new cryptocurrency or decentralized finance (DeFi) project, then leave it after they’ve raised money, and investors are left with worthless tokens.

 

5. Impersonation Scams – The scam is also known as social engineering, as it makes use of a trick where scammers portray themselves as someone known and trusted by the victim, like a CEO, customer support or cryptomaster, to trick the victim into sending their money or sensitive information to them.

 

6. Pump-and-Dump Schemes: Scammers use social media to hype a cryptocurrency — typically one they are trying to get other people to buy so they can sell their own holdings and make a killing as the price goes up, and leaves a lot of folks who were lured in holding the bag when it crashes.

 

7. Giveaway Scams: These are scams that say if you send in such-and-such funds to this or that wallet, they’ll double, triple, whatever that in crypto back to you. The scammer disappears when the money is sent.

Source: The Red Flags for Every Investor

Investors should be disconnecting and should be informed about these red flags so that there are not defrauded. These are the warning signs:

1. Guaranteed Returns Promised or Unrealistic Returns

One of the biggest alarm bells in crypto is the offer of guaranteed returns — something that has failed to materialize in the real world with other asset classes, so it shouldn’t exist in the crypto world either. The world of crypto is speculative and nothing is guaranteed in any project. Be wary of such terms as “this is a 100% safe investment,” “double your money overnight” or “risk-free gains.” These might be used as a strategy to play on greed and persuade investors to participate in Ponzi schemes or so-called projects that do not even exist.

 

What to Do: Be wary of investments. Make a lot of research for the project and do not forget that the biggest profits are part of the biggest risks.

2. Pressure to Act Quickly

Scammers frequently have to fight urgency and prevent you from performing your due diligence. They might say that there is a “limited-time only” chance or that prices are about to soar. This approach takes advantage of the “fear of missing out” (FOMO) and encourages investors to act without thinking.

 

What to Do: Perform due diligence before investing anywhere. Above-board ventures do not ask you to make a decision quickly and will offer transparent material.

3. Transparency and Verified Information Absence of Transparency or Verifiable True Information

Real and true crypto projects are open about their staff, tech, and vision. If a project’s website doesn’t have information about the developers, has no real whitepaper and is offering vague tech talk or overly technical specifics, then it’s probably a scam. On the same note, be wary of projects that do not have an active community or presence on reputable platforms.

 

What to Do: Check the team members’ credentials on social media sites such as LinkedIn, look for an active repository on GitHub for open-source code and make sure the project involves a clear use case and roadmap.

4. Unsolicited Offers or Messages

Getting cold-emails or social media messages or texts promoting a crypto offering is a huge red flag. These messages are generally sent out by spoof accounts impersonating influencers, exchanges, or customer service organizations. They might ask you to send crypto to a wallet, or to share with them your private keys, or to click on some link in a shady place.

 

What You Can Do: Do not share your private keys, seed phrases or login information with anyone. See that kind of message from official support points of a platform/project.

• Fake Websites and Apps Phishing schemes are often built around counterfeit sites or apps that closely resemble the legitimate company’s offerings.
  • Their url’s might differ slightly (eg lbankk. com” instead of “lbank. com”) or misrepresentation to prompt users to input sensitive information.

 

Take an extra second to verify a URL before entering credentials, and only download apps from authorized locations (like the Apple App Store or Google Play Store). Bookmark to reach reliable sites offline.

6. Too-Good-to-Be-True Giveaways

Giveaway scams often offer to multiply your crypto if you send a certain amount to a specific wallet address. A scammer might, for example, claim, “Send 1 BTC, we’ll send you 2 BTC back!” If your answer is no, then you are following a scam, because that is the point of it — greed — and this scam is a sure way to lose your money.

 

What to Do: Hold off on anything that asks you to send crypto in order to receive more in return. Real giveaways by legit projects are hard to come by and never ask for prior payment.

7. Anonymous or Unverifiable Teams

Sort of -> Many scam projects have anonymous teams or fake identities hired to seem like developers. Although honest devteams can sometimes be pseudonymous, a complete lack of traces of who is building a project is a bad sign.

 

What to Do: Research the team’s history and seek evidence of their experience or contributions to the cryptocommunity. Stay away from projects without anyone accountable for it.

8. Suspicious Tokenomics or Smart Contracts

Among DeFi projects, scam tokens might have quite suspicious tokenomics as, for example, an extremely big total supply, some hidden fees, or wallets that contain developer-controlled tokens. Rug pulls often involve smart contracts that allow developers to drain funds, or otherwise game the project.

 

What to try: Use a service such as Etherscan or BscScan to scrutinize a project’s smart contract. Look for audits by reputable firms such as CertiK or PeckShield, and avoid projects with unaudited or shady contracts.

9. Overhyped Marketing and Shilling

Scammer strategies Some scammers will use aggressive marketing, paid influencers or bots to promote a project. If a cryptocurrency is being pumped on social media without much to prove it, it might be a pump-and-dump scheme or a rug pull.

 

What to Do: Be wary of projects that are just a glitzy exterior with hype, no actual product and no clear use case. Seek genuine community engagement and don’t be tempted to buy your audience.

10. 3 Private Key Or Seed Phrase (Requests)

No trustworthy service or product will ever request your private keys or seed phrases. Unfortunately such information can be used by scammers who can pose as customer support or tell you they need these details to “fix” a problem with your wallet or account.

 

What to Do: Keep your private keys and seed phrases as you would your house keys — never share them with anyone. And keep them offline in a safe place, for example in a hardware wallet or with a written backup.

How to Protect Yourself Against Crypto Scams

Apart from identifying signs of doom, it is important to also place proactive measures to protect your investments. Here’s what you need to know about how to stay safe in the crypto space:

 

1. Keep to Reputable Platforms: Only rely on large exchanges (e.g. LBank) or wallets (in the case of currencies that aren’t “wallets only” like BTC or BCH using ledger/trezor), do not use a consolidated source, but also rely on the exchange or wallet itself. Before using any platform, do your research.

 

2. Use Two-Factor Authentication (2FA): Always use 2FA on all your exchange accounts and wallets, you might want to use an authenticator app like Google Authenticator, over SMS-based 2FA, as SMS 2FA is not that secure and could be vulnerable to SIM swapping attacks.

 

3. Secure storage of your funds: Keep it on a hardware wallet or cold storage for long term, to reduce chances of getting it hacked. Dont store large amount of Crypto on exchanges or hot wallets.

 

4. Do your homework: Read a projects whitepaper before you invest, check out a projects community on discord, or in telegram, and look at a projects smart contract. Leverage data like CoinGecko, CoinMarketCap or X posts for information.

 

5. Stay Away from Social Media FOMO – Scammers use social media (X, Telegram, Discord etc.) to generate hype over a scam project. Get at least TWO sources, and do NOT act on OR post as a citation anything you have not verified to a standard of doubt.

 

6. Keep Yourself Informed on Scams: Stay updated on the latest scam methods by following established crypto news websites and security blogs. Organizations like the FTC or Chainalysis frequently release reams of reports about new threats.

 

7. Utilize Antivirus and Anti-Phishing Protection: Install anti-virus software and browser plug-ins such as Phishing Detection by MetaMask to prevent harmful websites from coming in contact with your computer.

 

8. Report Suspected Scams: If you come across a scam in your feed, report it to the site where you saw it (say, X, Telegram) and to your authorities (say, the F.T.C. or cybercrime unit in your country). This prevents from being roped in others.

Cases of Crypto Scams in the Real World

To demonstrate why you should be vigilant, here are two infamous crypto scams:

 

• Squid Game Token (2021): Based on the beloved Netflix series, the Squid Game token was one of the most heavily shilled play-to-earn crypto projects. After raising millions of dollars, the developers pulled a “rug,” sucking out the money and stranding investors holding worthless tokens. The lack of transparency of the project and the fact that their smart contracts are unaudited was a red flag.
• Bitconnect (2017-2018): Bitconnect claimed to offer guaranteed returns through its own lending platform and token. It was eventually exposed as a Ponzi scheme that imploded after bilking investors out of more than $2 billion. The too-good-to-be-true promise of high, steady returns was a big red flag.

Conclusion

The cryptocurrency space is a vibrant, constantly changing space, but also a risky one. You can prevent yourself from losing money to a scam by knowing the universal ones and identifying red flags such as guaranteed returns, no transparency, and unsolicited offers. Always make sure your security is your no 1 priority when using well known platforms, turn on 2FA and also research, research, research before investing.
In the decentralized world of crypto, the best defense is knowledge and privacy. Watch out, and don’t allow the prospect of quick riches to impair your judgment.

 

This article is contributed by an external writer: Stella Collins

 
Disclaimer: The content created by LBank Creators represents their personal perspectives. LBank does not endorse any content on this page. Readers should do their own research before taking any actions related to the company and carry full responsibility for their decisions, nor can this article be considered as investment advice.