5 Crypto Scams

January 9, 2022
Written by:
Rafael Vega
Edited by:
Kwame Newman-Bremang

Cryptocurrencies have been around since 2009 with the emergence of Bitcoin and have started to gain new found attention with the birth of other coins and NFTs—non fungible tokens that allow for the creation and collection of authentic, non-replicable digital goods. Unfortunately, with the flow of hundreds of thousands of new users looking to invest and collect, crypto scams have also gotten more rampant, from wallets being hacked to Ponzi schemes.


Here are Five Cryptocurrency scams you need to know about now:


1. The Wallet Hack (a.k.a A Phishing Attack)


The scammer’s goal here is to get your personal information, then use it to gain access to your wallet. How are they going to do that? Well, the sad reality is that you’re going to give it to them freely when they show up in your email, text message, or as a website, pretending to be a reputable company you know and trust. 

The scam goes like this. You get an urgent message to claim a prize or fix a problem with your account, along with a link to “your” account login. The link takes you to a fake site that, in some cases, looks almost exactly like a site where you have an account. You enter your login info and … game over! They’ve got all they need to login and take over your real account.


Here are some common sense things you can do to avoid phishing scams:

  1. Don’t use links to get to websites you use unless you requested them (for example, to change your password).
  2. Check domain names for accuracy.
  3. Enable Two Factor Authentication (sometimes called Two Step Verification) on services and apps you use. Below, @SimoneartOnline (Twitter) illustrates phishing on Discord.

 

2. Social Media Imposters, Con Artists, and Gas Panhandlers

          

 This lovely bunch is to be avoided at all costs.

The social media imposter usually assumes the identity of a celebrity, friend, or relative. In the role of celebrity, the imposter will either try to phish for your information by offering free cryptocurrency or by asking you to donate to a charitable cause in an attempt to collect your credit card information. In the role of friend or relative, the imposter is usually between a rock and a hard place and needs you to send them money, usually through an app like Venmo or Cash App, to handle their emergency. 

The con artist works a little differently in the crypto space. Here they will want to act as your crypto broker. Their pitch is that, like a stockbroker or financial advisor, they can grow your money a lot faster than you can. Unlike a licensed professional, they won’t ask you to sign any paperwork, much less sign any themselves. Instead, they will show you screenshots of testimonials from past “clients” they’ve made rich, then they ask you to send them money so that they can do the same for you. Don’t fall for it. It sounds too good to be true because it is too good to be true.

The NFT space has given birth to quite possibly the most ridiculous panhandlers on the planet. These scammers will ask you to send them a small amount of crypto so that they can cover the full cost of buying your NFTs. If you need a voice of reason to tell you this is a bad idea, let this be that voice saying, “Don’t do it!”. Wait for a buyer who doesn’t need your money to buy your goods. Unless that buyer is your mom. Then do what the lady says.

People fall for these scams and it’s sad.


3. NFT Scams: The Rug Pull!

 

      
Everything we said about cryptocurrency phishing scams applies to NFTs. Those internet pirates want your NFT collectibles every bit as much as they want your crypto coins and have built fake market places that look identical to the real ones to get you to hand over the keys to your crypto wallets. You know what to do: be skeptical of unsolicited links (don’t use them), stop chasing freebies, and make sure you’re on authentic sites. Speaking of authenticity, let’s talk about rug pulls in the NFT space.

How do rug pulls happen, anyway? In the NFT space, an unknown developer will come up with a legitimately cool NFT project idea and create a lot of buzz around it. Their promise to you? “You guys buy these NFTs and we’ll use the profits to fund our cool project. As an NFT holder, you’ll have exclusive benefits and access to our project/product once it’s finished.” The problem: the project is never made and the developers simply disappear from the community—with your money, thank you very much! This is exactly what the creators of the Evolved Apes project did, running away with 798 Ether (roughly US$3,591,000.00 at the time of writing) instead of using those funds, as promised, to develop the Evolved Apes fighting game.

Avoiding NFT project scams may not always be easy but the following two guidelines should help:


  1. Don’t trust anonymous project creators
    The only anonymous creators you should trust are those that are providing value without asking for your money. Think Satoshi Nakamoto, the creator of Bitcoin, and Banksy, the street artist and political activist. Any creator asking for money for a good cause should put their name, their face, and their reputation on the project. If they can’t do that, don’t support them. Don’t participate. Don’t risk getting the rug pulled from under you.


  1. Evaluate the community
    There is so much hype and so much money being thrown at marketers and influencers, especially inside of Discord servers. Don’t take everything you hear and read at face value. Ask yourself questions like: Is this NFT community full of project enthusiasts or just prospectors hoping to flip the NFTs they buy? What are the creators of this project trying to accomplish? What have they done in the past? Are these people visionaries or opportunists? Are they here for my money or to create something amazing? Remember, people chasing money will honor their own wallets over their commitment to you. Seek to support communities of creators and patrons.


4. Good-ole Ponzi Schemes

 

Look, this brave new crypto world of ours is a crazy one, and it’s quite possible that at some point you’ll be approached by someone inviting you to invest in the company creating the next Bitcoin Killer. First off, never trust anyone who says, “Bitcoin Killer”, much less, “the next Bitcoin Killer.”


Second, if you’re enticed, we can’t really blame you. Bitcoin and the crypto economy have made an unprecedented amount of new millionaires in the last half-decade. The vast majority of us missed out on that boat and would love a second chance. Scammers know this and will leverage your FOMO (fear of missing out) to get you to buy in.

If you want to know what a crypto Ponzi scheme looks like, Google any of the following: Onecoin, PlusToken, BitConnect, or GainBitcoin. Really smart and really dumb people lost a lot of money in crypto Ponzi schemes.

If you’re tired of our cautionary ways and absolutely must invest in the next first Bitcoin Killer, we urge you to read Camila Russo’s “The Infinite Machine: How an Army of Crypto-Hackers Is Building the Next Internet with Ethereum” (FYI, the audiobook is divine). Not only is the book a great introduction into cryptocurrency and Ethereum, it’s also a substantial illustration of what a lively and strong blockchain development community looks like. If no such community exists for the “Bitcoin Killer” you’ve been asked to invest in, walk away. 


5. Pump-and-Dump

  


Pump-and-Dumps happen like this:

An influential person or group encourages investors to buy a stock or cryptocurrency. As investors buy, cheap supply runs out and is only available at higher prices. The sudden scarcity creates more demand as investors react to the shortage by trying to acquire more supply before the price goes up further. As the number of buyers and transactions begins to slow to peak levels, the pumpers “dump” their shares into the market, selling them at the inflated price point.

As the buying action dies down, the stock or cryptocurrency goes through a natural price correction returning to its pre-pump levels, leaving many investors who bought at higher prices with a loss on their investment.


While teaching you how to invest is beyond the scope of this blog post, and beyond the mission of our company, we do want to encourage you to invest with a strategy. Always. Have a plan for when and how you’re going to handle your investments so that you don’t drive yourself crazy and lose your fortune riding trends that you don’t understand and can’t predict.


“Slow is smooth and smooth is fast.”

U.S. Navy SEALs adage