The crypto market has grown tremendously over the last year, attracting newcomers eager to capitalise on digital assets’ potential. However, just like in all areas of finance, fraudsters seek to exploit individuals through scams, which means investors must stay vigilant.
5 Most Common Types of Crypto Scams:
The first step to avoiding scams is learning how to identify them. Here are the most common types of crypto scams to watch out for:
- Phishing
‘Phishing’ refers to scammers pretending to be from legitimate companies to get personal data from users. For example, they may use fake websites, e-mails, phone calls or SMS messages to request your login details to steal money from your digital wallet. The term “phishing” is based on the word “fishing” and the P from password, as these criminals try to trick you into providing your passwords, account information, or other data.
- Ponzi Schemes
One of the most well-known financial scams, fraudsters have not shied away from profiting from crypto Ponzi schemes. In these scams, early investors receive ‘profits’ that are contributions by newer investors. An infamous example is OneCoin, which brought in $4 billion from 2014 to 2016 but never had any blockchain technology behind it.
- Fake crypto exchanges and websites
Criminals create fake crypto exchanges that appear legitimate and lure investors to deposit their funds, only to disappear with the money or block withdrawals. Victims cannot recover their money since these are fraudulent and unregulated platforms.
- Pump and dump
In these scams, a group of individuals accumulates a large amount of a particular cryptoasset and artificially inflates its price through false hype and misleading information, often on social media. Once the price hits a particular level, they rapidly sell their holdings, causing the price to plummet and leaving other investors with significant losses.
- Rug pull
Often combined with pump-and-dump tactics, a rug pull is where the developers create a new crypto token and get people to invest in it, then suddenly withdraw all funds from its liquidity pool, causing the token’s value to plummet. As blockchain is decentralised and users are only identifiable by pseudonyms, rug pull scammers are difficult to locate and expose. A notorious example is the SQUID token (inspired by but not affiliated with the South Korean Netflix show Squid Game), whose developers made away with an estimated $3.38 million in 2021 and remain unknown today.
5 Tips to Avoid Crypto Scams:
- Ask yourself: is it too good to be true?
Any scheme that promises guaranteed profits or free giveaways is likely to be a scam. No form of investment can guarantee returns, and no reputable entity would make that claim.
- Conduct thorough research
Crypto projects usually have whitepapers which explain when and why the tokens were created, how many were created, and the technology behind them. A poorly written or non-existent whitepaper is a sure sign that the project is untrustworthy. Be critical when reading other people’s research and advice on social media and internet forums.
- Question the source
Be careful who you trust when investing your money. Don’t take advice from celebrities, online love interests, “investment managers,” or anyone who cannot prove their financial credentials. For eToro users, only official eToro representatives with the authentic @etoro.com domain in their email address will contact you.
- Ignore unsolicited communications
If you receive cold calls or emails from a broker or crypto company that you don’t use, especially if they are trying to sell you an investment opportunity, do not reply. Never give out your personal information or transfer funds to individuals who contact you this way.
- Use trusted platforms and wallets
Make sure that you only trade, invest, and store your cryptoassets with reputable crypto brokers, exchanges, and wallets. Never give out your passwords, and enable two-factor authentication (2FA) on all your accounts. Check that the website you’re using has the official domain name and that the app is the official version.
Crypto is known to be high-risk and often subject to volatile price movements.
