Cryptocurrency Scams

It seems that everyone is talking about cryptocurrency. Of course, that means the scammers cannot be far behind. Some scams are old ones with a cryptocurrency spin, but others are new and specific to crypto.

Popular crypto scams include:

“Pig butchering” crypto scam.

This is a twist on online dating scams. The scammer lures the victim (i.e., the “pig”) then proceeds to “fatten them up” over time, with the victim steadily becoming more trusting of the scammer.

The scammer eventually tells the victim that they are making big profits in cryptocurrency markets and gets the victim to invest. These investments appear to pay off handsomely, at least on paper. In reality, the money is lost as soon as it’s sent, with the scammer using phony sites to dupe the victim into sending more and more money.

The victim is then abandoned by the scammer and unable to withdraw any of their funds.

“Pump and dump” crypto scam.

You may have heard of pump and dump scams marketed to penny stock investors. In a pump and dump, a small group of insiders own a given asset – in this case, a digital currency – and these assets are then hyped up via social media, word of mouth or other forms of promotion.

When the hapless investors buy up the cryptocurrency, which is often newly issued with little trading history, the insiders begin to sell, or dump, the shares at high prices, sparking a steep sell-off and profiting at the expense of the duped masses.

“Rug pull” crypto scam.

Rug pulls are similar to pump and dump scams, but they happen “when a cryptocurrency’s promoters pump their new coin to get prices up before disappearing with the funds,” according to Vincent D’Agostino, head of cyber forensics and incident response at BlueVoyant. “This especially happens with coins with zero fundamentals and no real future.”

The token may be coded in such a way as to allow only insiders to exit, sticking the victims with their worthless investments.

Airdrop crypto scam.

An airdrop puts tokens in your digital wallet as a reward for taking certain actions with a given platform or software. This can be used legitimately to build community, but these bad actors abuse it.

Here’s how it works: “An entity will airdrop you a token that appears to have value, and when you go to exchange that airdrop for another more well-known token, you give a protocol more permissions than you realize,” according to Alan Eschweiler, chief revenue officer at Stacked, a simplified crypto investing platform. This “allows the hacker to access all of the assets in your wallet,” he says.

To avoid this scam, “Never give an unknown user permission to your decentralized wallets,” Eschweiler says, “without understanding the abilities you are granting this person.”

Phishing crypto scam.

As with email phishing scams, with which we are all familiar, in crypto phishing scams victims are tricked into revealing sensitive information such as passwords, keys, etc.

Here are several ways to protect yourself from common crypto scams:

  • Don’t take anything at face value. Investigate the claims being made around any investment, especially if they seem too good to be true or promise overnight windfalls
  • Trust no one—government officials, celebrities, strangers—who contact you asking for payments in cryptocurrency or offering you an investment opportunity. They are probably not who they claim to be and the “opportunity” is not a good one.
  • Never share your private key or the seed phrase to your cryptocurrency wallet with anyone. You should store that information somewhere safe offline, such as a cold wallet.
  • Enable two-factor authentication whenever possible on whatever kind of crypto wallet and exchange you use. Although this is not a sure-fire solution, it provides some protection.
  • Verify website URLs. Scammers attempting a phishing scam will copy the URL of a legitimate site and insert minor typos, such as swapping letters and numbers—an “l” for “1” or “0” for the letter “O,” for example.
  • Just say no to any offer that requires an up-front fee no matter what, but especially if that fee has to be paid in cryptocurrency.