Every bull market takes crypto to new heights. The total cryptocurrency market capitalization right now is sitting above $2 trillion as prices rally to new peaks, creating a lot of euphoria and FOMO (fear of missing out) that brings in tons of capital into the space.
All this activity and life-changing gains lead to fraudulent practices, which tend to reach new highs in bull markets in tandem with prices. So, if you don’t want to risk losing your money, then it’s extremely important that you know all about scams permeating the cryptocurrency sector before it’s too late.
The Rising Crypto Scams
While crypto adoption is rising rapidly, which, according to $10 trillion asset manager BlackRock (BLK -0.03%), is surpassing that of the internet and mobile phones, it remains nascent still. The world of blockchain is complex, making people more susceptible to manipulation. Add the highly speculative nature of crypto, and it will become increasingly attractive to scammers.
Not to mention, whenever there’s money involved, scams follow. So, with that, scams in the crypto sector have been thriving.
According to the Better Business Bureau’s annual report about the biggest scams of 2023, about 80% of Americans targeted in cryptocurrency and investment scams lost money, with the medium dollar amount lost being $3,800.
Hackers are using text messages, social media, and video game platforms to brag about crypto investments, and after the targeted victim replies, they pressure them to buy, trade, or store crypto on fraudulent platforms.
Blockchain analyst Chainalysis meanwhile states in its Crypto Crime Report that 2022 was the biggest year for crypto theft, with $3.7bln stolen, which dropped to $1.7 bln in 2023.
Now, in 2024, crypto scams are on the rise, with Chainalysis noting that scammers are “adapting on- and off-chain to conduct more devastating scams of shorter duration.” Also, much of the total scam inflows so far this year have gone to wallets that only became active in 2024, “suggesting a surge in new scams.”
So, what are crypto scams? Well, it refers to any fraudulent practice aimed at tricking individuals into giving away their funds, assets, or sensitive information. Using deceptive schemes, perpetrators exploit common human emotions such as fear or greed.
Crypto scams can take many forms. Ponzi schemes are a popular type of multi-level marketing that encourages investors to make risky investments. While they promise high returns and low risk, Ponzi schemes rely on funds from new investors to pay returns to earlier investors.
A formidable threat in crypto is hacking, and through this method, cybercriminals have stolen over $3.1 bln in DeFi hacks in 2022 and $1.1 bln in 2023. Cases of blackmail or extortion have also been seeing a lot of uptick in crypto.
Then there are all kinds of fake things, too — fake initial coin offerings (ICOs), fake crypto exchanges, fake wallets, and fake apps that look like legitimate projects only to vanish with people’s funds.
As AI gains widespread adoption, perpetrators are now even using this tech to exploit the crypto market in new ways.
There are many types of crypto scams, but there are some prominent ones that are currently being used extensively by fraudsters to trick you out of your money. Let’s take a look at five crypto scams that you must be mindful of:
1. Phishing
In this type of crypto scam, scammers use messages, bogus websites, and spam emails to trick users into giving them their private information, which is then used to steal from victims or to sell this information.
Crypto phishing scams often target crypto exchange accounts. For this, scammers use malware-infected software or hacking to steal from people. They also use phishing links, which are legitimate-looking, malicious links that entice the recipient to click on them in order to steal unsuspecting victim’s information, such as login credentials.
Online wallets are also popularly targeted by scammers, who go for private keys that allow them access to funds within the wallets. Much like with other phishing attempts, here as well, the scammer sends an email to recipients. After clicking on it, they are redirected to a special website. The site asks the victim to enter their private key information, and once the attacker obtains it, they steal the user’s funds.
In order to induce people to share their sensitive information, scammers mimic trusted platforms. They also create a sense of urgency — like claiming your account is compromised, exploiting human vulnerabilities, and coercing unsuspecting victims into surrendering their crypto.
For instance, the popular Ethereum wallet MetaMask has been the subject of multiple phishing scams, including KYC verification requests, airdrops, and more. Back in 2020, the popular hardware wallet brand Ledger suffered a data breach, which led scammers to send phishing emails urging users to download a fake version of the Ledger Live app. Those who installed the app ended up losing their crypto funds.
A form of social engineering and a scam, phishing is not limited to just crypto space. Outside of crypto, attackers use this tactic to deceive people into revealing sensitive information such as usernames, passwords, bank account information, credit card numbers, or any other important data. It can also involve installing malware, including viruses, worms, adware, or ransomware.
Phishing scams aren’t new; rather, they are the most common attacks, with nearly 300,000 people falling victim to them in 2023, as per the FBI. These people collectively turned over $18.7mln to scammers.
To recognize this type of scam successfully, always verify the URLs to ensure that it is, in fact, a legitimate website. Also, do not, in any circumstance, click on links from unknown sources. And if you receive unsolicited texts or emails from platforms that you use, go to the official website directly.
Other ways to protect yourself from this type of scam are using antivirus software on your devices and enabling two-factor authentication (2FA) on all your accounts.
2. Frauds Promising Romance
Scammers have long used dating websites to make unsuspecting individuals believe they are in a real relationship in order to steal money from them. Now, these romance scams or romance frauds are being used to steal the victim’s crypto.
According to the FBI, the most prominent variation of a crypto scam in 2023 was the relationship scam, with victims losing over $652.5 million. Data suggests romance scams have grown 85x since 2020. One popular fraud shop alone received $10.5 mln between 2022 and 2024 from scammers known to perpetrate romance scams, as per Chainalysis.
Among all the scam types, this one had the worst effect on victims based on the average size of payment. On average, the dollar loss was about $178,000 a person, said Kim Casci-Palangio, head of the romance scam recovery group at the Cybercrime Support Network.
In this type of fraud, criminals create fake profiles and then gain their victims’ trust to steal crypto from them. The perpetrators either ask for money for a medical emergency or offer lucrative cryptocurrency opportunities to eventually transfer the funds.
Federal officials warn that investors are at a heightened risk of crypto scams tied to fake relationships established over dating apps, social media, encrypted messaging apps, and professional networking sites. Advances in AI are likely to make crypto romance scams, which are often “long cons,” even harder to detect, as per Micah Hauptman, director of investor protection at the nonprofit consumer advocacy group, Consumer Federation of America.
“Relationship investment scams, including those involving crypto-asset investments, pose a risk of catastrophic harm to retail investors, and the threat is increasing rapidly as these scams become more popular with fraudsters.”
– Gurbir S. Grewal, director of the SEC’s Division of Enforcement
With scammers pivoting away from elaborate scams to more targeted ones like romance scams, you can prevent yourself from becoming a victim by being cautious with your personal information, trusting your instincts, and never sending money to someone you haven’t met in person.
“If you meet someone on a dating site, app, or social media and they want to show you how to invest in crypto or ask you to send them cryptocurrency, it is a fraud,” states Homeland Security Investigations in its tips to avoid losing money to romance scams.
3. Rug Pulls
Yet another popular scam in the market currently is rug pull, which is derived from the expression “pulling the rug out from under.” This type of scam is most common with new projects, coins, or NFTs that are launched with a lot of hullabaloo but lack transparency.
In this scam, perpetrators create a lot of excitement and attention around a new project to attract investors and raise funding for its development. However, they run off with the investor funds before the project is built, completely abandoning it. Once the fraudster secures the funds, they tend to disappear and become unreachable.
While crypto offers high volatility and high returns, investors are always looking for projects in their early stages. By investing in the token at the ground level, the potential for returns amplifies many folds. For instance, those who got into Bitcoin a decade ago, like the Winklevoss twins, or in Ethereum during its ICO when it was sold at $0.30 per token, ended up making a fortune off of their investment.
But of course, ‘aping’ into a new project without doing proper research can lead to a financial disaster. In 2021, people lost more than $2.8 bln worth of crypto in rug pulls, accounting for as much as 37% of all crypto scam revenue in that year, as per Chainalysis. Rug pulls are particularly prevalent in DeFi due to the lack of intermediaries, the ability to create new tokens easily and cheaply, and the fact that there is no need for an audit to list tokens on a DEX.
A popular example of rug pulls is the dog coin project AnubisDAO, which raised $60 million in ETH from investors in exchange for ANKH tokens, only to send all the funding to a different address in less than 24 hours, with those funds never to be recovered. With no liquidity left for trading the coin, the rug pull sent ANKH’s price to zero.
Web3 Squid Game (SQUID) was another one, which used press coverage to hype the project and ended up raising $3.3 mln only for the developers to drain the liquidity pools and run off with users’ funds. The project’s website was filled with grammatical errors and had an anti-dump mechanism.
To protect yourself from these scams, check the reputation of the developers and the team behind the project and verify their credentials. Additionally, look for liquidity locks, external audits, and consistent communication from the team. Favoring established projects and being wary of those promising suspiciously high returns will also help protect your capital.
Click here to learn about the five worst rug pulls.
4. Pump and Dump
As meme coins pump like crazy in the current bull run, traders and investors are feeling the FOMO, making it easy for scammers to dupe them by flashing their so-called massive gains.
Scammers use social media to advertise their profits, promising high returns. First, an actor or group of actors invest in a token and artificially inflate its price, hyping it up with heavy promotion. Not wanting to miss out, people rush to buy, leading to an increase in its price.
Once enough people have bought in, and prices have gone up significantly, scammers use the unsuspecting victims as their exit liquidity. Holding a large portion of the asset, they swiftly dump the coins, resulting in a sharp decline or a total collapse in the token’s price.
According to a Chainalysis report, 54% of ERC-20 tokens listed on DEXes in 2023 displayed patterns suggestive of pump-and-dump schemes, representing a mere 1.3% of DEX trading volume. More than 370,000 coins were launched on Ethereum last year, but only about 14% of them achieved over $300 in DEX liquidity, it was noted.
The situation has become even more grievous during the recent meme coin mania, which saw more than millions of tokens launched by Solana-based Pump.fun. However, only a handful have “graduated” to DEX Raydium, and even fewer have a market cap greater than $1 million.
Crypto pumps and dumps are becoming so prominent that the Dutch Authority for the Financial Markets (AFM) recently warned about the dangers of these scams. It further stated that “organizing and participating in a pump-and-dump scheme will be banned under the new Markets in Crypto-Assets Regulation (MiCAR),” which comes into effect on Dec. 30, 2024.
Earlier this year, the Canadian Securities Administrators (CSA) also issued a warning about this scam. The agency warned retail investors to be wary of unsolicited investment advice, especially on social media. It also recommended checking the background, qualifications, and history of investment advisors before investing.
In 2022, the US SEC charged Arbitrade Ltd., Cryptobontix Inc., and their principals for perpetrating an alleged pump-and-dump scheme involving the “Dignity” (DIG) token.
Usually, when a little-known project skyrockets in value out of nowhere, it tends to be a pump-and-dump scheme. To protect yourself from such scams, look into the team behind the project, whether the hype surrounding the token is original or manufactured, and of course, avoid being a victim of FOMO.
5. Pig-butchering
A pig butchering scam or Shazhupan is a type of online investment fraud in which the scammer gradually lures the victim into investing more money into a fraudulent scheme. The victim may even be allowed to withdraw money a couple of times before losing a significant amount.
Researchers from the University of Texas found that over $75 billion was lost to pig butchering scams from 2020 to 2024. The real numbers, however, may be higher due to many victims not reporting their losses to the authorities.
This scam is called such because the bad actors ‘fatten up’ their victims to extract the most value from them. It usually involves scammers developing a romantic relationship with the victim over time and then introducing a crypto scheme or a fake trading platform. Initially, the scammer shows fake profits in order to build trust and lure them in further, but eventually, the victim is unable to withdraw their funds.
This isn’t all. Usually, it’s not an individual scammer; rather, large criminal groups are behind these frauds in the majority of cases. These organizations run huge fraudulent “farms” with thousands of people working there. In a dark twist, this scam involves human trafficking, with scammers being forced to work in labor camps and carry out pig butchering scams.
According to blockchain analytics firm Elliptic, Cambodia-based Huione Guarantee marketplaces have been selling a range of tools, including AI-based face-changing software along with stolen data, pig butchering investment sites, and even torture equipment. Ellipstic’s research states that a big enabler of crypto investment scams is pig-butchering scam site URLs and names using a combination of words like arbitrage, AI, web3, and quantum to entice users.
To protect yourself from these scams, be cautious of unsolicited investment advice, especially from people you’ve only met online. Also, only use trusted, regulated platforms and report any suspicious activities.
Click here to learn about the ways to protect your digital assets.
Conclusion
As the crypto market enjoys new highs in terms of price and adoption, crypto scams are also rising significantly and getting more sophisticated. As per the FBI fraud report, consumers lost $5.6 billion from crypto-related scams in 2023, up 45% from the previous year.
In light of such numbers, it’s critical that people get themselves familiar with all the risks out there in order to mitigate the risk of falling prey to these fraudulent activities and protect their money and assets.
Click here to learn how to identity crypto scams.
