How to Identify Cryptocurrency Scams in 2022 & Their Types
Scammers are taking note of cryptocurrency, which is a significant deal right now.
The business has experienced a boom in the popularity of crypto and blockchain technologies in recent years, which has gotten investors intrigued.
However, this has attracted the attention of scammers, who see 2022 as their best chance yet to make a large profit from unsuspecting investors.
Whether you like it or not, cryptocurrency investors are exposing themselves to additional risks, particularly when trading on centralized exchanges that have already been hacked.
Here are some things to keep in mind if you’re thinking about investing in cryptocurrencies or have already done so.
Types of cryptocurrency exchange scams
Scams and fraud involving cryptocurrency can take numerous forms, including:
1. Games and Digital Collectibles
Sophisticated coders now have the potential to construct new games and entire imagined worlds on the blockchain, as we saw with the “Squid Game” fraud. And to accomplish it before the next Netflix sensation takes off.
Getting eager blockchain beginners to buy a type of newly produced coin or token for a game is a simple way to defraud them. If enough people push up the price due to supply and demand, the original con artists can sell all of their assets and vanish in a move known as a “rug pull.”
On the blockchain, unlike bank accounts for federally regulated currency, there is no fraud protection or FDIC insurance. The only method to get your money back when it’s stolen on the blockchain is for the recipient to pay you directly. That’s exceedingly unlikely on a decentralized exchange. While big crypto exchanges have greater fraud security procedures than lesser-known exchanges, investors are still at risk of losing their funds.
2. Initial Coin Offerings (ICOs)
New types of cryptocurrency are continually being created, and when new currencies are released onto the blockchain, it’s referred to as an initial coin offering (ICO) (ICO). However, ICOs can also be used to perpetrate fraud. A corporation or an individual may claim to have a once-in-a-lifetime opportunity to invest in a new kind of cryptocurrency with guaranteed 1,000% returns. They may then try to persuade you to deposit a large number of fresh coins into a digital wallet that has been hacked, or to “pump and dump” by buying the coin and selling it when the price skyrockets.
3. Scams in the Romance Industry
Crypto frauds abound on dating apps. According to the Federal Trade Commission, around 20% of the money lost in romance scams from October 2020 to March 2021 was transferred in bitcoin. Long-distance or digital connections are used in scams like this, in which one party presses and persuades the other to buy or provide money for a new cryptocurrency that is really simply a technique to defraud people.
4. Scams including phishing
This type of scam is as ancient as the internet, but there are some additional consequences with cryptocurrency. Bad actors send emails seeking to lure recipients into clicking links and inputting personal information, including crypto wallet key information, just as they would in a “regular” phishing assault. You only get one private key to your blockchain wallets, unlike most passwords and usernames. This is part of blockchain’s decentralized nature, which ensures that no single entity has authority over your data, but it can be inconvenient if you need to alter your key.
5. Financial Misdemeanors
Because of its fast transactions, mobility, and global reach, cryptocurrency can be used as a new tool for tax evasion, money laundering, and bribery.
6. Pump-and-dump schemes
Crypto may offer a fresh twist on the classic pump and dump plan, in which stock owners strive to push up the market before selling off their holdings at a pre-determined peak. This is prevalent in the crypto realm at the ICO stage, or even later when fraudulent claims can inflate demand and allow the cryptocurrency’s creators or majority holders to make large fictitious gains.
7. Manipulation of the Stock Market
Fraudsters may try to manipulate the markets for cryptocurrency and similar derivative items. Spoofing, front-running, churning, and other methods are examples of improper market manipulation.
8. Ponzi Schemes
Crypto investments can potentially be used as a vehicle for a classic Ponzi scheme, in which new adopters are required to offer early adopters fake profits. Ponzi schemes might use ostensibly profitable investments in fledgling crypto markets as a target. Given how commonly crypto is misunderstood, it can be the ideal cover for a phony operation.
9. Theft in the Old Ways
Cryptocurrency also gives crooks new ways to steal. They can steal cryptocurrency from investors’ crypto wallets, create up fake wallets to defraud counterparties, and set up bogus crypto exchanges to defraud clients.
10. Fraud involving brokers and dealers
The SEC has looked into cryptocurrency exchanges and funds, which may need to register as broker-dealers or exchanges depending on the conditions.
how to identify cryptocurrency scams in 2022?
Even the most knowledgeable and passionate cryptocurrency professionals recognize that the world of crypto is now rife with new and developing threats. Some people have been victims of scams, such as blockchain investor and entrepreneur Ian Ballina, who claims he lost $2.5 million after his private wallet key information was stolen from his Evernote account by a hacker.
Even successful investors face the risk of loss and fraud when dealing with such a new, volatile asset class, as Balina’s case illustrates.
Most passive investors are advised to maintain crypto holdings to less than 5% of their portfolios and to never invest in crypto at the expense of preparing for emergencies or paying off high-interest debt, according to financial experts. If you’re ready to start investing in cryptocurrency, follow these guidelines to keep your funds safe:
Red Flags in Cryptocurrency
For starters, keep an eye out for the following red indicators, which are identical to those seen in classic money wiring scams and credit card fraud:
- In emails, on social media posts, and during any conversation, there are typographical errors and blatant misspellings.
- It claims to be able to multiply your money.
- Contractual commitments that bind you to retaining cryptocurrency and prevent you from selling it
- Influencers who aren’t real or who claim to be celebrities
- Blackmail or extortion are examples of psychological manipulation.
- Cryptocurrency scams on large social media platforms
- Free money promises
- Uncertainty about where your money is being spent
When Should You Use a Crypto Wallet?
You must safeguard your digital wallets from hackers in the same way that you protect your physical wallet. Put big sums of money in a safe or FDIC-insured savings account to practice good digital security habits similar to how you’d handle real cash.
Small-scale investors with a few hundred dollars in crypto should definitely retain it on a mainstream exchange like Coinbase, according to experts. However, if you’ve amassed thousands of dollars in cryptocurrency, it’s generally a good idea to include a wallet for extra security.
Crypto wallets are divided into two categories: “hot wallets” and “cold wallets.”
Hot wallets are stored or hosted over the internet. They’re safe, but they’re more vulnerable to hacking than cold storage, which involves storing cryptocurrency on a piece of hardware. Consider cold storage to be similar to a USB-drive-sized safe. It’s safer, but if you forget your password or misplace your device, you could lose access to your funds permanently.
Like cash in a bank, cryptocurrency held in hot wallets is not FDIC-insured. As a result, you’ll want to be sure that whichever platform or wallet you use to store your cryptocurrency has strong security features, such as:
- Authentication using two factors
- Having its own cold storage for a portion of its holdings
- In the event of theft or hacking, private insurance policies are available (separate from FDIC insurance)
Keep a Close Eye on Your Wallet Keys
According to Mac Gardner, a Florida-based certified financial planner and creator of FinLit Tech, you only get one unique key to access your wallet. If you lose or have your key stolen, you may lose all of your cryptos.
“You’ll need a lot of control over who has access to [your wallet key.]” “You can’t forget your username and password if you don’t write it down,” Gardner explains. “Each code has a certain process and a set quantity of characters.” Because of the virtual space, it’s incredibly individualized. If it wasn’t, anyone could walk in and seize your belongings, right?”
Fraud should be reported.
You should use these links to report fraud and other suspicious activities concerning cryptocurrencies to the following bureaus:
- At CFTC.gov/complaint, you can file a complaint with the Commodity Futures Trading Commission (CFTC).
- The Securities and Exchange Commission (SEC) of the United States can be found at sec.gov/tcr.
- You can also contact the FBI if the scam involves extortion or blackmail.
- Also, once you think or have evidence that criminal actors are at work, report the scam to the crypto exchange you used to make the bitcoin transaction.
The bottom Line on How to Identify Cryptocurrency Scams & Their Types in 2022
Furthermore, cryptocurrency exchanges have grown in popularity, offering platforms for customers to trade cryptocurrencies for other assets such as cash and other digital currencies.
However, like with any financial instrument, there is the potential for unscrupulous actors to deceive investors, particularly one that is highly volatile and has attracted considerable public attention. Cryptocurrency fraud has become a hot topic among government enforcement attorneys, with a slew of notable conference panels and agency advisories addressing its varied forms, the above guide will aid as a guide of reference to your crypto investment.