Every crypto trader should be aware of these top crypto scam techniques as the growth of the crypto market has also created an avenue for scammers to thrive.
As the world of crypto keeps growing and advancing, it is attracting not just investors but also scammers who are ready to steal from people. Scammers have devised various crypto scam techniques to catch their victims. According to a report by the Federal Trade Commission, cryptocurrency scammers have stolen more than $1 billion since 2021.
Being a victim of a crypto scam technique does not make you the most gullible person in the world of crypto. Even the smartest crypto trader could be scammed.
Given this increase in the number of crypto scams, it is, therefore, necessary that people are aware of the many ways that they could lose their investments through the activities of these scammers. By knowing and understanding the common ways that scammers try to steal your cryptocurrency, you would be able to avoid falling for these scams.
This article would explain the top crypto scam techniques every crypto beginner should know
List of top crypto scam techniques every crypto beginner should know
There are a lot of techniques these scammers would use to try to get your precious coin from your wallet, both old and new techniques. Some of the top scam techniques that are employed include;
- Pump and dump scams
- Rug-pull scams
- Fraudulent initial coin offerings (ICOs)
- Phishing scams
- Fake cryptocurrency exchanges
- Social engineering scams
- Clouding mining scams.
Pump and dump scheme
This happens when a group of investors pump a coin and dump it as soon as the coin is worth almost double their investment.
The group of investors also creates false hype around a cryptocurrency to inflate the price and then sell their shares at a higher price.
This scam technique employs the FEAR OF MISSING OUT (FOMO) tactic to scam people.
The scammers pump their money into the coin thereby inflating the coin so that it begins to rise on the market. The scammers then create a fake hype around this coin and they could even go as far as making social media posts and using popular celebrities to push the coin.
The value of the coin increases as more investors are lured into investing in the coin. Once the coin reaches its target height, these investors pull out their shares by selling them at a higher price than when they had purchased the coin. The scammers also dump the coin making the coin fall back to its previous value and all other investors do not gain anything from it.
Rug Pull scam
This scam technique is very similar to the Pump and dump technique.
Rug pull occurs when fraudulent developers create a new coin, pump up the price and pull out as much value from the coin leaving the coin to fall to zero.
This scam technique could come in three ways: liquidity stealing, limiting sell orders and dumping.
Liquidity stealing occurs when the scammers remove all the value in the liquidity pool driving the coin’s value to zero.
Limiting sell orders occurs when the coding for these coins does not allow other investors to sell, leaving them with a worthless coin when the value crashes.
Dumping occurs when the developers pump the price of the coins and quickly sell off their shares of the token leaving other investors with a worthless investment. This type of rug pull scam usually happens after a serious social media campaign convincing people to invest in the coin.
Fraudulent initial coin offerings (ICOs)
Initial coin offerings is a means entrepreneurs and founders use to acquire funds for their new business projects. The business would only be needing a white paper and a token on its website to request funds using blockchain technology.
ICOs are very similar to crowdfunding which startups and entrepreneurs use to raise funds for their projects.
The White paper introduces the new product to the public, showing interested investors business information about the product and plans for the project.
The investors then decide through the information they have received about the product if they would be willing to purchase the token provided by the business or not. A token is a unit of value offered by the company, therefore purchasing a token gives them ownership of a part of the value of the company. In the case of the ICOs, buying the token does not give you ownership of the whole project. The token could be security tokens, utility tokens, or payment tokens (cryptocurrency).
ICOs, which is not a crime on its own, have been hijacked by scammers who now present fake businesses and also go as far as renting fake office spaces and creating very clean marketing materials.
As soon as they get investors to buy their token with verified cryptocurrencies like Bitcoin or Ethereum, they disappear with investors’ funds.
This is the most common type of internet scam and it is not exclusive to crypto only. This scam focuses on getting the key information of crypto wallets.
The scammers create fake websites or fake URLs and send emails that lure people to not just click on the links but also provide personal details including their private key information.
Some of the phishing scams could also include malicious airdrops. The scammers airdrop fake cryptocurrency into a user’s wallet which the victim is then asked to sell. The unsuspecting victim connects his wallet to the site they have recommended giving the scammers access to his wallet.
When the hackers get the necessary information they need from their victims, they strike and empty the wallets of their victims.
Fake cryptocurrency exchange
A cryptocurrency exchange is a platform used for the trading of digital assets. Scammers create fake cryptocurrency exchanges that look almost like the original exchange platform. Scammers could also create a new cryptocurrency exchange promising investors added benefits and bonuses.
In 2017, BITKRK was a fake cryptocurrency exchange pretending to be an arm of the KRK which was later unraveled by the South Korean authorities.
These scammers could even go as far as creating apps that could be found on your favorite app stores like Google play store and apple store.
In reality, the crypto exchange platform is not real and the investor would not know it is fake until they lose their investment.
Social engineering scam
This is a scam technique that involves exploiting the victim’s trust. The scammer establishes a form of trust with the victim which allows the victim to either send in cryptocurrency or release his personal information.
The most used channel for this scam technique is social media but the scammers could also use phone calls or even personal contacts to gain the trust of their victims.
The scammer could come in the disguise of a government agency, romantic partner, popular business, customer care support, member of a popular organization, work colleague, or friend. They use their social skill to manipulate victims to give in to their requests. They could also create a false scenario to either scare you or excite you into releasing your information.
Clouding mining scams
Mining is the process in which new coins are created and transactions on the blockchain are verified.
A hardware setup is required to mine cryptocurrency which could be very expensive for a random person, therefore crypto mining websites that have access to mining hardware are created.
Some of these websites give people the opportunity to pay a certain fee to be able to gain mining rewards without having to participate in the mining. Investors put a certain amount of faith in the websites expecting to make a profit from the mined currencies.
Most of these cloud mining websites are being run by scammers who make investors pay a fee without getting returns on their investments. If you also registered your personal details or payment details on the websites, the funds in your account could also be stolen by these scammers.
Scammers are coming up with new ways to rob people of their hard-earned money. It is however necessary that we are alert and aware of the many ways they would use to try to scam us.
Some of the scam techniques include pump and dump in which a coin is inflated through false hype and then dumped as soon as possible so that other investors are left with a worthless come.
Another scam technique is the rug pull scam which is very similar to the pump and dump technique. Rug pull scammers pump a new coin and pull out all the liquidity, leaving the coin to fall back to zero
Fraudulent initial coin offerings (ICOs) is also a scam technique that involves dubious startups requesting funds from unsuspecting investors. As soon as they get enough investment the startup or business closes.
Scammers could also employ phishing websites to scam people. This involves luring people with fake websites and URLs to submit their personal information. They could also disguise themselves as a person you trust to get your personal information.
They could also come up with fake cryptocurrency exchange platforms to steal from you or create fake cloud mining websites to allow people to invest without getting returns on their investment.
If a deal is too good to be true, then it is probably a scam. You must conduct more research on any platform you plan to invest in so that you do not become a victim to dubious people.