Brayden Vaude

While cryptocurrency has created an exciting and fresh market for those looking to get started in decentralized finance, it’s not without its fair share of scams. Indeed, it’s not uncommon to come across stories of individuals losing hundreds of thousands to millions on cryptocurrency. How does this happen?

Many investors have recorded substantial income due to their investment in cryptocurrencies while also enjoying the perks of having capital in a decentralized exchange. However, there is an ugly side to this budding cryptocurrency market. As they have for centuries, criminals seek new ways to defraud unassuming crypto-investors daily. There are diverse cryptocurrency fraud cases, but they could be put into four major categories, namely: Ponzi schemes, pump and dump schemes, fake initial coin offering schemes, as well as cryptocurrency theft.

Ponzi Schemes

Ponzi schemes are scams in which offenders pay off former investors’ dividends with a new set of investments from new investors. New investors are deceived by unrealistically high return rates, falsified reports, and the recommendations of older investors. Many people are familiar with this fraud scheme because of the publicity that the Bernie Madoff case has provoked. However, due to the fact that the general public is unaware of cryptocurrency dynamics, most people might not be familiar with the Ponzi Schemes associated with cryptocurrencies. The most infamous ‘Crypto-Ponzi Scheme’ would be the scheme perpetrated by Bitconnect.

Investors should be prudent when choosing to invest in a cryptocurrency because of the massive rush into the world of cryptocurrency, and make sure the currency you’re choosing to invest in is trustworthy.

However, Ponzi schemes aren’t the only way people can get conned out of their investments. Some scammers are more focused on obtaining basic and personal information from investors in order to lure them into sending currencies to a false crypto wallet.

Social Engineering Scam

This is a type of fraud that’s not easily detected, let alone prevented, and it’s all based on a criminal’s ability to exploit a person’s trust. This is a practice known as “social engineering,” whereby a fraudster manipulates a victim into specific actions, such as sending or giving over personal information. One way this can happen is if a scammer poses as a trustworthy source. Social engineers have their eyes specifically on the users of a system.

The cyber security landscape has witnessed an alarming rise in social engineering incidents in which fraudsters deceive employees into sending funds out of corporate accounts into the thieves’ own ledgers. While there are many examples of social engineering scams, a recent example of a business email compromise is the case of Ubiquiti Networks, which was swindled out of $47 million in 2015. FBI reports show that over 18,000 enterprises have lost the sum of $2.4 billion in these frauds over the previous two years, and this form of theft has grown even more since January 2015.

Initial Coin Offering

An initial coin offering (ICO) provides liquidity together with efficiency for capital formation while trying to minimize transaction costs. ICOs are primarily used by crypto startups, financial technology startups, and the crypto community to raise funds. However, since 2018, legacy businesses with established services and products have increasingly started to use ICO fundraising to finance their activities. As thousands of cryptocurrencies are evolving and being launched regularly and rapidly, the newly launched token or coin comes alongside a series of ICOs. And this launching of new cryptocurrencies attracts a lot of investors into the crypto space. With this increase in investors, of course, comes an increase in the number of scammers. Any company without the fundamental cryptocurrency or ICO whitepaper should be avoided. Perform proper analysis of the whitepaper, and determine whether this coin is trustworthy or not.

Binance Giveaway Scam

It has become common for scammers and fraudsters to present free giveaways of Bitcoin or any other digital currencies in exchange for paying a registration fee by providing some personal information. Scammers who use this giveaway scam claim that the more cryptocurrency people send, the greater their return.

These scams should always be avoided. None of the people involved ever receive their cryptocurrency back, finding it instead lost and sent to scammers.

Most scams of this type will claim people can participate in a giveaway only once, in order to deceive unsuspecting people into sending huge sums of cryptocurrency. Another variant tends to be the Bitcoin giveaway which promises to return ten times the amount of the sent cryptocurrency.

Imposter Scams

Identity theft is one of the fastest-growing white-collar crimes in the cryptocurrency space. In order to take advantage of an individual, identity thieves need to be in possession of at least some of their personally identifiable information. Some common types of personally identifiable information involve a social security number, driver’s license, credit card and bank accounts, utility, and insurance account information, and login details like usernames, passwords, and PINs for all online accounts.

These scammers sometimes pose as people of influence or high-class cryptocurrency investors in order to gain your trust. They can achieve this by posting or sending false contract information. They can also create fake websites or social media accounts to lure people into their scams.

Non-fungible Tokens (NFT) Use Cases

The exponential rate of the public interest in non-fungible tokens (NFT) has been unprecedented and led to a great boom in crypto-collectibles and NFT art. Scarcity and uniqueness make non-fungible tokens a perfect match for real-world assets. Examples of NFTS include Art NFTs, Collectible NFTs, Finance NFTs, Gaming NFTs, Music NFTs, Real-world Asset NFTs, Logistics NFTs, and more. The development of NFTs has brought about a surge in crypto arts and digital collectibles. And just like trading in cryptocurrencies, the NFT world is home to its fair share of scams. The knowledge offered above should offer you protection in this field, as well.

As with any other field which promises vast sums of money, the world of crypto and NFTs are no strangers to fraud. It’s important to always take care when researching a new investment or opportunity. Never agree to something you’re not comfortable with. If something sounds too good to be true, it probably is.

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