Crypto Scams and Fraud: 5 Ways to Avoid

Apart from the volatility of the value of crypto assets, there is another huge problem facing cryptocurrencies today – crypto scams and fraud. The world of crypto is flooded with scammers and fraudsters looking to defraud crypto assets.

According to a Chain Analysis Crypto Crime report, there was a 79% increase in crypto-related crimes in 2022 alone. With crypto steadily recovering from 2022's FTX scandal, the proportion of these crimes is expected to rise. New scams are popping up every day and avoiding them is key in order to avoid becoming a victim. Covering the five ways to avoid crypto scams and frauds in this guide will empower better navigation of the world of cryptocurrency.

Common Crypto Scams to Look Out For

With security features like encryption, immutable ledgers and decentralization, cryptocurrencies can be pretty secure. However, there are numerous vulnerabilities that clever scammers exploit. These usually rely on the crypto investor to make a mistake.

Investors may unwittingly allow bad actors to:

• Gain access to digital wallets or login credentials
• Transfer cryptocurrency directly from users accounts
• Convince a user to invest in a crypto scam

The first step to avoiding these scams is to be aware of them, how they work and then take measures to avoid them. So here are some crypto scams to look out for.

• NFT (Non-fungible token) rug pulling. This is one of the most popular crypto scams, and it comes from the popular phrase "getting the rug pulled out from under you". NFT rug pulling involves scammers aggressively promoting a seemingly legit NFT project to persuade investors to jump in. However, as soon as a significant amount of money has been invested in the NFT, these scammers abandon the project entirely, causing the NFT to rapidly decline in value.
• Impersonation attempts. Crypto scammers will impersonate a CEO or employee of a crypto exchange company like Binance in an attempt to extract wallet logins or get investments in a crypto scam. They can do this via spoofed emails, instant messages or voice calls. Using AI tools they can create really believable messages that can easily trick their target. With generative AI, scammers can now recreate voices from famous crypto endorsers that seem fully credible to the unsuspecting (for example, Elon Musk).
• Cryptocurrency Ponzi schemes. This is an investment scheme that runs in circles, where early investors are paid using the money of new investors. Fraudsters will often make unrealistic promises of high returns to attract new investors. This model is unsustainable and scammers will pack up their ill-gotten gains sooner or later.
• Fake exchange markets. There are over 600 crypto exchange markets to buy and sell bitcoin, ether, Tether and many other cryptocurrencies. This makes it easy for fake exchange markets to exist. Scammers running exchange markets will incentivize users to trade in them by offering great exchange value or some additional crypto when in reality, there is no exchange. Once the deposit is paid with these thieves, money vanishes.
• Social media giveaways. Scammers want to get victims where they spend most of their time online – on social media. They often lure their victims by offering bitcoin giveaways under the condition that users sign up on a fake website and/or pay for a membership on that website. Once signed up, they can get login credentials and use them to access the private wallet.

As mentioned earlier, being aware and knowledgeable of these scams is the first step of protection to being their victim. Knowing this, here are five solid strategies on how to avoid crypto scams.

1. Perform Significant Research Before Investing

• The majority of crypto scams can be identified by simply doing proper research before getting involved in a crypto project. For example, with the NFT rug pull types of scams, here is the information to look closely for:
• Verify the legitimacy of the team behind a crypto project. First of all, a team that has only one person behind it is quite suspicious. It should, preferably, have a whole team behind it. Find the team behind it on platforms like LinkedIn and assess their qualifications and accolades.
• Focus on the engagements, not the follower count. NFT scammers can buy followers on social media to make projects look legitimate. Instead of looking at the followers, focus on how many people are interacting with the posts. Are many people liking, sharing and commenting on the posts?
• Assess how realistic the project roadmap is by looking at what the project aims to accomplish and how it wants to do so. If the team behind it wants to create tons of NFTs within a short period, that may be suspicious. Remember that in crypto, if a deal is too good to be true, then it probably is. Be critical in the assessment and do the research before putting any money into it.

2. Stick to Well-known Crypto Exchanges and Wallets

• Well-known exchanges and wallets typically invest heavily in security measures to protect their users' funds and personal information. Notice if security features are included like multi-factor authentication, advanced encryption, regular audits, etc. to minimize the risk of hacking or unauthorized access.
• Well-known crypto exchanges and wallets have a seal of approval for legitimacy from numerous crypto investors which gives them more security.
• Apart from potentially being scams themselves, new crypto exchanges and wallets usually lack these security features. This makes them an easy target for crypto scams and frauds.

3. Keep Private Keys Completely Protected

• A private key is one of the cryptographic keys generated when a crypto wallet is created. As the name suggests, this key is private and should be kept completely confidential. It is known only to the wallet owner.
• Only with the private key, digitally signed transactions can take place, proving that the user is the rightful owner of the funds associated with that specific wallet address. Never share private key information with anyone else, as doing so would give them full access to the funds in the account.

4. Avoid Interacting with Unsolicited Crypto Promotion Emails

• As discussed, some scammers use emails to impersonate people and organizations to get personal information from unsuspecting victims.
• When receiving one such notification containing a crypto promotion, avoid interacting with it. Do not even open it or click on any links that come with it because it's probably phishing attempts aiming to get personal information or even private keys.

5. Use Cold Storage to Protect Crypto Assets

• In instances when a scammer manages to trick a user, the safety of crypto assets can be ensured using cold storage. Cold storage refers to keeping private keys and cryptocurrency holdings completely offline, away from devices connected to the internet. This can be a small device (a hardware wallet) that's kept at home.
• Keeping private information completely offline is by far one of the most secure ways to protect crypto assets from fraudsters and scammers looking to steal them. This is because offline wallets are less susceptible to hacks compared to online wallets.

In The End

While the world of cryptocurrencies holds promise for financial innovation and decentralized systems, it also presents an increasingly challenging landscape due to the proliferation of crypto scams and frauds. Beyond the inherent volatility of crypto assets, the rise of fraudulent activities in the crypto space is a significant concern.

While the potential rewards of cryptocurrency investments are enticing, the importance of safeguarding assets and personal information cannot be overstated in the face of an ever-evolving landscape of scams and frauds. Yet the promise of crypto is also ever-evolving, and the opportunities are immense. It's important to be thoughtful, do research and have a healthy dose of skepticism. Cryptocurrencies aren't going anywhere, and thinking long-term can set up anyone for success with the right amount of diligence.