Frauds involving cryptocurrency are as prevalent now as they have always been. At the time of writing this, in the U.S. alone, it has been reported that since January 2021, in excess of $680 million has been lost in crypto-related frauds. What’s more, is that these numbers are not looking to go down any time soon.
Earlier in the year, the European Council revealed that it had authorized the Markets in Crypto-Assets (MiCA) Regulation, this being one of the first reported attempts across the globe at imposing regulation for cryptocurrency markets. Interestingly, this approved regulation also includes money laundering, consumer protection and includes the accountability of crypto companies, and environmental impact. The fact that this regulation has been brought in within the EU, which is at the forefront of digital regulation, means that MiCA will certainly have a significant global impact.
The Federal Trade Commission (FTC) revealed in a recent report that the number of reported crypto scams was 60 times more in 2021 than they were in 2018 - no wonder why the average individual loss reported since January 2021 is approximately $2,600!
According to the FTC, the $1 billion in which 46,000 people (worldwide) lost was in the form of Bitcoin (70%), Tether (10%), and Ether (9%). So, if you’re planning to invest in any of them in the near future, ensure that you are up to date with the varying types of cryptocurrency scams and how fraudsters are operating nowadays with new Ponzi schemes.
Different Types of Cryptocurrency Frauds to Watch Out For
Even though cryptocurrency is a relatively new concept of investing and building assets, fraudsters are using old and typical ways of stealing and scamming.
Here is a comprehensive list of all the most common cryptocurrency frauds and how to keep yourself safe from them.
Bitcoin Investment Schemes
This is one of the most common crypto scams of all time.
Here, the fraudsters contact the investors and claim they are seasoned 'investment managers.' Their scheme consists of claiming that they have made millions investing in cryptocurrency and can help you do so too. The scammers then ask the investors for an upfront fee and steal it instead of assisting investors in making more money.
Not only that, but these scammers sometimes also ask for the investor's personal identification information and, using it, gain access to the person's cryptocurrency.
They usually ask for personal information in the name of transferring and depositing funds.
Not to mention, these fraudsters are quite professional in what they do. They create fake endorsements, including professional-looking websites, logos, and pages with celebrities and big investors’ pictures as if they are helping in their investments.
Be extremely cautious when it comes to your virtual money, no matter how much return on investment they offer.
Romance Scams
You are sorely mistaken if you think dating apps are somewhat hidden from scammers.
In this type of crypto fraud, the fraudsters trap the investors personally by forming a romantic bond with them. These relationships are online and mostly long-distance.
In these scams, the whole process is quite slow because the fraudsters gain investors' trust over time through romantic manipulation. After some time, the scammer party starts to convince the investors or any person to buy or give money in the form of cryptocurrency. Even if the other person is not familiar with crypto, they try to convince them to invest in it with their fake wins and then loot them.
Whether you are a crypto investor or not, do not let anyone online convince you that you should invest in any of their trades. Make sure to trade and invest through authentic platforms.
Phishing Scams
Phishing scams might be one of the oldest scams that are still quite common. With these scams, fraudsters send the targeted person emails with malicious links to fake websites that gather all the personal information of the person who clicks on these links. This personal information might also include the cryptocurrency wallet key information.
Crypto wallets have no passwords, as users are assigned one private key to secure their accounts. If the private key is stolen, the user will not be able to change the key or will not be issued a new one; thus, there won't be any other option than creating a new wallet.
It is always wise not to open any indirect links, instead visit the website directly. No matter how authentic or original the website link might seem, do not open any link in emails or text messages.
NFT Phishing Scams
In this type of phishing scam, hackers send out malicious links, usually on popular channels or applications, such as Discord. Once the link is clicked a message or form appears on legitimate-looking pages which will ask for details or credentials. Behind these legitimate-looking sites are keyloggers or spyware which hackers then use to access your accounts.
Due to the popularity of NFTs, it will be no surprise to learn that these types of scams are happening more and more. In February 2022, scammers were able to obtain approximately $1.7 million worth of NFTs in a sophisticated attack targeting OpenSea - the most widely used NFT platform.
Always be cautious when clicking on links or attachments from people and accounts you are not familiar with.
Fake Cryptocurrency Exchanges
In this type of fraud, the scammer acts as an expert investor and makes promises to the investors of great cryptocurrency exchange. They might even promise some additional bitcoin. But such people are not traders or professionals, and there is no exchange once the investor makes a deposit, and the scammer takes that money and vanishes.
These scammers are experts who know how to lure innocent people into their trap, with their great communication and persuasion skills that help them through. They ensure that the person listens to them, making the offers they put forward much more intriguing and interesting.
Make sure you stick to known, authentic crypto exchange markets and whenever you are investing in any crypto market, do your research and check their legitimacy.
New Trends in How Fraudsters Are Operating (And How to Protect Yourself Against Them)
Having discussed some of the most common types of fraud in cryptocurrency, here are some of the latest trends in how fraudsters operate.
Ponzi/Bogus Schemes
In the Ponzi schemes, the new investors are made to pay the older investors. Therefore, the scammers try to trap the early adopters or investors mostly with bitcoin. There are no legitimate investments in this process, and these schemes continue to run in circles.
Such Ponzi schemes are all about luring new investors to attain money from them. The main technique used by scammers to draw in new investors is the promise of huge profits with lesser risks.
FTC claims over $575 million of crypto frauds are all Ponzi/bogus schemes. The scammers give false return on investment hopes to new investors, and these opportunities are usually provided through social media platforms such as Facebook, Instagram, WhatsApp, and Telegram.
To protect yourself from Ponzi/bogus schemes, familiarize yourself with the ins and outs of Bitcoin and check the credibility of the crypto investment firms before trusting them.
Fabricated Initial Coin Offering (ICO)
Cryptocurrency has recently put forward an offering for raising unlimited cash. With this, the investors can earn many profits from such ICOs and immediately buy future coins through other cryptocurrency wallets, including Bitcoin and Ethereum, which goes straight into the fundraiser’s e-wallet.
Many of these ICOs are completely fabricated, featuring phony bios of fake team members and technical whitepapers copied from other legitimate cryptocurrency markets. Many of these ICOs failed, while others could not raise any funds.
You must do thorough research on all team members of any project of ICOs before you invest any money in it. It might be a red flag if you still seek information about a certain team member and your research fails to find any information about them at all.
Fake Crypto Trading Websites and Wallets
From personal social media, bank accounts, or crypto wallets, these fraudsters fake it all.
There are countless duplicates of legitimate cryptocurrency websites and apps, some of which even rank on Google, which encourages inexperienced investors to place their money at risk by believing these genuine-appearing ranked phony websites. They might even see their investment money rising on these bogus platforms.
To gain investors' trust, these fake crypto trading websites and wallets even allow investors to withdraw a small amount of money, making them believe that the scheme is genuine and then ultimately making them want to invest more.
And then historically, soon after that, the investor will not hear back from the website or platform, their messages go unanswered, and then the sinking feeling hits, along with the realization that they have fallen foul of a fraud.
If you see that some crypto trading website offers numerous advantages and benefits in a short time frame, consider it a straight-up red flag. No legitimate source will promise you any kind of ‘quick’ money or return on investments like that.
Pump and Dump
In this type of emerging crypto fraud, the perpetrators use schemes to pull people in by spreading fake news involving celebrities, big crypto figures, and influencers.
They tend to buy a large supply of small cryptocurrencies with low liquidity and small market capitalization. These tactics and schemes increase this coin's value by pumping it, and lots of people will start investing in it.
But once the coin has reached a certain value and the planned amount of people have invested in it, the perpetrators who pumped it will dump it now.
A recent example of a pump and dump scam was the coin named 'SQUID' or the meme coin based on Squid Games, the Netflix series. Its value was increasing exceptionally till it completely dropped. The coins’ collector took US $3 million from the investors and disappeared.
To prevent pump-and-dump frauds, make sure you conduct thorough research on all cryptocurrency coins and wallets before you invest in them. Refrain from letting celebrity promotions fool you, and conduct your own due diligence before making any such investments.
How to Identify Fake Cryptocurrency?
Here are a few tips you can follow to save yourself from all the old and emerging crypto frauds and invest safely.
- Guaranteed Money Return - You might already know that no financial investments promise guaranteed returns or profits. So, keep the scammers from fooling you with promises of sure money returns that, too, in big gains in less time.
- Doubtful Amount of Marketing - Even though all companies invest a good amount in their marketing, fraudsters go quite ahead with their marketing investments. They do this to trap as many people as possible in the shortest time frame. If crypto companies are doing extreme marketing, making it seem that they are trying too hard to get investors, promising good money returns, and other suspicious things, make sure to do your research before investing.
- Non-Existent or Poor Whitepaper- Every cryptocurrency must have a cryptocurrency whitepaper, and a poor or non-existent whitepaper might be your biggest red flag. It is considered the surety in one of the most critical stages of the initial coin offering. Therefore, there should be a comprehensive whitepaper discussing how the whole cryptocurrency will work, and if there isn't any or it could be better, you must not invest your money there.
- Unidentified Company Members – For any reliable business, you can easily find the biographies of team members running the business or company. They must have an active social media presence, and you must know who will be working on your investment. If it is difficult to access these people's names, identification, or biographies, do not invest your money at all.
Cryptocurrency's popularity is skyrocketing, and scammers are taking full advantage of that.
Different types of cryptocurrency frauds have made investors lose hundreds of thousands of dollars to date, and none of these seem to be ending anytime soon.
To ensure that you are investing your money in a safe place, the only thing that you can do is do your research before trusting any cryptocurrency platform or company.
There is also always an option of investing in more popular and promisingly authentic cryptocurrencies so that you don’t become the victim of all these new and old crypto frauds.
At Ankura we have assembled the leading minds from the intelligence community, law enforcement, federal agents, digital forensic, and cyber specialists with substantial experience in investigating fraudulent activities involving cryptocurrencies to create a full-service suite of solutions. Our SMEs are well-versed in the crypto ecosphere and support our clients to gather intelligence, investigate crimes, develop compliance solutions, and advise on blockchain technology and virtual asset strategy.
Our crypto-related service offerings include but are not limited to:
- Investigations
- Cybersecurity & Intelligence
- Compliance
- Blockchain & Digital Asset Consulting
Investigations
- Investigation of cryptocurrency thefts, crimes, and/or illicit payments made using cryptocurrencies
- Digital forensics to uncover evidence of crypto-related activity of individuals or organizations harboring illicit funds
- Complex tracing including cross-chain analytics, mixers, token swaps, and forensic accounting
- Support in articulating information requests from virtual asset service providers
- Manage the freezing, transfer, and realization of recovered funds
- Support for regulatory investigations
Cybersecurity & Intelligence
- Third-party security and risk assessments
- Crypto hacking / jacking incident response
- Ransom-related payment negotiation, management, and due diligence involving cryptocurrency
- Crypto mining detection, feasibility and operations, cryptographic key generation management, and ledger security
- Threat actor intelligence services
- Risk assessments to test the resilience of systems involved in cryptocurrency payments
Compliance
- Design and implementation of robust compliance programs for virtual asset service providers
- Review KYC/KYT processes, including identification, and verification of customers and business partners
- Crypto asset compliance monitoring
- Crypto trade control testing
- Benchmarking against crypto industry security standards
Blockchain & Digital Asset Consulting
- Data governance and third-party assessments
- Implementation and transformation management
- Distributed ledger technology integration and digital asset custodial advisory services
- Security and risk advisory services
- Decentralized finance applications and advisory
- NFT & Metaverse advisory and consulting
To discuss any aspect of this article, or to request further information on the service offerings at Ankura, please do get in touch via crypto@ankura.com
Statistical references
https://www.cloudwards.net/nft-scams/
© Copyright 2022. The views expressed herein are those of the author(s) and not necessarily the views of Ankura Consulting Group, LLC., its management, its subsidiaries, its affiliates, or its other professionals. Ankura is not a law firm and cannot provide legal advice.
