Cryptocurrency scams are a type of investment fraud that can take many forms, from phishing scams to rug pulls. Since crypto’s blockchain technology isn’t regulated like other financial markets, it’s easier for scammers to take advantage of investors.
How To Avoid Cryptocurrency Scams
The best way to avoid cryptocurrency scams is to be aware of the most common types of scams and to do your research before investing in any crypto project. Here are the six most common cryptocurrency scams and how to avoid them:
- Bitcoin Investment Schemes
In bitcoin investment schemes, scammers contact investors claiming to be seasoned “investment managers.” As part of their pitch, they promise high returns in a short period of time if you invest in their bitcoin mining operation or buy into their initial coin offering (ICO).
- ICO Scams
An ICO is a fundraising method where start-ups sell tokens in exchange for investments. ICOs have been a popular way for cryptocurrency start-ups to raise money, but they’ve also been fertile ground for scams. In an ICO scam, a fraudster will create a fake ICO website and a whitepaper that looks like a legitimate project. They’ll use this fake ICO to solicit investments from unsuspecting victims and then make off with the money.
- Phishing Scams
A phishing scam is a type of fraud where a scammer will pose as a legitimate person or organization in order to trick you into giving them your personal information or sending them cryptocurrency. Phishing scams can take many forms, from emails impersonating a crypto exchange to fake social media profiles posing as well-known figures in the crypto community.
- Ponzi Schemes
Ponzi schemes are fraudulent investment schemes where money from new investors is used to pay returns to earlier investors. Ponzi schemes are not specific to the cryptocurrency industry and have been around for centuries, but they have become more common in the crypto space in recent years. One notable example is BitConnect, which was shut down by the US Securities and Exchange Commission (SEC) in 2018 after being accused of operating as a Ponzi scheme.
- Pump and Dump Schemes
A pump and dump scheme is when a group of people coordinate to buy a particular cryptocurrency at the same time in order to drive up its price and then sell it once the price has risen.
These schemes are often orchestrated by Telegram or Discord groups, and they can be difficult to spot if you’re not familiar with the tell-tale signs.
One way to avoid getting caught up in a pump-and-dump scheme is to be wary of any group that’s trying to get you to buy into a particular coin without giving you any reason why you should invest other than its current price or market capitalization.
Another red flag is if the group is trying to get everyone to buy at the same time without giving anyone time to do their own research on the coin first. If you see either of these red flags, it’s best to avoid the group and any currencies they’re promoting.
- Traditional Theft
While traditional theft might not seem like a “scam” per se, it’s still worth mentioning since it’s one of the most common ways for people to lose their cryptocurrency. There are many ways for thieves to steal your crypto, from hacking into your online wallets or exchanges to simply stealing your private keys if they can get physical access to your computer or hardware wallet.
What to do if you have been scammed
If you believe you have fallen victim to any of the scams mentioned above, ensure to preserve and gather as much information and evidentiary documentation regarding the fraud, including emails, websites and links, banking statements and your cryptocurrency transaction history.
Take as much information as possible to your local law enforcement agency and file a report. After filing a police report, you may contact Argus Investigations to discuss how our cryptocurrency expert investigators and certified cryptocurrency examiners can help you. All enquiries are handled with the strictest confidence.