Have you ever heard of a crypto scam? Chances are if you’re reading this, you probably have. But what exactly is a crypto scam? How does it operate?
It’s important to know what the scam looks like and which shapes and forms it can take. Once you’re aware of it, it’s easier to spot it. And when you know how to recognize crypto fraud, it’ll be easier to stay away. Let’s see how it all goes.
Types Of Cryptocurrency-Related Cons
There are many types of cryptocurrency-related cons. Some scams involve fake ICOs or initial coin offerings. Others may involve Ponzi schemes, where investors are promised high returns but lose money. Some may involve fake wallets or exchanges that steal people’s private keys and funds.
Common characteristics of crypto scams include false promises of high returns, anonymous or unverifiable team members, and a lack of transparency. Be wary of any investment that seems too good to be true, and always do your own research before investing in any cryptocurrency project.
Click here to find out what types of crypto scams exist.
1. Market Manipulation
Market manipulation is a broad term that can encompass various activities to artificially affect a security’s price.
In the context of cryptocurrency, market manipulation typically refers to activities such as wash trading (i.e., simultaneously buying and selling the same asset on different exchanges to create the illusion of high trade volume), pump-and-dump schemes (i.e., coordinating the purchase of a particular asset by a group of individuals to drive up its price before selling it at a profit) and spoofing (i.e., placing large buy or sell orders to cancel them before they are executed, in order to create artificial price movements).
While market manipulation is not necessarily illegal, it is considered unethical by many and can be subject to regulatory action. For example, in 2018, the U.S. Commodity Futures Trading Commission (CFTC) charged two individuals with spoofing and manipulating digital currency prices on multiple occasions between 2015 and 2016.
When it comes to crypto scams, one of the most common methods is known as spoofing. This is where a scammer will pose as another user to try and trick you into giving them your money or personal information.
They create a fake account that looks identical to a real account, right down to the profile picture and bio. They may even copy the username and post similar content to make it seem like they’re a genuine user.
Once they’ve set up their spoof account, they’ll start interacting with real users. They may try to be friends, follow you, or send you direct messages. The aim is to get you to either click on a link that will take you to their scam website or to get you to reply with your personal information.
Front-running is when a scammer uses insider information to trade ahead of others in the market. This allows the scammer to make a profit while the victim loses money.
For example, let’s say that John is a front-runner. He sees that Jane is about to buy 1 BTC at $10,000. He also knows that the price of BTC is about to go up to $11,000. So, he buys 1 BTC at $10,000 and then sells it to Jane at $11,000. Jane loses $1,000, while John makes a profit of $1,000.
This may not seem like much, but if John does this multiple times with different people, he can make a lot of money while people lose their hard-earned cash. This is why front-running is considered a cryptocurrency scam.
The term “churning” refers to a scam where investors are lured in with promises of high returns, only to have their funds stolen by fraudsters. The scam is widespread in Initial Coin Offerings (ICOs), where projects often promise unrealistically high returns to early investors.
Churning scams typically work by convincing investors to send funds to a certain address, usually in exchange for a token or coin. Once the funds are sent, the fraudsters will quickly empty the address and disappear, leaving investors with nothing.
2. Pump-And-Dump Schemes
Pump-and-dump schemes are a type of crypto scam in which fraudsters artificially inflate the price of a digital asset through false and/or misleading statements, only to sell their holdings at an inflated price.
These schemes typically involve promoting a low-quality or worthless coin or token through social media and online forums, using fictitious celebrity endorsements, pump signals, and other forms of manipulation.
Victims of pump-and-dump schemes can suffer losses when they buy into the hype and purchase the digital asset at an artificially high price, only to see their value plummet soon after. In some cases, the promoters behind these schemes may also sell their holdings before the price crashes, leaving investors with worthless assets.
3. Rug Pulls
A rug pull is a crypto scam where a project abruptly shuts down and takes all the investor money with them. It’s similar to an exit scam but usually happens much sooner after the project has raised funds. Rug pulls often occur before the project has released any working product, so there’s nothing for investors actually to lose.
Rug pulls are becoming more common as the crypto industry matures and investors become savvier. The projects that tend to succeed are the ones with a clear roadmap and tangible deliverables. The ones that fail are usually the ones that are too good to be true, with promises of huge returns and no concrete plan on how to achieve them.
4. Traditional Hacking and Theft
Traditional hacking and theft is a form of crypto scam where hackers gain access to a victim’s cryptocurrency wallets or exchanges and steal their funds. This type of scam has been around since the early days of Bitcoin and is still a significant problem.
There are many ways for hackers to gain access to someone’s cryptocurrency wallets or exchanges. They may use phishing techniques to trick victims into giving them their login details, or they may exploit vulnerabilities in the software to take over the account. Once they have access, they can quickly transfer the funds out of the account before the victim notices.
5. ICO Scams
Many scams have been perpetrated in cryptocurrency, and many have been through Initial Coin Offerings (ICOs). An ICO is when a project raises funds by selling tokens or coins to investors in exchange for equity in the project.
However, there have been several scam ICOs where the team behind the project has either not delivered on their promises or taken the money and run.
If you’re thinking about investing in an ICO, it’s important to do your due diligence to make sure that the team behind the project is legitimate and that there is a good chance that they will deliver on their promises. Unfortunately, there are a number of bad actors in the cryptocurrency space, so it’s essential to be cautious.
As we have seen, a crypto scam can take many different forms. However, there are some common characteristics that all crypto scams share.
First and foremost, a crypto scam is designed to steal your money. This is done by convincing you to invest in a fake cryptocurrency or by promising unrealistically high returns on your investment.
Crypto scams are also often associated with pyramid schemes and other types of fraud. This is because they rely on new investors to keep the plot going, and eventually, everyone loses their money except for the people at the top of the pyramid.
If you’re thinking about investing in cryptocurrency, be sure to do your research first. There are many legitimate opportunities out there but also many scams. Be sure to know what you’re getting into before you hand over any money.