The number of financial scams for consumers to avoid was almost endless, but this figure exploded when digital currency – also called cryptocurrency – became mainstream. Crypto fraud in the UK increased by 40% in the last tax year to over £300 million – and it’s growing

In the third of a three-part post, NMTBP reveals how the most common types of crypto scams work, how to spot them and what you can do if you become a victim

Crypto scams to watch out for in 2023

Bitcoin investment schemes

In bitcoin investment schemes, scammers contact investors claiming to be seasoned ‘investment managers,’ claiming to have made millions investing in cryptocurrency and promising their victims that they will make money with investments.  A common scam involves using fake celebrity endorsements. Scammers take real photos and impose them on fake accounts, ads or articles to make it appear as though the celebrity is promoting a large financial gain from the investment. The sources for these claims appear to be legitimate, using reputable company names such as ABC or CBS with a professional-looking website and logos. However, the endorsement is fake

Rug pull scams

Rug pull scams involve investment scammers ‘pumping up. a new project, nonfungible token (NFT) or coin to get funding. After the scammers get the money, they disappear with it. The coding for these investments prevents people from selling the bitcoin after purchase, so investors are left with a valueless investment

A popular version of this scam was the Squid coin scam, named after the popular Netflix series Squid Game. Investors had to play to earn cryptocurrency: People would buy tokens for online games and earn more later to exchange for other cryptocurrencies. The price of the Squid token went from being worth 1 cent to about $90 per token. Eventually, trading stopped and the money disappeared. The token value then reached zero as people attempted but failed to sell their tokens. The scammers made about £2 million from these investors

Romance scams

Dating apps are no stranger to crypto scams. These scams involve relationships – typically long-distance and strictly online – where one party takes time to gain the other party’s trust. Over time, one party starts to convince the other to buy or give money in some form of cryptocurrency. After getting the money, the dating scammer disappears. These scams are also referred to as ‘pig butchering scams’

Phishing scams

Phishing scams have been around for some time but are still popular. Scammers send emails with malicious links to a fake website to gather personal details, such as cryptocurrency wallet key information. Unlike passwords, users only get one unique private key to digital wallets. But if a private key is stolen, it is troublesome to change this key. Each key is unique to a wallet; so, to update this key, the person needs to create a new wallet

To avoid phishing scams, never enter secure information from an email link. Always go directly to the site, no matter how legitimate the website or link appears

Man-in-the-middle attack

When users log in to a cryptocurrency account in a public location, scammers can steal their private, sensitive information. A scammer can intercept any information sent over a public network, including passwords, cryptocurrency wallet keys and account information. Anytime a user is logged in, a thief can gather this sensitive information by using the man-in-the-middle attack approach. This is done by intercepting Wi-Fi signals on trusted networks if they are in close proximity. The best way to avoid these attacks is to block the man in the middle by using a virtual private network (VPN). The VPN encrypts all the data being transmitted, so thieves cannot access personal information and steal cryptocurrency

There are many others; Social media cryptocurrency giveaway scams, Ponzi schemes, fake cryptocurrency exchanges, pump and dump schemes, employment offers and fraudulent employees and flash loan attacks to name a few

How to spot a crypto scam

When it comes to crypto scams, there are telltale signs that let you know you’re about to be duped. Watch out for the following:

Anything that seems too good to be true: If you encounter any crypto offer that seems so good it can’t possibly be true, your instincts are likely spot on. Nobody is going to offer you free crypto for doing practically nothing, and a little research can help you spot big claims that aren’t backed up by any data

Pay to play” job postings: You should never have to pay a fee to do a job or secure a position in the crypto industry. If someone makes you a job offer that requires upfront payment, you should run

Promises of guaranteed returns: Nobody can promise guaranteed investment returns, and that’s just as true in the crypto industry as it is with traditional financial investments

Unexpected communications: If you get an email, a phone call or a text from someone that wants you to log into a crypto account, send in crypto to resolve an issue or get involved in a business opportunity, you should promptly ignore it

How to avoid becoming a victim

While watching out for the crypto scam ‘red flags’ outlined above can help you avoid trouble, there are other steps you can take to protect your digital assets. Consider the following moves to avoid becoming the victim of a crypto scheme:

Protect your crypto with cold storage

You can keep your crypto in web-based, mobile or desktop wallets that are all considered “hot storage,” but opting for cold storage instead can help you keep your assets safe. You can even keep your crypto in a hardware wallet that is actually a small device you can keep at home. This kind of wallet lets you keep the keys to your crypto in your possession at all times

Verify contact information

If you get phone calls or emails from your bank or another institution you actually use, don’t reply to the email or phone number you were contacted from. After all, the initial contact could be fake. Instead of replying directly, look up the company’s contact information on their official website, and call or email them back there

Move slowly before you invest

There are legitimate ways to invest in crypto and other investments, but scammers always use high-pressure techniques to get you to invest before you have time to do any research. If you want to begin investing, spend some time learning more about companies you might want to work with.

Reporting crypto scams

If you’ve been the victim of a scam, fraud or online crime (cybercrime) you can report it to Action Fraud:

• online
• on 0300 123 2040 (Monday to Friday 8am to 8pm).

Action Fraud is the national reporting centre for fraud and cybercrime. It collects reports about fraud on behalf of the police in England, Wales and Northern Ireland. For fraud in Scotland please report it directly to Police Scotland

Getting your money back from a crypto scam

The bad news about crypto scams is that it’s virtually impossible to get your money back after you’ve fallen for a scammer’s trap. Once you send cryptocurrency to another person, they have to willingly send it back to you or you can consider your digital assets lost forever.

That’s why your best bet is spotting the signs of a crypto scam early so you can avoid it. If you wind up sending crypto to someone else, giving away your private keys or getting duped by a fake job offer that requires upfront payment, the lessons you learn may come at a huge financial cost

An extra special caveat emptor!