According to the Federal Trade Commission, over $1 billion has been stolen by cryptocurrency scammers since 2021. In February 2022 alone, the decentralized finance platform Wormhole fought a major cyber attack and lost $325 million. Unlike digital currency, which the owner can turn into cash by transferring from their digital wallet to their bank account, cryptocurrency utilizes blockchain to act as virtual security so owners can send money safely without the need to go through financial institutions.
Because of the nature of blockchain, cryptocurrencies like Bitcoin are more difficult to recover when lost to cyber theft. Unfortunately, there are tried-and-tested schemes that scammers use even with a system that prides itself on inherent security measures.
Investment schemes that claim to be legitimate
In a typical investment scheme, such as those involving Bitcoin, a scammer claims to be a successful investment manager and reaches out to investors. They claim to have earned millions by investing in cryptocurrency through a unique strategy that not everyone is aware of. Furthermore, they make promises that the investors will also make money if they invest as soon as possible. The sense of urgency and the possibility of becoming a millionaire overnight are what scammers use to entice their victims.
When the victims are on-board, scammers waste no time requesting an upfront fee and personal information to gain access to their accounts and transfer the funds. Sometimes, they tell the investors that their initial deposit has already generated profit and that they should further increase their investment to maximize earnings.
Initial coin offerings (ICOs) are known for sometimes luring investors to make significant investments, claiming to receive priority treatment or discounted rates on new crypto coins. These schemes are elaborate in deceiving investors to the point of making up fake offices and marketing campaigns.
Fake cryptocurrency exchanges and websites
Scammers also create fake websites and mobile applications of cryptocurrency exchanges with attractive advertisements to lure investors into signing up and purchasing crypto assets even though they are not real. These sites offer discounted crypto coins and promise huge gains on their investments. However, when the user is ready to withdraw their funds, their wallet is emptied suddenly.
According to Martin Leinweber, MarketVector Indexes’ digital asset product strategist, new and fake cryptocurrency exchanges are often advertised on social media. Clicking on these links could put the owner’s computer at risk of malware intended to steal their private key or password. In some cases, scammers even use photos of celebrities and impose them on fake websites or advertisements to appear as though the source is legitimate and promoted by a trustworthy and popular individual.
Crypto romance scam that promises love and wealth
Romance scams existed way before cryptocurrencies. Scammers hide their true identity and sign into online dating sites and social media to look for potential victims. First, they gain the trust of their victims by showering them with love and attention. Then, they tailor their persona according to what their victims need.
After some time, scammers start to invent either being in financial trouble or having access to an investment opportunity. They convince their victims that the only way to get over the obstacle of their union is to make a significant contribution to their future which can only be achieved by investing in cryptocurrencies.
Romance scams are notorious for leaving their victims as soon as they have emptied their savings. Often, they ask their victims to cash in their inheritance and even borrow from their family and friends.
The importance of researching and verifying crypto exchanges thoroughly
Young and inexperienced investors looking for a quick profit are the typical demographic of new cryptocurrencies that end up being fake. To safeguard finances against cryptocurrency scammers, conducting thorough research on new cryptocurrencies that enter the marketplace is crucial. Users should learn more about the company and the platform they are using. Confirm that the URLs are legitimate before signing up and sharing personal information. Some sites compile fake cryptocurrency lists for information purposes. Looking for feedback on social media and industry reviews is also important.
New cryptocurrencies often receive social media hype. Even celebrities can fall victim to the hype and become advertisers themselves. Recently, news broke about the FTX collapse, which saw wealthy stars, such as Tom Brady, Giselle Bundchen, Stephen Curry, and Larry David losing their investments. Therefore, it is always important to exercise caution and discretion, even if the people behind the platform and those endorsing it seem reputable.
Use multi-factor security and never share private keys
Users would do well to avoid cryptocurrency exchanges that ask for privacy keys. Moreover, they should only use a crypto wallet from a well-known company that has a proven track record of providing security.
Another effective approach to keeping data and funds secure is only using exchanges with multi-factor authentication (MFA). An MFA requires more than two credentials for identity verification before they can access their account. An MFA can include a password or PIN number, a code or device, and a fingerprint or other forms of biometric authentication. Biometric authentication as an additional security measure ensures that hackers cannot access your crypto trading account even if they possess your login credentials.