How to Avoid Scams in the Crypto World

Scammers and fraudsters play their games across many different forms and functions, and believe it or not, it is big business. Here are just a few mind-bending stats about scams and frauds:

  • The Federal Trade Commission, an independent government body focused on protecting consumers, reporrted $1.9 Billion in USD was reported lost through scams and fraud in 2019. What is even more shocking, is that is only the amount that was reported to the FTC, imagine how many people were victims of scams that didn’t bother to report it to this government agency.
  • The Nilson Report, a trade journal for the card and mobile payments industry, a whopping $27.85 billion was lost globally to fraud in 2019. The firm calculated that for every $100 payment processed, 6 cents were lost to fraud.
  • AARP, the American Association of Retired People, reported in 2019 that $667  million was lost to imposter scams. Imposter scams are when scammers pretend to be someone else and trick the victim into sending money
  • Statista, a leading market and consumer data firm, reported that $19 billion in 2020 was lost to telephone scams.

Scams in the Crypto ecosystem

Cryptocurrency is not immune to frauds and scams. In fact, Chainalysis, a blockchain analysis firm that monitors the blockchain, releases its annual report every year, ” The State of Crypto Crime.” The report shatters a common myth every year, the myth that cryptocurrencies are mostly used by criminals. According to the report, only 1% of all cryptocurrency transactions are done by for illegal purposes.

What is important to highlight from this report, is that scams make up the largest portion of 1% of illicit activity in crypto, accounting for 8.6 billion USD. The report states that if it wasn’t for 3 massive ponzi schemes, illicit activity on the blockchain would account for only 0.46% of all transactions.

So, in the world of crypto how do you protect yourself from falling victim to scams?

The most common types of scams in crypto

To protect yourself from being scammed, first you need to understand what the common scams are:

  • Ponzi Scheme:
    • Ponzi schemes are fake investment schemes where the operator pays out older investors with money from newer investors, giving the illusion of profit. Crypto is uniquely susceptible to ponzi schemes, because it is not uncommon for investors to achieve massive returns by investing. So a fake investment fund promising great returns doesn’t seem on its face as unbelievable.
  • Phishing:
    • Phishing is when someone sets up a fake website in order to steal login credentials. Once the login credentials are stolen, the phisher can steal your funds from an exchange, or your wallet.
  • Impersonation:
    • Impersonation is when a scammer pretends to be someone they are not. A common method used will be to email people from an email account to appears to be from an exchange or wallet service, and try to gain information they can use to steal funds
  • Social Engineering:
    • This is similar to impersonation, but is more high level and targeted. In Social Engineering, a scammer will try to compromise a target in to providing information by acting as if they are someone else. For example, the recent Twitter hack in 2020, the scammers targeted employees working from home to gain access to a private slack channel, where they were able to gain access to internal twitter tools used to pull off the attack.
  • Free Giveaways:
    • You may have seen comments in social media, or even lately advertisements. In the same infamous Twitter hack of 2020 that used social engineering to gain access, the hackers used the free giveaway scam in order to get victims to send them money. The free giveaway scam works by telling victims if they money to them, they will send back more money.
  • Exit Scams:
    • As the industry gets more and more mature, these types of scams are happening less and less. An exit scam is when a crypto service, such as an exchange, pulls the plug and runs off with the funds. By using regulated exchanges, this can largely be avoided.

How to protect yourself from scams

Fortunately, most all of these scams can be avoided by taking proper safety precautions. It is important to keep in mind that with cryptocurrency you are your own bank. With great freedom comes great responsibility.

  • Use 2-factor authentication:
    • 2-factor authentication is a second layer of protection beyond just a password. The best type of 2FA to incorporate into your crypto life is OTP – one time passwords. These are apps or hardware devices that use cryptography to generate short phrases that you must type in within an allotted time frame. This is more secure than using your cell phone or email as a 2FA method, because scammers can hijack your phone or your email accounts. In order to bypass OTP 2FA, a scammer would need to have access to your device
  • Trust, but verify:
    • Trust, but verify is a popular phrase in the Bitcoin community, and it means exactly what is sounds like. You can trust people and services, but always take the extra step to verify it is legitimate. This can be as easy as going to your favorite search engine and searching for reviews about the service. Tip: always type the service + scam to see any bad reviews, and check sources such as trustpilot.
  • Don’t use an exchange to store coins long term
    • Not your keys, not your coins, is a popular phrase in the crypto community, and for good reason. You should only keep funds on an exchange that you plan to trade, any other scenario you should host in your own wallet. This eliminates exit scams as a possibility. Remember, you are your own bank in crypto
  • Always double check the address of websites and apps
    • Popular crypto services are targets of phishers. Popular online wallets for example, have phishing pages setup for common misspellings of the domain name. If you accidentally misspell the name of a crypto service, you could end up on a phishing page. To prevent this, always double check you are on the correct URL. For extra security, make sure the lock appears in the address bar, this is SSL, and means you have a secure connection. You can even click on the lock and check the details of the SSL certificate and screenshot it when you know you are on the correct site. If you are ever in doubt, you can compare them.

Last, but not least, if it sounds too good to be true – it probably is. Nobody is giving away money for free, especially if they want you to send them money first. Just be being aware of what the common types of scams are, you can learn to avoid them.

Views and opinions expressed are solely those of the author and not of The DeChained or any affiliated party. Views or opinions expressed in this article (or any article on the website) are not financial advice. Articles are for informational purposes only. The author and The DeChained may hold positions in assets discussed in this or other articles.
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