Isn’t it amazing how far the crypto world has come? From the innovative concept of Bitcoin to the amazing world of NFTs and the Metaverse, the blockchain ecosystem has transformed into a billion-dollar industry providing millions with the opportunity to earn from innovative products.
However, not all that glitters is gold, and dubious people have decided to play the devil and scam crypto investors of their hard-earned money.
These scam artists have successfully pulled off several heists that have conned developers, traders and eager investors. But, as they say, knowledge is power, and the best way to avoid this scenario is by knowing how it works.
Read along as we explore a list of common scams in the crypto world and how you can avoid them.
Pump and dump
The good old pump and dump has found its way from the stock market into the crypto world. Fans of the Hollywood blockbuster “The Wolf of Wall Street’’ will fully understand how it works.
The plan is usually simple. First, a group of scammers will pool resources together to create a token — a token is a cryptocurrency built using blockchain technology.
This token will then be heavily promoted across social media or traditional media attracting investors scared of FOMO (Fear of Missing Out).
As the number of investors increases, the group slowly sells off the tokens at high prices sparking panic in the market. This is called dumping as the scammer’s profit at the expense of investors, leaving them with tokens that have lost value.
The rug pull
This scam is basically Pump and Dump on steroids. Scammers attract investors by promoting the tokens on social media and claiming that they’ll build several products for the token.
Potential investors rush in thinking that they’re investing in the next Bitcoin and the price of the token begins to rise in value.
However, this is short-lived as the scammers dump their tokens in the market, leaving investors with worthless tokens and valueless projects.
What makes rug pull scary is that unlike pump and dump, where users can at least sell their token, rug pull is usually designed so that only the originators or insiders benefit.
In essence, you’ll be left with worthless tokens that can’t be sold. One example is the Squid Game token which was launched in 2021 after the popular Netflix Series “Squid Game.”
The coin, SQUID, rose in value from 1 cent to $2820 within two weeks due to the massive hype generated and many people invested in the token.
However, investors were unaware that the token developers placed a feature that allowed only them to sell the tokens.
As a result, investors were stuck with tokens that they could not sell, and this caused panic in the market when the scam was uncovered. The price of SQUID quickly fell back to zero and investors were left to count their losses.
The airdrop scam
Airdrop scams have become popular in recent years. Airdrops are usually harmless rewards given out by new crypto projects to attract investors and create active communities.
You get rewarded in crypto to participate or interact in a crypto project, and these tokens are deposited into your crypto wallet. In most airdrops reward programs, you’re given a form to fill in your wallet address details to receive rewards.
Scammers have found several ways to scam victims using airdrops. The popular way is to request your private keys or seed phrase within the airdrop form. Please note that your private keys or seed phrase is similar to your ATM pin and anyone that has it can easily steal money from your crypto wallet.
Phishing crypto scam
A phishing scam is a popular scam method that has existed since the invention of the web. The crypto version is similar to the traditional phishing scam.
The ploy is simple. Victims are fooled into giving away their personal information which is then used to access either their crypto wallet or exchange account.
These scams follow the same flow. You receive emails from accounts posing as a security operative or government official asking you to click a link or give out sensitive information about your wallet address or exchange account.
Once you click on the link, you’ll be redirected to a website where you’ll be asked to connect your wallet. If you connect your wallet, the scammers hack into your wallet address and steal the money saved in the wallet.
As simple as it looks, phishing scams are very effective and many people fall victim to this trick. The best way to avoid a phishing crypto scam is to avoid opening emails that you didn’t subscribe to or suspicious-looking emails.
The ‘pig butchering’ scheme
This is as awful as the name implies.
The pig butchering crypto scheme is usually aimed at dating or social media websites. The victim is usually lured by a beautiful or handsome person who gains their trust over time via online messaging.
The scammer shares details of a cryptocurrency project they’ve invested in and made yields on. The victim then invests or sends money into a crypto wallet. Of course, the money is lost as soon as it’s sent.
The ICO scheme
Initial Coin Offerings or ICO are usually done at the birth of a new cryptocurrency. They provide the opportunity for individuals to invest in/own a stake in what could potentially become the next Bitcoin or Ethereum.
Ordinarily, an ICO is risky as no one can determine the future of a token. But these scams make it impossible for investors to make any money from the project they invest in.
They usually come in two ways; A fake ICO or a clone of a real ICO.
In the fake ICO, hackers create a fake token, promote it far and run away with whatever investments are gotten.
The second scheme involves imitating an actual ongoing ICO.
Hackers will clone, imitate and match the campaign of another cryptocurrency and lure investors into their website. The unsuspecting victim, convinced that they are investing in the right project, ends up losing their money to the scammers.
How to spot these scams
If it’s too good to be true, it probably is: Like we were taught, it’s a major red flag if it doesn’t make sense but it is profitable to you. Therefore, you should always do your research before investing in a project. Here are a few tips:
- Read the whitepaper to understand what the project intends to do.
- Look up the team behind the project. Are they well known or popular within the crypto community?
- Avoid crypto projects that offer unrealistic returns on investment i.e. 50% returns in one month.
Suspicious or vague whitepaper: A white paper holds all the information needed to make a wise investment decision. These documents explain how the project will work and is crucial for an Initial Coin Offering. You should probably steer clear if the project whitepaper isn’t convincing or doesn’t even exist.
Excessive hype: Although promotion is an important part of marketing, one must watch out for overhyped crypto projects. As seen above, most scams kickstart with a lot of publicity, only to end up as duds. If you feel that the marketing for a crypto offering seems heavy-handed or makes extravagant claims without backing them up, pause and do further research.
Hidden or unnamed founders: Like all scams, anonymity is an important element. It is usually easy to find the founders of any project. If you can’t find out who is running a cryptocurrency, be cautious.
Did you enjoy today’s newsletter? If yes then share this information with your friends and family so they don’t fall into potential crypto scams. That way, you avoid the potential headaches that come after they’ve fallen victim to a crypto scam. There is a lot of misinformation about crypto and you’ll be contributing your quota towards ensuring a safe crypto space by sharing this article.
