What’s a scam?
A scam occurs when an unethical individual or entity (a scammer) takes money from another person without their knowledge or consent.
The internet's ability to link the world has allowed people to innovatively connect and interact like never before. However, it's also enabled online scams to develop where these interactions can turn out to be bad experiences for one party.
But why do specific individuals and entities engage in scams? And why are there so many? Let’s understand why scams are so prevalent and outline the red flags you should look out for when interacting with others online.
Why are there so many scams in crypto?
Much like with the early internet or any other groundbreaking technology, cryptocurrency today attracts several scammers.
Cryptocurrencies exist on decentralized blockchain technology, which means they operate without the intervention of regulatory bodies like banks or governments. This is similar to the early days of the internet. Cryptocurrencies like Bitcoin (BTC) and Ethereum (ETH) function on their own blockchains with proprietary algorithms and protocols, making them completely decentralized.
Since cryptocurrencies lack a central authority, there aren’t any insurance policies or bodies to report if things go wrong. Blockchains are digital ledgers that record cryptocurrency transactions, making every transaction on the blockchain permanent and available for public viewing. However, the volatile nature of cryptocurrencies makes them high-risk, high-reward digital assets unless you opt for alternatives like stablecoins.
Common red flags
Cryptocurrency scams are often subtly disguised in ways that can take unsuspecting users by surprise. You can stay safe if you know how to identify a crypto scam before it takes place. Here are some common red flags to watch out for:
Fraudsters promising big returns
Hackers often ask users for a certain amount of money and offer guaranteed returns that are 10 times the initial investment. This deal seems too good to be true. That’s because it probably is.
Zero risk
Remember, high risk equals high reward in the crypto world. That’s because crypto’s volatility can lead to meteoric rises in value overnight—or they could go the other way.
Crypto scammers often promise zero risk in investment. This is an unrealistic claim for any investment, let alone crypto. If an entity claims dealing with them involves zero risk, they’re probably trying to scam you.
Extravagant offers
You may find messages from people offering you cars, money, travel, and other luxurious amenities to convince you that a crypto project has high returns. These money-making Ponzi schemes often result in scams, as materialistic gifts are easy to fabricate online, especially on social media apps and related platforms.
Suspicious founders
Any crypto platform that offers services or products should also be completely transparent. If you can’t find a founder or developer’s information, such as their website, contact information, and open-source data, it’s likely a scamming effort. It’s also important to be aware of founders with a history of scamming. Before participating in any exchange, it’s essential to do a background check on the other party to ensure they have an honest track record.
Promotions by sketchy influencers
The global influencer market is estimated to be worth approximately $24 billion by 2025. Social media influencers and celebrity endorsements have a lot of power in shaping consumers’ purchasing decisions. Similarly, scammers may pay influencers to promote their scams, trapping a social media influencer’s loyal following.
Various unethical influencers encourage this behavior and promote scams to earn quick money. As a result, you must double-check who you’re following and ask questions before buying something promoted by a social media influencer.
Types of scams
Scammers are constantly coming up with new ways of duping unsuspecting victims, so it’s important to familiarize yourself with the different methods scammers often use so you’re not caught off guard. Here are some of the more common types of schemes that you should be aware of when buying and selling crypto:
Stealing access to a wallet with crypto on it
To trade crypto, you need a crypto wallet. These are essentially digital wallets that store your cryptocurrency like you would store credit cards in a regular wallet. You need a private key or a seed phrase to access your digital currency. However, some crypto wallets also exist offline.
Some fraudsters may try to hack your crypto wallet and other private information to gain access to your cryptocurrency funds. As a result, you must never share your private key with anybody or leave it lying around unsafely. Additionally, employ security methods like two-factor authentication (2FA) for extra protection.
Having someone send crypto directly to another entity
Scammers may try to deceive other individuals or entities you trust and steal cryptocurrency from you as a form of extortion. They do their research and track you for long periods before setting up detailed profiles and asking you for money. They may even impersonate to trick people into believing they're interacting with reputable entities like the government, nonprofit organizations, customer support, or even a friend.
Making a user buy a product or coin
Fraudsters may ask you to pay hefty amounts upfront for enticing, extravagant offers. Once you pay the amount, the other party will disappear with your money, making it impossible to track them or recover their steps. Since most crypto trading platforms are decentralized, filing a complaint or recovering your money through an accountable body is impossible.
The usual suspects
Several scams share similar characteristics. These scams are named to make them distinct and easily recognizable to the average user. You're likely being scammed if you notice the following behavior or traits:
- Phishing: Crypto wallets are a common target for phishing schemes, where fraudsters target a user's private keys to gain access to their funds. Phishing scams involve a hacker setting up a fake website or "phishing pages" through emails or hyperlinks. When you enter your personal information—like your private key—the hacker's computer records your input, and the data ends up in their hands. The hacker then gains access to your account and steals all your funds.
- Rug pulls: A rug pull occurs when a developer releases a new coin or token and creates a lot of hype around it to get people to buy in. This hype creates high traffic volumes, allowing the developers to increase the crypto’s price. These coins are often part of limited sales to increase their value. Once the developers are satisfied with the number of crypto investments and the money brought in, they simply disappear without a trace.
- Fake giveaways: Scammers set up elaborate giveaways and offer attractive prizes and crypto rewards for those who participate. However, these giveaways come with a catch: You have to “sign up” for the giveaway by paying a certain amount or offering some information. These scams will often make it mandatory for you to share the giveaway with a friend or post a picture on social media to be eligible, thereby increasing awareness and pooling in more unsuspecting users.
- Job offers: Hackers pose as fake recruiters who post online job openings or message people to “start training” for a position at their company. These fake recruiters often offer lucrative salaries and benefits if you pass the selection process. However, they may ask you to pay a small fee in crypto or provide personal information to add to the company’s fake database.
You should be aware of these common practices in crypto scams. If any entity—individual or business—asks you for information or money, it’s likely a scam. Never believe claims that pose as “once-in-a-lifetime” offers. Remember that offers that seem too good to be true usually are!
How to protect yourself
We’ve gone through the types of crypto scams and some common red flags you should look for when trading crypto. Let’s recap with some essential takeaways:
- Never share your private information with anyone, especially your private key or seed phrase. No legitimate organization will ever ask you for such information.
- Set up 2FA for all your accounts. Additionally, ensure you write down your private key on paper and store it safely offline.
- As a decentralized ecosystem, separating the real from the fake can be a little challenging. There are thousands of cryptocurrencies and hundreds of cryptocurrency exchanges online. As a result, it’s essential to do your research before buying and selling crypto.
- Don’t trust social media influencer marketing and screenshots that scammers can manipulate and fabricate.
- Always double-check grammar on links and ads!
- Keep this list handy; you can always return to it to ensure you’re using best practices to safely buy, sell, and store crypto.
Speaking of legitimate organizations, what if we tell you that a new crypto company aims to give everyone on the planet a share of its crypto for free? That’s right. At Worldcoin, we aim to maintain users’ privacy and anonymity.
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