In recent years, the cryptocurrency market has received a lot of attention, driving cryptocurrency adoption up at an increasing pace. Global cryptocurrency adoption has increased by 880% over the previous year and an estimated more than 300 million individuals are using cryptocurrencies worldwide.
However, as the public’s interest in cryptocurrencies grows, so does the number of scammers drawn to the crypto market. According to the Chainalysis Crypto Crime 2021 Report, scams accounted for the majority of all illicit cryptocurrency activity. At the same time, US’s Federal Trade Commission (FTC) received nearly 7,000 reports of cryptocurrency-related scams totalling more than $80 million between October 2020 and March 2021.
Cryptocurrency payments are non-reversible and rarely come with any legal protection (unlike credit card payments where chargebacks and disputes can be settled); it is extremely difficult to retrieve a scam victim’s funds once a cryptocurrency scam has occurred.
Individuals and businesses need to know what the common cryptocurrency-related frauds are:
Exchanging “Small Sums” for “Large Amounts of Funds”
Even though advance fee schemes are not new, cryptocurrency scammers are utilising this age-old confidence trick to defraud cryptocurrency holders. In essence, these schemes work by promising something of great value and getting the victim to part with a ‘small’ sum of cryptocurrency tokens.
For example, a scammer might contact a victim to inform him/her about a ‘prize’ that was won. However, for the victim to claim the ‘prize’ (which can come in the form of money, cryptocurrency tokens or physical items); the scammer will demand a small acceptance fee. After the acceptance fee is paid, the scammer will then cut off all contact and disappear with the fee.
Scams like this might also involve delivering misleading financial advice in addition to pretending that the victim has won a prize. From getting victims to put money in fake initial coin offerings (ICOs) to creating legitimate-looking tokens in preparation for pump-and-dump schemes or rug pull scams, advance-fee scams can come in a variety of forms.
Lookalike Websites and Phishing
Creating lookalike websites and applications is another way fraudsters trick unsuspecting victims. When victims access or download these imposter websites and mobile applications, these scammers will be able to collect personal information that they can use to steal funds. While victims nowadays are less likely to respond to a phishing email or text message with their passwords or seed phrases, the scammers often include official-looking website URLs to these imposter websites in their phishing emails. Since these URLs are often extremely close to the original URLs, victims are less likely to be suspicious and might log in to these imposter websites with their details.
Scammers can also create fake payment pages on these imposter websites and applications. When the victims are looking to pay for or invest their money (on what they believe to be a legitimate platform), these imposter websites will lead them to a payment page that transfers the funds to the scammer. Through this method, scammers can easily amass enormous quantities of money while remaining undetected.
While some might not think that cryptojacking is a fraud as no tokens of monetary value are stolen from the victim, cryptojacking can still be extremely costly to the victim because of the loss in computational power and increased electricity consumption.
Unlike other forms of fraud, cryptojacking does not include the stealing of funds. However, by baiting victims to click on malicious links, cryptojacking scammers can secretly use the victim’s computer power to mine cryptocurrency. Because of this scam, a victim might experience a drop in computational performance and a rise in electricity costs.
How to Protect Yourself From These Scams
In order to protect yourself from such scams, it is important to inspect emails and links before clicking on them. This will help prevent cases of cryptojacking and reduce the chances of you visiting an imposter website or downloading an imposter application. At the same time, schemes that sound too good to be true should also be avoided and treated as possible scams.
For businesses, having a rigorous KYC onboarding and security processes can also prevent cases of cryptocurrency-related frauds. With an identification verification setup and an automatic system that marks out external party emails, your business will be able to prevent cases of fraud from happening to you.