As the popularity of cryptocurrency is soaring, so are the scams related to it. Many fall victims to these scams. Cryptocurrency-related crimes surged 79%, hitting an all-time high in 2021, amounting to roughly $14 billion. As inflation surges, many have taken refuge in cryptocurrency and have started trading. These types of people or users are potential victims of cryptocurrency scams.
The biggest chunk of these crypto crimes was taken by crypto scams, while the second leading cause of loss was stolen funds, mostly taken from cryptocurrency businesses.
As part of the growing global financial ecosystem, digital assets play a huge role. In 2021 the total cryptocurrency volume surged by 567% to the tune of $15.8 trillion. Since cryptocurrency trading is quite lucrative, it is always best to be a step ahead of rampant scams in the cryptocurrency market.
Since crypto scams are fairly common, here are a few scams that you should be aware of in 2022:
‘Pig Butchering’ Crypto Scam
Some of the top crypto scams have very colorful names; however, for victims of this scam it is nothing but a serious issue. These people have lost their savings and are mentally traumatized.
This type of scam is quite common on online dating sites, where the victims, also proverbial called “pigs,” are lured by the scammers who fatten them up over a short period online, winning the “pigs” confidence and continue to fatten them up until these scammers slaughter them.
The scammers lure the victims with attractive photos on dating sites. Once a victim falls for the lure, the scammers gradually try to win the trust. These scammers are so persuasive that a person with no prior knowledge of cryptocurrency will show interest. These scammers then guide them into investing in a legit cryptocurrency exchange. Over a period, scammers start encouraging the victims to invest in cryptos periodically.
At this point, the victim has made tremendous progress. The scammers then make excuses and convince the victim to transfer their crypto holding to a fake account. Once the victim transfers the money to the link provided by the scammers, the victim has lost the money for good.
The scam is said to have originated in China and has a long history.
‘Pump and Dump’ Scam
Although pump and dump scams are not unique to cryptocurrency, but without the same level of regulation as equities traded on major U.S. exchanges, the wild west of finance is rife with fraud, including the pump-and-dump scam.
Such scams do occur in the stock market in penny stocks which are identified by a small group of insiders owning a given asset. These insiders will artificially hype the price of the intended stock by spreading rumors. Then, once the stock prices are sufficiently high, they are sold by these insiders, making a massive profit as they exit the market.
Similarly, in the case of cryptocurrency, a group of small individuals owning specific crypto will be hyped up through publicity in the form of promotional activities, on social media platforms, or word of mouth.
The unknown victims start violently investing in that specific cryptocurrency which is publicized by these groups of individuals owning the same cryptocurrency. These insiders will then sell or “dump” crypto once they hit a high price. Thus these insiders make a considerable profit, and many are duped.
A similar incident occurred in June 2021, when some members of one of the world’s most popular esports organizations, FaZe Clan, were involved in promoting “Save the Kids,” a new cryptocurrency, with a portion of the earnings promised to charity. In just a few days, the coin dropped in a matter of days, and members of FaZe who were involved in the launch were either suspended or expelled from the group, which distanced itself from their activities.
Some investors blamed the group for taking part in a pump-and-dump activity dismissing the team member’s tweet that stated he had “no ill-intention” while promoting the cryptocurrency.
‘Rug Pull’ Scam
Another popular cryptocurrency scam is when the cryptocurrency’s promoters pump their new coin into the market and inflate the price. Then, they sell these coins before disappearing and leaving the investors with worthless tokens. This is true for coins with no fundamentals or future.
However, the scam looks like a pump-and-dump scam; there is only one difference in reality. The rug-pull scam promotes the new coin the same as the pump-and-dump scam. The only difference is that this scam does not allow non-insider owners to sell the coin. The token is coded so that it only allows the insiders to exit. There are numerous ways in which insiders pull off these scams related to cryptocurrencies.
In late 2021, the rug-pull scam received much attention when a new cryptocurrency was named on a popular Netflix Inc. series, the “Squid Game,” where the winner emerges with riches after all the constants are killed.
The SQUID token was selling at one cent on inception, and then its value shot through the roof suddenly, trending at $90; it immediately dropped to zero when the scammers “rugged” the masses.
‘Airdrop’ Crypto Scam
Another cryptocurrency scam prominent in decentralized finance or DeFi is called an airdrop.
Many scammers have taken advantage of investors, luring them towards the airdropping tokens, which typically initiate and grow a grassroots community. Airdrop literally means dropping tokens into your wallets to complete specific tasks with a given software or platform.
The scam works when you trade an airdropped token for a more well-known token, and you are giving a protocol more permissions than you expect, allowing hackers access to all of the assets in your wallet. The simplest way of avoiding such scams is by denying an unknown user access to your wallet.
One of the oldest and most common cryptocurrency scams is phishing, which is not restricted to cryptocurrency, just as pump-and-dump is not restricted to crypto. This scam works by enticing the victim and revealing sensitive data like date of birth, SSN, password to your account, etc.
As the scammers use your revealed account details to hack into your bank account, scammers here ask for your private keys, allowing them access to your crypto wallet. Scammers entice their victims by sending emails that are generally impersonated by a higher authority or making the victim believe that they have difficulty accessing their bank accounts.
You mustn’t entertain such emails or messages on a social media platform. Please do not give in to their sad story and fall victim to greed. There is a 100% chance that scammers are hoping to make you their next target by sending emails and messages.
Double check the ID if the message comes from your friends and family; call them if possible. There stands a chance that their social media platform is hacked. It might be a painful process, but it will be worth it as long as your funds are safe.