Cryptocurrency investing offers new and exciting opportunities, but it’s also rife with scams and tech-savvy con artists. And, as the money invested in crypto grows, so do the scams.
“Crypto investments are the top type of investment scams reported to CAFC (the Canadian Anti-Fraud Centre).” This is the grim truth according to Jeff Horncastle, the organization’s acting client, and communications outreach officer.
In 2021 alone, 1,128 Canadians reported falling prey to cryptocurrency investment scams with crypto as the payment method, with losses amounting to about $38.5 million. Things are not looking good in 2022 either. In the first six months, over 1,000 Canadians were conned, with a total loss of nearly $35 million. And these are just the cases CAFC knows about. “It is estimated that less than 5% of Canadian victims report to the Canadian Anti-Fraud Centre,” says Horncastle.
Cryptocurrency scams are often intertwined with other types of scams. According to Horncastle, “In some cases, the scam starts as a romance scam and quickly turns into an ‘investment opportunity.’ Because suspects have gained the victim’s trust, it can lead to a high-dollar loss for the victim.” Here are the most common crypto scams and how you can avoid them.
Pump-and-dump, or rug pull
In a “pump and dump” or “rug pull” scheme, promoters of a cryptocurrency hype it up to boost demand, and when the price soars, they sell all their coins for a quick profit. Because they sell in large volumes, other investors get nervous and sell their coins, too. As panic sets in and the selling spreads, the value of the coin plunges. This makes the promoters rich and leaves many small investors “holding the bag,” faced with huge losses.
Giveaway scam, or 2-for-1 scam
In a giveaway scam, someone asks you to send cryptocurrency to their wallet address, with the promise of sending you double the amount. “Send me 1 token, I’ll send you 2 in return” is a typical overture.
This type of scam is especially effective during crypto bull markets when investors may be experiencing FOMO and the prospect of free crypto may seem too tempting to pass up.
Airdrop scams are a type of giveaway scam. In a typical airdrop, coin marketers give away assets like new crypto coins and non-fungible tokens (NFTs) in an effort to promote a project. To qualify, users may have to complete tasks like resharing social posts or creating an account. Once received, these assets need to be “claimed” in order to be sold.
For this, scammers may use airdrops as a ruse to lure people to a fraudulent website in the hope of collecting sensitive information, like the private keys to their crypto wallet. It’s much like those email scams that ask you to tap a link to sign into a bank account to receive a refund or wired money—same strategy, different currency.
Service provider support scams
Support scams are an internet-wide problem, and crypto is no exception. Con artists pretend to be representatives of crypto companies to trick their targets into parting with their money or revealing private information, such as passwords to their crypto exchange accounts or the private keys to their crypto wallets. With this information, they could rob you of your investments.
Scammers impersonate the staff of crypto services—such as decentralized apps (dApps), wallets, and exchanges—on community platforms and messaging apps such as Discord or Telegram. They create authentic-looking accounts to gain the trust of unsuspecting investors, asking for passwords, private keys, or remote access to their devices. Then they transfer the victim’s assets to their own accounts.