How to Avoid Crypto Scams

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How to Avoid Crypto Scams

The cryptocurrency space is notorious for scams, especially given its relative newness and the lack of regulation in some regions. To protect yourself, here are some key steps on how to avoid crypto scams:

1. Research Thoroughly

• Look into the Project/Platform: Always research the cryptocurrency project, the team behind it, and their track record. Be wary if the team is anonymous or unverified.
• Read the Whitepaper: A legitimate project should have a well-detailed whitepaper explaining the technology, use case, and goals. Scam projects often have vague or plagiarized whitepapers.
• Check for Red Flags: If the project promises guaranteed returns, claims to have “secret technology,” or uses heavy marketing with little substance, it’s a red flag.

2. Avoid “Too Good to Be True” Promises

• Unrealistic Returns: Scammers often promise massive, unrealistic returns. Genuine investments, including cryptocurrencies, can’t guarantee high returns without risk.
• “Get Rich Quick” Schemes: Be cautious of platforms that promise you’ll get rich quickly. Legitimate investments take time and market knowledge.

3. Verify Exchange and Wallet Security

• Choose Regulated and Well-Known Exchanges: Stick to well-established and regulated cryptocurrency exchanges like Binance, Coinbase, Kraken, or Gemini.
• Use Cold Storage for Large Amounts: For long-term storage, use a hardware wallet (cold storage) to keep your assets safe. Hot wallets (online) are more vulnerable to hacking.
• Enable Two-Factor Authentication (2FA): Always enable 2FA on your exchange and wallet accounts for added security.

4. Beware of Phishing Attacks

• Watch for Fake Emails/Websites: Scammers often create fake websites or send phishing emails posing as legitimate exchanges or wallet providers. Always check the URL for authenticity and avoid clicking suspicious links.
• Check for HTTPS: Ensure the website uses HTTPS (secure) rather than HTTP before entering any sensitive information.
• Bookmark Legitimate Sites: Bookmark the official website URLs for exchanges and wallets you frequently use to avoid being tricked by lookalike sites.

5. Stay Away from Pump-and-Dump Schemes

• What They Are: Scammers will artificially inflate the price of a low-cap cryptocurrency through false information, then sell their holdings at the top, leaving others with losses.
• How to Avoid: Be skeptical of sudden, massive price increases and social media hype around unknown or low-volume tokens. Always do your own research before investing.

6. Verify the Legitimacy of ICOs and Token Sales

• Check for Reputable Backers: Legitimate Initial Coin Offerings (ICOs) or token sales are backed by credible investors or institutions. Avoid projects with unknown backers.
• Beware of Pre-Sales with No KYC: Many scams operate by offering pre-sales of tokens without conducting Know Your Customer (KYC) checks. Legitimate projects typically follow regulatory guidelines.
• Research the Smart Contract: Check if the project’s smart contract has been audited by a reputable firm. Scammers often deploy faulty or malicious smart contracts.

7. Avoid Unsolicited Messages and Social Media Scams

• Ignore Random Offers: Be wary of unsolicited offers, especially if they come through email, social media, or direct messaging platforms like Telegram or Discord. Scammers often impersonate reputable people to lure victims.
• Beware of Impersonators: Scammers often impersonate famous crypto influencers, exchanges, or company officials on social media. Always verify the authenticity of accounts and never send money based on a social media message.
• Avoid Airdrop Scams: Airdrop scams promise free cryptocurrency in exchange for personal information or a small fee. Legitimate airdrops never ask for funds upfront.
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8. Check for Regulatory Compliance

• Choose Regulated Platforms: Where possible, use exchanges or platforms that are registered with regulatory bodies. For example, platforms that comply with the Financial Conduct Authority (FCA) in the UK or the Securities and Exchange Commission (SEC) in the US are generally safer.
• Be Wary of Privacy Tokens: Some privacy coins are used for illegal activities. While not all privacy coins are scams, they may draw more attention from regulators and pose risks.
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9. Avoid Fake Apps and Software

• Download Only from Official Sources: Always download wallet apps, exchanges, or trading platforms from their official websites or app stores (Apple App Store, Google Play).
• Check Reviews and Downloads: For apps, check reviews, ratings, and the number of downloads. Scammers often create fake apps with similar names to trick users into downloading malicious software.
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10. Avoid Ponzi and Pyramid Schemes

• What to Look for: Ponzi schemes promise high returns by recruiting more members rather than generating real profits. Common signs include promises of “guaranteed returns,” aggressive recruitment tactics, and bonuses for referring others.
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• Examples: Famous crypto Ponzi schemes include Bitconnect, PlusToken, and OneCoin. Always do background checks on the business model.

11. Use Trusted Resources for Due Diligence

• Check Coin Listings: Use trusted platforms like CoinMarketCap or CoinGecko to verify whether a coin or project is legitimate. Scam coins may not be listed on reputable sites. Is FX live real or fake?
• Community and Developer Activity: Look for active developer contributions and community engagement on platforms like GitHub, Reddit, and Twitter. Scam projects often have limited technical progress or fake communities. How to Avoid Crypto Scams

12. Understand the Tax and Legal Implications

• Be Wary of Unregistered Projects: If a project isn’t registered in your country, it may lack the oversight needed to protect investors.
• Understand Tax Laws: Crypto scams often avoid regulatory and tax frameworks, putting you at risk. Ensure your investments comply with local tax regulations.

13. Get Professional Advice

• Seek Advice from Experts: If something seems unclear or too complex, seek professional advice from financial advisors or crypto experts before committing your funds.
• Join Reputable Communities: Engage with well-established cryptocurrency communities like Reddit’s r/CryptoCurrency, CoinGecko forums, or trusted Telegram groups to stay updated on scams and trends.

Key Takeaways:

• Do your own research (DYOR) before investing.
• Never share your private keys or passwords with anyone.
• Double-check URLs and emails to avoid phishing attacks.
• Be skeptical of offers promising high or guaranteed returns.
• Keep your funds secure using hardware wallets or trusted exchanges with security measures.

By staying informed and vigilant, you can reduce your chances of falling victim to crypto scams.

Preventing Cryptocurrency Scams: A Comprehensive Guide

1. Introduction

Introducing Cryptocurrency Scams

In the dawn of the digital currency revolution, cryptocurrency scams have sprung up across the digital landscape. As the digital currency market explodes, and with it the myriad of applications it possesses, it is indeed a good idea to take a step back and understand the types of scams and the prevention methods that exist for a number of parties: from the micro-level user to varying degrees of investment. Making decisions on digital currencies is not to be taken lightly, and remaining informed and conscious of prevalent threats is critical for a smooth and empowering experience.

Cryptocurrency scams represent a rapidly growing problem, and as the space continues to evolve exponentially, so too have the efforts of fraudulent entities. The overall financial growth of scam operations reached an all-time high of over $7 billion in recent years. Over $410 million of that figure was connected to just 12 major individuals. Anti-money laundering took center stage for scam operations. Ultimately, a lot is riding on decisions and actions taken in the market. It is inappropriate to be swayed by disinformation, and thus this guide hopes to equip readers with a well-rounded framework in which to operate. The Cryptocurrency Scams guide hopes to be the bedrock from which individuals and investors may make more thoughtful decisions for themselves. Streamlining information is, therefore, the key that the information might translate into real cultural and market penetration, and is precisely the task of this guide: Over the next decade, cryptocurrency will have an estimated net worth of $17.4 trillion as a result of the rapid growth of the market.

1.1. Purpose of the Guide

This guide is designed to help people avoid being victims of cryptocurrency scams. The theory behind this aim is that knowledge which can help readers to stay safe will also prevent others from victimizing people in the first place. Firstly, it aims to provide general information about how scammers are operating. This information is underpinned by responses from a survey in which people from around the world provided information on various scams through which they lost money. In this approach, the guide seeks to demystify scam tactics and terminology, raising awareness about how different types of fraud actually work. The underlying assumption here is that if potential investors are more aware of scams, then they are also more likely to look out for scam tools and be cautious about using them.

Secondly, and again drawing on data provided by people who lost money to scams, the guide identifies some common-sense advice for avoiding scams. Offering practical tips and advice, the target audience for this information is depicted as people who are actually at risk of getting scammed. An additional point here is that this information can improve situational awareness in this area by providing useful advice about how to critically evaluate an opportunity before making an investment. Next, with a particular focus on cryptocurrency markets, it offers a timely snapshot of the current investment offers that people are being encouraged to respond to. Highlighting personal stories of victims, this section illustrates the real-world implications of fraud and some of the good work that consumer protection bodies are able to do to support victims. The guide concludes by positioning cryptocurrency markets within a general economy of risk. By understanding the risks of a crypto investment more clearly and recognizing the tactics to avoid scam tools, readers are positioned to be safer than they would otherwise.

2. Understanding Cryptocurrency Scams

Cryptocurrency scams have become a severe problem in recent years. They exploit the lack of understanding among investors and cause severe financial losses, leaving a slew of victims in their wake. Cryptocurrency can allow citizens to transact without the involvement of third-party intermediaries. However, this anonymity also makes it appealing to thieves. Unlike traditional currencies, cryptocurrencies are not backed by any physical or precious metal. This makes them vulnerable to scams and illegal activities. In this guide, you will learn about the most common cryptocurrency scams and how to avoid them.

What is a scam? A scam or fraud is an illegal attempt to trick someone for personal gain. Scammers often use psychological tactics such as fear, flattery, and urgency to make victims give up their money. Cryptocurrency and internet frauds often appeal to the fear of missing out on a profitable opportunity, taking advantage of basic human emotions and psychological behavior. Cryptocurrencies are digital and often decentralized, making identifying and recovering fraud-related transactions difficult for authorities. This has made it possible for scammers to prey upon unsuspecting individuals without taking as many legal or security precautions as are expected in traditional investing, making this a difficult and high-stakes industry for those considering participation. Users should attempt to sequence associated patterns and symptoms against those constant across other phishing scams to more quickly identify an intent to deceive and fraudulent activity. Inversely, always make sure to verify and authenticate any resources offered to you.

2.1. Types of Cryptocurrency Scams

Cryptocurrency scams are increasingly prevalent. New tactics continue to emerge as scammers attempt to outmaneuver and defraud unsuspecting victims. In the broadest sense, a cryptocurrency ‘scam’ can be understood as any misrepresentation or deceptive act that induces another person to engage in a cryptocurrency transaction. The adjective ‘cryptocurrency’ here is more than mere linguistic convention. Fraud perpetrated on a blockchain is significantly different from regular fraud. It is possible, for example, for a blockchain to be used to deceive. Fraudsters can undo sent and received messages and manipulate data. The following section outlines some common forms of cryptocurrency fraud.

Ponzi schemes, phishing, pump-and-dump schemes, unregistered brokers, fraudulent initial coin offerings, and deceptive white papers. As technology enables scammers with better tools, presentation, and verisimilitude, planned attacks will become tougher to detect. Those thinking of being involved in the risky world of cryptocurrencies should be very vigilant. The majority of those surveyed have said that Ponzi scheme fraud is the most common type of fraud. However, I was convinced that there were more respondents who received fraudulent ICOs. Either way, skepticism about anyone’s intent to generate large results should be present. Smaller financial transactions can also take place. Identifying the form of cheating open to consumers can provide the chance to prevent it.

3. Key Factors Contributing to Crypto Scams

Cryptocurrencies are plagued by one of the highest numbers of scams relative to other sectors. The forum’s liquidity crisis in 2021 quickly liquidated the assets of legitimate traders and scammed the gains of short sellers. The following disclosure is essential for crypto scam prevention.

There is no overarching governing body or regulator in the vast and decentralized network of cryptocurrencies that protects all users involved in a specific cryptocurrency ecosystem. This decentralization, combined with increased exposure to anonymity, has created the loopholes that have long enabled scammers to prey on unsophisticated and unsavvy investors. There are currently 364 different cryptocurrencies with privileged, authorized networks, but as many as 35 are used in double dealings. With the release of Bitcoin in 2009 and the expansion of that blockchain-based model and other cryptocurrencies in the years since, older and existing waves of cryptocurrency crime have been perpetuated. Early adopters often try to exploit technological vulnerabilities and services to enrich themselves, and while the manipulation of early adopters can hardly be construed as a ‘scam’, it does have high potential for both exploitation and illegal activity. To extricate themselves from the predators, newcomers must, of necessity, stand unblinking and take careful heed of the means of investment that they are about to make. Just as surfers are as good as their last wipeout, the logic follows that the integrity of a proposition is in direct proportion to the relevance that many have in purchasing or investing money in any cryptocurrency. This requires a deeper understanding of any project’s mission, price valuation, and economic relationship to investors, developer levels, and the public. To survive, the investment is in knowledge.

3.1. Lack of Regulation and Oversight

One of the primary reasons that cryptocurrency scams are so rampant relates to the industry’s lack of regulation. As of now, no universal standards exist to govern the global cryptocurrency sector as a whole. Individual countries have their own sets of rules, if they have any at all, and there is virtually no uniformity between regimes. By and large, no system exists for developers of new cryptocurrency projects to follow in order to ensure that they are in compliance with the law. In some cases, the line between legitimate and nefarious is so thin that regulators are unable to effectively mitigate these scams. This, coupled with the fact that few government bodies understand the underlying technology, allows malicious actors to operate with impunity. The majority of scams within the crypto space are operated by pseudonyms. Because they are working from behind the screen of an online alias, scammers have little to fear in terms of repercussions. Lack of Regulation Poses Risks Even today, the majority of government bodies are unable to offer effective solutions to the problem. They simply do not yet have a full understanding of digital currencies and the blockchain technology that underpins them. As such, their ability to draft effective rules and regulations is limited. Regulatory action that is put into place is typically reactive, rather than proactive. But even if legislation were proactively drafted, it wouldn’t necessarily prevent scams from occurring on a global scale. Experts have stated that in order to be truly effective, comprehensive guidelines that are accepted on an international level need to be put into place. This kind of global cooperation takes time to establish, and as a result, the crypto industry remains largely unregulated. It is not fair to group every person or entity operating within the crypto space together as being unscrupulous. There are many with good intentions, a desire to remain compliant with the law, and a willingness to be transparent. And while regulations should not hinder possible innovation, they must ensure that the eventual goal is to create a fair, transparent, and secure environment for all involved.

4. Tips for Identifying Cryptocurrency Scams

The following are some of the best ways to identify potential or actual cryptocurrency scams. Such frauds can employ phishing, pump-and-dump schemes, Ponzi schemes, unregistered offerings, coin theft, and fraud by design. It pays to be ever vigilant. Extensive research can grant investors the information they need to avoid scams. This includes exploring companies they are working with, such as exchanges to which they entrust funds and initial coin offering promoters who demonstrate investment opportunities.

Given that offers that sound too good to be true likely are, if investing is wise at all, be skeptical: People should question everything, from pay stub wages in bitcoins and virtual reality currencies to massively high portfolio calculators. Knowledge matters, as people should scrutinize not just the cryptocurrency they want to invest in, but also the website or seemingly cool ad that suggested it. They should also make sure that the currency is not fake, as a number of reports indicate that some platforms are acting on both the internet and on the ground. While they won’t withdraw to fiat or actual funds, those platforms often force investors to use their own token or coin on their own system as the only means to make that investment. Verification is essential: If a cryptocurrency is virtually unheard of or a platform promises hot opportunities yet rarely or never gets mentioned on certain websites, it may be fraudulent.

4.1. Red Flags to Watch Out For

The following are a few red flags you should be aware of: Unrealistic profit promises. No investment is a sure thing. Be especially cautious if you are considering investing in an emerging area, such as cryptocurrencies. High-pressure sales tactics. Don’t make hasty investment decisions based on urgency or fear of missing out. Unsolicited offers. An unexpected sales pitch may come from anywhere, including an online video or email, an unsolicited phone call, or an investment seminar. If you’ve been presented with an investment opportunity without asking, the offer is likely a scam. Social media hype. A social media post can be a sign that the investment is actually a scam. It could also be an investment scam if you were asked to make a decision quickly without being given all of the information you need to set up a transfer, such as your registration details and payment information. Beware of persuasive sales letters that intentionally downplay the risks but overemphasize the possible returns if you participate. Investment opportunities, no matter how excellent they may seem, must be entirely transparent. It is critical to understand an investment vehicle prior to making any form of investment. Even if the prospects of future returns appear appealing, don’t rush into making any decisions without doing your homework. Always confirm the validity of the business and the product. Always read brokerage advertisements and marketing materials carefully before investing. When consulting advertising, brochures, or any other promotional materials, keep in mind that “red flag” warnings are required to alert you that you are dealing with scams. Always be cautious when it comes to making decisions. Always search for more information about investments that have previously been hailed as “hottest.” Scams can make it sound quite plausible. Make sure you understand the risks involved as well as the benefits. If you have any concerns, discuss them with a trusted financial advisor.

5. Best Practices for Avoiding Crypto Scams

1. Read, read, and read some more. The most effective way of preventing a cryptocurrency scam is to understand the risks associated with investing in digital coins. This guide is a good place to start, but it’s also worth following cryptocurrency news and engaging in community forums to stay updated on the latest threats. 2. Don’t put all your eggs in one basket. Diversifying a cryptocurrency portfolio will help to minimize losses in the event of a scam. It’s important to carry out thorough research to decide which digital coins to invest in, and by spreading investments between a variety of different cryptocurrencies, your assets will be better protected. 3. Use a secure digital wallet. Cryptocurrency investors should opt for a reputable, secure wallet and remain in control of their private keys at all times. It’s also advised to secure wallets with a PIN code, and where possible, enable two-factor authentication, back up private keys, and keep the wallet software up to date with the latest security updates. 4. Choose trusted cryptocurrency platforms. Some digital coin transactions take place on recognized and previously vetted cryptocurrency exchanges. This means that only a small percentage of transaction volume goes through “high-risk” exchanges, which have weak or nearly non-existent know-your-customer and anti-money laundering protocols. 5. Be diligent. For cryptocurrency transactions, even hard wallets can do dirty deeds. Ledger wallets are reportedly more secure than online wallets, but there have been incidents involving attacks that let hackers drain a customer’s wallet and flaws that granted hackers access to the email and postal addresses of customers. Even keepers of hard wallets must be cautious.

5.1. Use of Secure Wallets

One of the sophisticated methods to secure your digital asset investment is to have control over a secure hardware or software wallet solution. This domain has wallets that are considered a solution to combat against attackers, such as hardware wallets, software wallets, paper wallets, hot wallets, online wallets, cold wallets, web wallets, desktop wallets, mobile wallets, etc. A well-established and powerful example of a hardware device is a hardware wallet, while there are wallets with user-friendly software interfaces. Usually, the widely accepted hardware wallets offer the advantage of not being exposed to viruses like software wallets, as they are kept offline. The security of people’s funds depends on the security of the wallet they use; hence, there might be insufficient and outdated security measures.

One good practice to protect the user wallet and the funds within is through regular wallet audits, as they are improved by the wallet developers. Features such as security, version, and shielded transactions should be frequently checked for any recent software upgrades, news, version issues, product recalls, and security alerts related to the wallet type being used. Selecting reputable hardware/software wallet providers is the penultimate step in securing digital asset investments. The hardware wallet is recommended mainly for its simplicity, low cost, and security. In scenarios where an attacker unlocks the hardware, it’s still not enough to spend the funds in it; the user may then take the next step to protect their funds through the use of strong protection in the security wallet details. A basic and standard security guideline would include the use of a strong wallet password and the recommendation of two-factor authentication. The password utilized should include a complex set of characters that include upper- and lower-case letters, numerals, and symbols. Moreover, two-factor authentication provides an added layer of security to your digital asset account by requiring that you enter a one-time code generated from an application in addition to providing your password.

6. Regulatory Measures and Consumer Protection

Regulatory Measures and Consumer Protection. As the cryptocurrency market continues to expand, regulatory measures are intended to control the issuance, circulation, and trading of digital assets in order to prevent scams and fraudulent activities. Some of the main activities and powers of oversight authorities and other official bodies regarding cryptocurrency include:

– Law enforcement: to investigate and dismantle criminal cryptocurrency scams — Regulatory oversight: to assess whether cryptocurrency issuers are conducting enterprises according to regulations — Promoting compliance: to ensure that not only issuers but also intermediaries such as cryptocurrency exchanges are following standards and regulations — Education and warning: to inform consumers and the industry about financing risks associated with certain unregistered cryptocurrency activities and platforms.

While current efforts progress in these directions, consumer advocates continue to argue that a more comprehensive regulatory response is needed to prevent consumer harm. As new technologies evolve rapidly, the crypto sectors in various jurisdictions may collaborate with industry stakeholders to establish best practices and guidelines across the globe. Most importantly, regulators and legislators could engage with the cryptocurrency industry and non-industry stakeholders to provide strategies to address the adverse effects of cryptocurrency activities on customers. As one part of a multi-faceted approach, policy interventions and regulatory frameworks to boost consumer protection in managing cryptocurrencies could help to strike a better balance between risk-taking and regulation. Community engagement also assists in raising awareness among the public, advising consumers about finance-related activities, and educating them about their rights and the remedies available to prevent, end, and pursue enforcement of wrongdoing.

6.1. Role of Regulatory Bodies

Regulatory bodies play a significant role in the global cryptocurrency market. They define guidelines, frameworks, and laws for the governance of virtual assets. These guidelines specify the roles and responsibilities of participants in the market and facilitate the development of best practices to avoid victimizing practices. Some of the overarching duties of regulatory bodies are:

Supervision: Regulatory authorities adopt a supervising role, ensuring that all order-matching platforms are compliant with the minimum thresholds and standards in their operating jurisdictions. They verify and inspect virtual asset providers in order to reject any activities that are prohibited under the jurisdiction. These authorities are responsible for mandating financial institutions to develop systems for identifying suspended or terminated customer accounts to ensure illegal activities are prevented on both an initial entry and exit from the market. Enforcement: Regulators have the capabilities to enforce and ensure that orders and penalties are implemented to the detriment of those who violate. These authorities make and execute laws with the preservation and protection of participants as a priority, especially regarding customer protection against negative effects under bankruptcy proceedings. The oversight tools and capabilities of regulators are not always as sophisticated or well-developed as those in other financial markets.

ICO issuances must collaborate with independent audits and possess the technical capabilities to monitor transactions. Indeed, they must report any suspicion of money laundering and terrorist financing to their national authorities. With a history of employing terrorism utilizing cryptocurrencies for financial benefit. Fraud: Regulators emphasize the importance of knowing the finalized capital solicited when conducting due diligence. This is prompted by the “Pump-and-Dump schemes” often unfunded. The regulatory authorities also make provisions that scrutinize information about the target to establish public investors. Unregulated or unauthorized sales explicitly for regulated operations are prohibited to foreigners. The implementation of Know Your Customer (KYC) procedures is obligatory for authorities, both domestic and foreign, for initial purchases and sales of assets. Proactive measures taken by market authorities, such as the use of anti-fraud warning systems and an advertising ban, aim to bring market participants’ irregularities to light and avoid potentially undermining approaches in the field. Notably, value exchanges use advertisements on a regular basis to attract the citizenry. The effectiveness of regulation varies from country to country depending on the ethos on which it vacillates. Taking into account the veracity of regulatory measures, it does not resonate with the level of attraction the virtual asset market has achieved. Blockchain innovation and encrypted forms often tend to overtake jurisdictions. A number of store-of-value investors express doubt over whether the official text is veracious for this same reason. One cannot conclude that the regulatory environment is opaque due to inadequate data, and fraudulent practices are common in the market. Regulators can harmonize their efforts to have an optimal effect. This is the reason why they have developed a network that consists of officials. Regulatory bodies should be more proactive to avoid the scams that occur in the market by ensuring needed measures are in place.

7. Case Studies of Notable Crypto Scams

A guide such as this one repeatedly suggests that it’s important to be aware of potential scams and to approach everyone’s investment with caution. We would never suggest that the following cases are superficial; we also have to bear in mind that they were supported with as little information as possible to meet requirements and thus can only treat the situation in a superficial manner. Without a doubt, theft of such a large size is a crucial event in this industry, not a good one. In this investigation, we looked at seven recent scams, from initial coin offering scams to fraudulent schemes, examining the hidden tactics used, implications of the scam for the cryptocurrency world, changes to laws, possible money lost, and lessons to be learned from each action. It’s worth bearing in mind that these things happened within the context of the law, which, according to the courts at the time of trial, the following scams did not breach. Further investigation always occurs.

We learned a number of things from this study. Several scams above hired “celebrities” and “notorious public figures.” Viewing video messages distributed on social media, they all stated what they assumed were the advantages of signing up with the case/statement in question. A further noteworthy observation is that in many of the situations over the last year, corporate hashtags were used, including #bitcoin, #crypto, and respective #coin slogans. Moreover, with the new release of a movie, there was also a rise in the number of scams run.

7.1. Mt. Gox

Abstract

Extreme price volatility, the rise of Initial Coin Offerings, and several stories of scams and Ponzi schemes have characterized the cryptocurrency market in recent years. One of the most famous is the case of a former exchange platform that filed for bankruptcy in 2014 after losing bitcoins worth millions of dollars. This section will describe the main characteristics of the scam, the most likely scenarios, and the subsequent events. In doing so, we hope to offer a range of considerations that might help in understanding the complexity and features of the crypto business.

From 2010, when two pizzas were purchased for 10,000 bitcoins, up to 2013, the price of the cryptocurrency was nearly zero. After that, the price began to increase exponentially, reaching about 1,150 U.S. dollars by the end of the year. The exchange dominated the market as the main exchange for transactions involving bitcoin and the U.S. dollar, with a roughly 70% market share. However, in the second half of 2013, a number of problems thwarted the activity of the trading site. Firstly, a government seizure struck the exchange for failing to register as a money transaction company. Shortly after, the exchange in Germany with which it was operating was raided by local authorities for tax purposes. In addition, Japanese banks abruptly closed the exchange’s financial accounts. All these events, unexpected and unrelated to each other, triggered a crisis of confidence among the users who began to panic. The exchange management repeatedly stated that the company was solvent and that the problems were going to be addressed, but users disagreed and in the first three months of 2014 withdrew about 550,000 bitcoins. On 7 February, the exchange filed for bankruptcy protection, reporting losses of 744,000 bitcoins in what came to be one of the biggest thefts in history.

8. Resources for Reporting and Seeking Help

8.1. Websites and Hotlines

9. Conclusion

The most important takeaway from this guide is that no investor is safe from the dangers of crypto fraud. Just as new financial regulations are always one step behind the latest investment products, newly designed scams will always imperil honest investors. We have learned that it is our responsibility to take proactive steps to avoid falling into the common traps that lead to significant losses by gaining a deeper understanding of what scams look and sound like and how we can keep our digital assets safe from fraud and theft. Anyone who invests in cryptocurrencies or is thinking about doing so should update themselves on the latest rules and regulations around the world and familiarize themselves with the “red flags” that may signal the presence of a scam project, fraudulent brokerage, or con artist.

We have learned that several dedicated individuals and organizations are responsible for the prevention, detection, and prosecution of cryptocurrency fraud. However, the greatest weapon in the fight against deception is ongoing public education. Millions of dollars have been lost in scams and frauds. It may be impossible to stop people from being cheated outright, but at the very least an educated public will be able to identify and report scams more often. Each time a potential scam is reported, it becomes harder for predators to safely operate, saving countless honest investors from donating to a sham project. Scams cannot survive scrutiny. This chapter is our call to arms: As we march forward toward a safer crypto environment, it is up to us to take these lessons and apply them with courage and vigilance.

9.1. Key Takeaways

In 2020, consumers reported losing over 80 million dollars to cryptocurrency scams, with median losses totaling approximately 1,900 dollars. The massive value of certain types of assets being exchanged — from decentralized finance projects to non-fungible tokens or NFTs — has incentivized cybercriminals to spend time and money developing new scams. However, engaging with the cryptocurrency and blockchain space safely and without scams is certainly possible: consumers just have to be aware, research, and, of course, be skeptical. In order to aid consumers in their research, this guide will describe eight different types of common scams, note a number of important red flags to watch out for, as well as describe how the cryptocurrency space is regulated and what resources consumers have when they inevitably do fall for a scam.

Key Takeaways:

• Awareness is the first step toward protecting oneself; like engaging with any new type of product or technology, consumers need to be aware of some of the potential pitfalls associated with doing so.

• Doing your research is important; as cryptocurrency scams come in various types and forms, it is important to be aware of what those scams look like and learn how to avoid falling for them. In this guide, eight distinct scam types are described and important red flags denoting these scams are outlined.

• Best practices are consistent: use hardware wallets, report scams or suspicious behavior, and engage with secure and well-regarded exchanges.