Introduce

At the present time, cryptocurrency is a very valuable asset to most criminals. Especially since cryptocurrencies are highly liquid, easy to transport, and virtually impossible to reverse once a transaction has been made. For that reason, there is a whole wave of scams (both classic ones that have existed for decades or new ones just for cryptocurrencies) that have flooded the digital world. 

In this article, we will learn about some of the most common forms of cryptocurrency scams.

1. Gift giving scam on social networks

It's amazing to see how generous people seem to be on social networking sites like Twitter and Facebook. Check the comments section of a highly engaged tweet and you're sure to see one of your favorite crypto companies or celebrities running a giveaway. giveaway. They promise that you just need to send them 1 BNB/BTC/ETH and they will send you back 10 times that amount! This sounds too good to be true, right? And it's true that they are not trustworthy, they are a form of fraud. And if you encounter situations like this, don't forget to question overly attractive offers!

It's hard to believe that someone running a legitimate giveaway would ask you to send them money first. On social networks, you should be wary of these types of messages. These messages at first glance appear to come from accounts similar to the ones you know and love, but this is part of the scam. With dozens of other comments thanking the account for its generosity - all of them are fake accounts or automatic reply robots of this trick.

Therefore, with messages like this, you just need to ignore them. If you truly believe they are legit, take a close look at the accounts and you will see the difference. You will soon realize that that Twitter or Facebook account is fake.

And even if Binance or any other organization decides to host a giveaway, legitimate organizations will never ask you to deposit money first.

2. Pyramid schemes and Ponzi schemes

Pyramid and Ponzi schemes seem a bit different, but we put them in the same category because of their similarities. The most easily identifiable feature of both of these scam models is that old participants often actively invite new members to join with promises of unbelievably large profits.

Ponzi model

In a Ponzi scheme, you may hear about investment opportunities with guaranteed profits (this is your first warning sign!). Often, you'll see this model disguised as a portfolio management service. In fact, there is no magic formula here - the “profit” you get is just other investors' money.

The organizer will take an investor's money and put it into a fund. The only cash flow into the fund comes from new participants. Older investors receive payments from newer investors' money, and the cycle continues as more new people join. The scam was exposed when there was no more new cash flow - payments to old investors could not be maintained, the model collapsed.

For example, consider a service that promises to give you 10% profit in a month. You can contribute 100 USD. The organizer will then attract another 'customer', who also invests $100. The scammer will use this newly earned money to pay you $110 at the end of the month. He would then need to get another customer on board, to pay the second customer. The cycle continues until the model collapses.

Pyramid model

In a pyramid scheme, participants have to work a little harder. At the top of the pyramid is the organizer. They will recruit certain people to work below them. Each of those recruits at their own levels and so on. As a result, you will have a huge structure that grows exponentially and branches as new levels are created (hence this model is called a pyramid).

So far, we have only described one chart for a very large (legal) business. But the pyramid scheme is different in the way it promises participants the revenues they receive for recruiting new members. For example, the organizer gives Alice and Bob the right to recruit new members for $100 each and collects 50% of the subsequent revenue from them. Alice and Bob could offer the same deal to the people they recruit (they would need at least two new people to recoup their initial investment).

For example, if Alice offers to sell memberships to Carol and Dan ($100 each), she will have $100 left over because half of her revenue must go to her boss. If Carol continues to recruit members, we'll see the rewards gradually increase - Alice gets half of Carol's revenue and the organizer gets half of Alice's.

As the pyramid scheme grows, senior members earn more and more money as distribution costs are passed from lower to upper levels. But because of exponential growth, the model is not sustainable for long.

Sometimes, participants are paying for the right to sell a product or service. You may have heard of some multi-level marketing (MLM) companies accused of implementing pyramid schemes in this way.

Promoted as blockchain and cryptocurrency projects, controversial projects such as OneCoin, Bitconnect and PlusToken soon fell into legal trouble. Users of these organizations have taken legal action, after accusing these groups of pyramid fraud.

Read more about: Pyramid and Ponzi Schemes.

3. Fake mobile applications

It's easy to miss the warning signs of fake mobile apps if you're not careful. Typically, these scams direct users to download malicious apps - some of which are fakes of popular apps.

When a user installs a malicious application, everything appears to work normally. However, these apps are specifically designed to steal your cryptocurrency. In the cryptocurrency world, there have been cases of users downloading malicious applications whose developers masquerade as a major cryptocurrency company.

When users are given an address to fund their wallet or to receive payments, they are actually sending money to an address owned by the scammer. Of course, once the money has moved, there is no undo button.

One thing that makes this scam especially effective is the app's ranking position. Despite being malicious, some of these apps may rank high in the Apple Store or Google Play Store, making them look like a legitimate app. To avoid being scammed, you should only download apps from the official website or from a link provided by a trustworthy source. You may also want to check the publisher's credentials when using the Apple Store or Google Play Store.

Read more: Common Types of Mobile Fraud.

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4. Phishing attacks

Even those new to the cryptocurrency space have certainly come across phishing scams. It is a type of scammer impersonating a person or company to extract the victim's personal data. This form of fraud can take place across a variety of mediums –  from phone calls, emails, fake websites to messaging apps. Among them, scams on messaging applications seem to be the most common in the cryptocurrency environment.

There is no universal script that scammers follow when they try to obtain personal information. They may send you an email telling you something is wrong with your trading account and asking you to click on a link to fix the problem. That link will redirect you to a fake website - which looks like the official website - and ask you to log in. This way, the attacker will steal your login information and possibly your cryptocurrency.

Often, scammers will lurk in a certain group specializing in cryptocurrency exchanges or exchanges, most commonly on Telegram. When a user reports an issue in this group, the scammer will contact the user privately, impersonating customer support or a team member. They will then prompt users to share personal information and backup phrases.

If someone knows your password, they will have access to your funds. Never reveal your wallet password (seed word) to anyone, including legitimate companies. To solve problems with your wallet your wallet password is not needed, so it's safe to say that anyone asking for your password is a scammer.

Regarding trading accounts, Binance will also never ask for your password. The same is true for most other services. The most prudent course of action if you receive an unwanted notification is not to interact with the notification but to contact the company through the contact information listed on their official website.

Some other security tips include:

• Check the URLs of the websites you are visiting. A common scam is for the scammer to use a domain name that looks very similar to the domain of a real company (e.g. binnance.com).

• Bookmark the domains you visit often. Search engines may mistakenly display malicious URLs.

• When in doubt about a message you have received, ignore it and contact the business or individual through official channels.

• No one needs to know your private keys or backup phrase.

Read more: What is a phishing attack? or Trivia about phishing attacks

5. Personal benefits

It is no coincidence that the word DYOR - Do Your Own Research - is often repeated in the cryptocurrency world.

Once you decide to invest, don't trust anyone or any recommendations about which coins or tokens are worth buying. Because you will not be able to know their true purpose. Not excluding cases, they have been paid to advertise a good ICO project or they have already made a large investment in these projects. This is true for strangers you've never met, and for famous, influential people you know. In reality, no project is guaranteed to be successful. Meanwhile, there have been many projects that failed miserably.

To be able to evaluate a project objectively, you should consider a combination of many factors. Everyone has their own approach to researching potential investments. Here are some general questions at first:

• How were the coins/tokens distributed?

• Is the majority of the supply concentrated in the hands of a few individuals?

• What is unique about this project?

• Are there other projects doing the same thing, and why is this one superior?

• Who is working on the project? Does the development team have a past track record?

• What is the community like? What are they building?

• Does the world really need this coin/token?

summary

Scammers have a variety of techniques to steal money from unsuspecting cryptocurrency users. To stay away from the most common scams, you need to be constantly vigilant and aware of the scam models they often use. Always check that you're using official websites/apps, and remember: if an investment sounds too good to be true, it's probably a scam.