Table of contents

• Introduction

• Social Media Giveaway Scams

• Pyramid and Ponzi Schemes

• Fake apps

• Phishing

• vested interest

• Summarize

Introduction

In today’s world, digital currencies have become a valuable asset coveted by criminals. Digital currencies are highly liquid and easy to transfer, and transactions are almost impossible to reverse once completed. As a result, a wave of fraud (including traditional fraud methods with decades of history and new scams specifically targeting digital currencies) has spread to a large area of ​​the digital field.

In this article, we’ll take a look at some of the most common cryptocurrency scams.

1. Social media giveaway scams

Nowadays, on social media platforms like Twitter and Facebook, everyone seems to be so generous that it’s hard to believe. If you check the replies to popular tweets, you’re sure to find that a cryptocurrency company or celebrity you like is giving away gifts. They’ll promise you that if you send them 1BNB/BTC/ETH, you’ll get 10x the money back! It seems like pie in the sky, right? However, pie in the sky is not to be trusted. Just by using this common sense, you can see through many of these scams.

Any legitimate giveaway is unlikely to ask you to send money up front. You should be wary of such messages on social media. These accounts may look similar to accounts you are familiar with, but this is just a scam technique. As for the dozens of thank you replies in the comments, these are also posted by fake accounts or bots, which is a routine for givingaway scams.

You should probably ignore these messages completely. If you really think they are real, you can look at the profile carefully and find the difference. You will quickly realize that the Twitter or Facebook profile is fake.

Even if Binance or any other organization holds a giveaway, you will never be asked to wire money upfront.

2. Pyramid and Ponzi schemes

Pyramid schemes and Ponzi schemes are slightly different, but similar enough that they are grouped together. Both types of scams require participants to use huge returns as bait to attract downline members to continue to join.

Ponzi scheme

In a Ponzi scheme, you might hear that a particular investment is a guaranteed winner (that’s the first red flag!). Often, the scam is disguised as a portfolio management service. There’s no magic formula at work, and the “profits” you receive are simply other investors’ money.

The organizer adds newly collected investor funds to the cash pool. The only cash inflows come from new entrants, and previous investors receive funds from new entrants. This cycle will continue as new entrants join, and when there is no more cash to maintain investors' returns, the scam will quickly collapse.

For example, if an organization promises a 10% return in a month, after you invest $100, the organizer invites another customer to invest $100. The manipulator uses this new money to pay you $110 at the end of the month. Then he needs to attract another customer to join and pay the second customer at the same time. This cycle repeats until the scam finally collapses one day.

Pyramid Scheme

In a pyramid scheme, participants need to do more work. The organizer is at the top of the pyramid and will recruit a certain number of people to work for them, who in turn recruit others to work for them, and so on, eventually forming a large structure that grows exponentially as new levels are created (hence the name "pyramid").

So far, we have only described an organizational chart, and large (legitimate) companies may also have such a structure. However, the difference in a pyramid scheme is that it promises corresponding benefits every time a new member is recruited. For example: the organizer promises that Alice and Bob have the right to recruit new members at a price of $100 each, and then they can get a commission of 50% of the profits of the new members. Alice and Bob can also tell the same profit rules to the people they recruit (they need to recruit at least two new members to recoup their initial investment).

For example, if Alice successfully recruits Carol and Dan as members (each at $100), she will only receive $100 in revenue, as half of her revenue goes to her upline. If Carol can also sell the membership, the revenue will cascade upwards - Alice gets half of Carol's revenue, and the organizer gets half of Alice's revenue.

As the pyramid scheme continues to grow, the promotion costs are transferred from low to high levels, and the income of senior members will increase, but because the growth rate is too fast, this model cannot be sustained in the long run.

Sometimes participants are required to pay a sum of money in order to be able to sell a product or service. You may have heard of certain multi-level marketing (MLM) companies being accused of operating pyramid schemes in this way.

In the blockchain and digital currency space, controversial projects such as OneCoin, Bitconnect, and PlusToken have come under fire, with legal charges brought by users for allegedly operating pyramid schemes.

See also: Pyramid Scheme and Ponzi Scheme.

3. Fake apps

If you’re not careful, it’s easy to ignore the warning signs on fake apps. Often these scams lead users to download malicious apps, some of which mimic popular apps.

Once a user installs a malicious app, everything may appear normal, but in reality, these apps are designed specifically to steal your cryptocurrencies. In the crypto space, there have been many such cases where users downloaded malicious apps from developers posing as large crypto companies.

In this case, if the user tops up or pays according to the given wallet, the money will be sent to the fraudster's address. Once the funds are transferred, there is no button to undo them.

Another reason these scams work is because of how the apps are ranked. Although they are malicious apps, some are ranked very high in the Apple Store or Google Play, giving the illusion of legitimacy. To avoid them, you should only download apps from official websites or links from reliable sources. When using the Apple Store or Google Play store, you also need to check the publisher's credentials.

See also: Common scams on mobile devices.

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4. Phishing

Even those who are new to the digital currency world are familiar with phishing. Phishing usually refers to criminals contacting victims by impersonating relevant individuals or companies to obtain their personal information and data. Phishing can be carried out through a variety of media, including phone calls, emails, fake websites, or social messaging apps. In the digital currency field, social messaging app scams are particularly common.

Fraudsters don’t follow a set routine when trying to obtain personal information. You might receive an email notifying you that there is a problem with your trading account and that you need to click a link to resolve it. This link will redirect you to a fake website that looks very similar to the original one and prompts you to log in. This allows the fraudster to steal your identity credentials and even cryptocurrency.

There is also a common form of Telegram scams, where some criminals lurk in the official groups of digital currency wallets or trading platforms. When they find that users report problems in the group, criminals will pretend to be customer service staff or team members to contact users privately and encourage them to share personal information and mnemonics.

Knowing your recovery phrase gives you access to your funds. Never, under any circumstances, reveal this information to anyone, not even a legitimate company. Your recovery phrase is not required to troubleshoot your wallet, so anyone who asks for it is a scammer.

As for your trading account, Binance will never ask you for your password, and the same is true for most other services. If you receive an unsolicited message, the most prudent thing to do is not to engage and to contact the company through the methods published on the official website.

Other safety tips include:

• Check the URL of the website you visit, scammers will often register a domain that looks very similar to a real company (such as binnance.com).

• Bookmark domains that you visit frequently, as search engines may display false malicious codes.

• If you have any questions about the information you received, please ignore the email and contact the merchant or customer service through official channels.

• No one needs to have access to your private keys or mnemonics.

See also: What is Phishing? or take our Phishing Quiz.

5. Vested interests

The acronym DYOR (Do Your Own Research) is a concept often mentioned in the field of digital currency, and it makes a lot of sense.

Before investing real money in digital currencies or tokens, you should make rational decisions and not blindly trust other people's advice. You can never be sure of someone's true motives. They may be promoting an ICO because they have received a bribe or have invested a lot of money. This applies to both strangers and influential celebrities. No project can guarantee a profit. In fact, most projects fail miserably.

In order to evaluate a project objectively, you should consider a variety of factors. Everyone has their own way of researching potential investments, but here are some questions to ask when you first start:

• How are coins/tokens distributed?

• Is most of the supply concentrated in the hands of a few users?

• What is the unique selling point of this project?

• What other projects are doing the same thing, and how does this one compare?

• Who is in charge of the project? Does the team have a good credit history?

• What is the community like for this project? What products are being built?

• Does the world really need this currency/token?

Summarize

Malicious actors have no shortage of techniques to steal funds from unsuspecting cryptocurrency users. To avoid falling for these common scams, you need to be vigilant and aware of the tactics. Check that you are using the correct official website/app. Remember: if an investment sounds too good to be true, it probably is.