Content

  • Introduction

  • Social media scam

  • Financial pyramids or Ponzi scheme

  • Fake mobile apps

  • Phishing

  • Fraud involving or imitating real famous personalities or projects

  • Conclusion


Introduction

In today's world, your cryptocurrency is an incredibly valuable asset for criminals because it is liquid, portable, and once a user makes a transaction, it is almost impossible to reverse. The result of such properties has been a new wave of scams (both in the form of long-standing classics and completely new scams unique to cryptocurrencies) that have swept the world of digital currencies.

In this article, we will look at some of the most common types of cryptocurrency scams.


1. Social media scams

Nowadays, it is surprising how generous individuals are for likes on Twitter and Facebook. Check the replies to a high-engagement tweet and you'll see that one of your favorite crypto companies or influencers is hosting a giveaway. If you send them just 1 BNB/BTC/ETH, they promise to give you back 10x that amount! It seems too good to be true, doesn't it? Unfortunately, this is one of the most common types of fraud.

It is extremely unlikely that anyone is running a real giveaway that requires you to send your money first. On social media, you should be wary of messages like this because they may come from accounts that look exactly the same as the ones you know and love, but that's part of the trick. As for the dozens of replies thanking the specified account for their generosity, these are simply fake accounts or bots used as part of this giveaway.

Suffice to say, you should just ignore it. If you are really sure that a given giveaway is real, take a closer look at the profiles and you will notice obvious differences between them. In reality, the Twitter post or Facebook profile will turn out to be fake.

Even if Binance or any other organization decides to hold this event, real representatives of the company will never ask you to make a transfer of funds first.


2. Financial pyramids or Ponzi scheme

Pyramid schemes and Ponzi schemes are slightly different, but we put them in the same category because of their similar operating principles: in both cases, the scam is based on people recruiting new participants with the promise of incredible profits.


Ponzi scheme

A Ponzi scheme will tell you about an investment opportunity with a guaranteed return (that's the first red flag!). In most cases, this fraud is disguised as a service for managing a portfolio of financial assets, but in reality, there is no magic formula, because the “income” received by such an organization is simply the money of other investors.

The organizer takes the investor's money and adds it to the pool, where the only influx of cash comes from new participants. Old investors are paid off by new investments, and this cycle can continue as more newcomers join. The scheme collapses at the moment when funds stop flowing into the pool, because at this stage it is simply unable to provide payments to old investors.

Let's take for example a service that promises a 10% return on investment per month, you could invest $100 there. The organizer then looks for another “client” who will also invest $100. Using the money he recently acquired, he can pay you $110 at the end of the month. He would then have to attract another client to pay the second one. The cycle continues in this rhythm until the inevitable collapse of the scheme.


Financial Pyramide

A pyramid scheme requires a little more work from those involved. At the top of the pyramid is the organizer, and the members below him will have to recruit a certain number of people to work at the level below them, and each of these people will recruit their own number of people, etc. The result is a massive structure that grows exponentially and branches out to create new levels (hence the term pyramid).


example of a pyramid scheme


At this stage, we are looking at a system that may seem like a typical scheme for a very large (legitimate) business, but the pyramid scheme is different in that it promises income for recruiting new members. Let's take the example of an organizer who gives Alice and Bob the right to recruit new members and receive $100 each, and takes 50% of their subsequent earnings. In turn, Alice and Bob can offer the same deal to those they recruit (they will need at least two recruits to recoup their initial investment).

For example, if Alice brings Carol and Dan (who pay $100 each), she will be left with $100 because half of her income must be transferred to the next level. If Carol continues to bring in new members, we will see her profits grow. Alice receives half of Carol's income, and the organizer receives half from Alice.

As the pyramid develops, older members receive an increasing influx of money as distribution costs move from the bottom to the top, but due to exponential growth, this model is short-lived.

Sometimes participants pay for the rights to sell a product or service. You may have heard about some multi-level network marketing (MLM) companies accused of using financial pyramid schemes in this manner.

In the field of blockchain technologies and cryptocurrencies, such controversial projects as OneCoin, Bitconnect and PlusToken are also under threat of such qualification. Users have filed lawsuits against them, claiming that these projects and their developments allegedly involve a pyramid scheme.

See also: Pyramid and Ponzi scheme.


3. Fake mobile apps

It's quite easy to miss and therefore ignore the warning signs on fake apps if you're not careful enough. Typically, these scams force users to download malicious applications, some of which imitate popular ones you are familiar with.

Once a user successfully installs a malicious app, it may seem like everything is working exactly as intended, but these apps are specifically designed to steal your cryptocurrencies. In the crypto space, there have been quite a few cases of users downloading malicious applications whose developers disguised themselves as large crypto companies.

In mobile applications, the user is provided with an address to replenish their wallet, which is a generally accepted fact, but in the case of a fake application, you are actually sending funds to an address belonging to the scammer. Of course, after completing a withdrawal transaction, there is no cancel button.

Another factor that makes this type of scam especially effective is the position of fake apps in the rankings. Even though they are malicious, some of them may have a high enough rating in the Apple Store or Google Play, which gives them legitimacy. To avoid getting caught by them, you need to download them only from the official website or from a link provided by a reliable source. You can also check all the information about who published a given application when using the Apple Store or Google Play.

See also: Types of mobile device fraud.


Do you want to start using cryptocurrency? Buy Bitcoin on Binance!


4. Phishing

Even those new to the crypto space are undoubtedly familiar with phishing. Basically, it is a scammer who impersonates a person or company in order to gain access to the victim's personal data. This can happen through different methods: through the phone, email, fake websites or instant messengers. Messaging app scams are especially common in the cryptocurrency space.

There is no specific set of rules that scammers adhere to when trying to gain access to your personal information. You may receive an email notifying you that there is something wrong with your exchange account and requiring you to follow a link to resolve the issue. This link will redirect to a fake website designed to look like the original one, which will in turn prompt you to log in. This way, the attacker will steal your credentials and possibly your cryptocurrencies.

Telegram scammers often hide in official groups associated with certain cryptocurrencies or exchanges. When a user reports a problem in this group, the scammer contacts him privately, posing as support or one of the team members. In the correspondence, they will encourage you to share your personal information or seed phrase.

If someone gets hold of your seed phrase, they will have access to your funds. An important rule you must remember is that your seed phrase should be known only to you and under no circumstances should it be disclosed to anyone else, even legitimate companies. Troubleshooting wallets doesn't require knowing your personal details, so it's safe to assume that anyone asking for it is a scammer.

As for your exchange account, Binance will never ask for your password. The same applies to most other services. The most reasonable course of action if you receive an unsolicited message of this kind is not to engage in dialogue, but to contact the company through the contact details provided on their official website.

List of some safety recommendations:

  • Check the URL of the sites you visit. Often, scammers register a domain that is very similar to the domain of a real company (for example: binnance.com).

  • Bookmark your most frequently visited domains. Search engines may display malicious sites in first place.

  • If you have any doubts about a message you have received, ignore it and contact the company or their official representative through the contact details provided by a reliable source.

  • No one other than you should have access to your private keys or seed phrase.

See also: What is Phishing? or take a phishing quiz.


5. Fraud involving or imitating real famous personalities or projects

The acronym DYOR is repeated quite often in the cryptocurrency industry, it stands for “Do your own research” which means “think with your own head” and there is a good reason for this.

You should always think about your decision yourself without taking anyone else's word for granted when choosing which cryptocurrencies or tokens you should invest in, as it is impossible to know their true motives. This applies to any random strangers and even popular influencers and personalities because any of them could be getting paid to promote a particular ICO or have large investments of their own. Remember, no project is guaranteed to succeed and in fact many will fail.

In order to get an objective assessment of a project, you must consider a combination of several factors. Everyone has their own approach to researching a promising investment, but here is a list of general questions you should start with:

  • How are coins/tokens distributed?

  • Is the majority of the total coin supply concentrated in the hands of a few organizations?

  • What makes this particular project unique?

  • What projects are doing the same thing, and how exactly is this project superior to others?

  • Who is working on the project? How good is the team's experience?

  • What does the community like? What does the project plan to implement?

  • What is the need for this coin/token to exist?


Conclusion

Attackers have no shortage of methods to siphon funds from unsuspecting cryptocurrency users. To protect yourself from these types of scams, you need to be constantly vigilant and aware of the schemes that are used most frequently. Always check that you are using official websites/apps and remember that if an investment offer sounds too good to be true, it is probably a scam.