Financial losses from cryptocurrency scams have surged over the years, reaching alarming numbers. During 2023, total losses from cryptocurrency fraud hit $5.6 billion, a 45% increase from the previous year. Between 2021 and 2023, cryptocurrency scammers stole more than $1 billion, according to the Federal Trade Commission.
Notable cases include the Wormhole exchange platform hack in February 2022, where $320 million was stolen. The Squid coin rug pull scam, cost investors around $3 million. More recently, the Mixin hack in September 2023 resulted in nearly $200 million in losses.
In this article, we'll provide tips and tricks to keep your crypto safe.
Crypto scams have evolved over time and now there are several common different types of scams.
Phishing is a common crypto scam where attackers create fake websites that closely resemble legitimate crypto exchanges or wallets. On Google, sponsored results often appear at the top of searches with URLs that are nearly identical to the real site, sometimes differing by just one letter. These sites replicate the visuals of legit platforms, tricking users into logging in. Once users enter their credentials, they may be hit with a wallet drainer or keylogger that steals personal details, leaving accounts emptied.
Always double-check URLs and avoid clicking on Google-sponsored results to stay safe.
Imposter and giveaway scams are rampant on platforms like Twitter/X, YouTube, and Instagram. Scammers often hack major, trustworthy accounts and post offers like "I'll double your Bitcoin for the next hour" or "I'm launching a new token." These scams lure users with promises of easy money, but it's all a ruse to steal funds.
A notable example is when Barack Obama's Twitter/X account was hacked, and a scammer posted an "I'll double your Bitcoin" scheme.
If an offer sounds too good to be true, it probably is. Always be skeptical and verify before engaging.
Fake exchange scams, particularly "pig butchering" scams, often begin when an attractive woman contacts you on Telegram or WhatsApp "by mistake." After a few days of friendly conversation, the topic shifts to finances and crypto trading. The scammer then directs the target to a fake crypto exchange or trading firm, where they're encouraged to deposit more and more funds. These fake platforms make it appear like investments are growing, but in reality, the victim is being led deeper into the scam.
Once the funds are deposited, they disappear, leaving the victim with nothing.
Rug pulls are a type of crypto scam involving newly launched, lesser-known cryptocurrencies, often traded on a single DEX. As the token gains popularity and more traders invest, the developers suddenly withdraw all liquidity from the market, leaving traders with worthless tokens. This tactic effectively traps investors, making it impossible to sell their holdings.
To avoid falling victim to a rug pull, it's wise to be cautious about newly launched tokens that are only available on one DEX and to research the project thoroughly before investing.
Wallet drainers are malicious software or scripts designed to steal cryptocurrency assets from victims' wallets without their consent. Often, scammers use phishing tactics, creating websites that appear identical to reputable ones, and tricking users into connecting their wallets. Once connected, the drainer swiftly empties the wallet. In other cases, the drainer might be hidden behind a suspicious-looking website.
To protect against wallet drainers, it's best to use a dedicated device to manage cryptocurrencies, ideally with cold storage, and verify websites before interacting with them.
Hacks in the crypto space often stem from poor private key management. A major rule is to never use a wallet set up by someone else, as they could retain access to your private keys. Many wallet hacks occur when private keys are improperly stored, such as in Google Docs, images, or other unsecured formats, making them vulnerable to theft.
Always store your private keys securely, preferably in cold storage or hardware wallets, and never share them with anyone.
Smart contract vulnerabilities aren’t scams per se, but can still result in significant financial loss. Hackers exploit flaws in smart contracts to drain user funds or manipulate the contract for their benefit. These attacks can occur when contracts are not properly coded or contain security gaps.
To minimize risk, it's important to only use DeFi platforms that have undergone rigorous auditing by trusted third-party security firms.
Scam ICOs were prevalent during the 2017-2018 ICO hype. Back then, many projects made grand promises but never delivered, leaving investors with worthless tokens that never got listed on exchanges. While some legitimate ICOs emerged during that period, many scams took advantage of the excitement around new projects.
Today, ICOs and IDOs typically go through more stringent KYC processes, with public team listings, reducing the frequency of scams.
Spotting a cryptocurrency scam requires vigilance and a healthy dose of skepticism.
One of the biggest red flags is unrealistic promises, such as guaranteed high returns with little to no risk or quick profits. Legitimate investments involve risk, and no returns are ever guaranteed. Pressure tactics, like creating a false sense of urgency or claiming limited-time offers, are also common scam techniques.
Lack of transparency is another warning sign—reputable projects typically provide clear information about their team, partnerships, and development progress. Be cautious of unsolicited contact from unknown individuals offering investment advice, especially on social media. Scammers also create fake websites or apps mimicking legitimate exchanges, so pay attention to slight variations in domain names and avoid giving sensitive information.
The best way to avoid crypto scams is by securely storing your tokens, coins, and NFTs on a cold storage device, such as a hardware wallet. Write down your private key on paper, and store it in a safe or vault to ensure it stays offline. For active traders, using a single device solely for trading is crucial, and bookmark all important websites to avoid phishing scams. Keep personal activities on a separate device.
Last but not least, always be wary of offers that sound too good to be true, and avoid clicking on suspicious links. These precautions can significantly reduce the risk of falling victim to crypto scams.
If you’ve fallen victim to a crypto scam, it's important to act quickly.
Start by considering alerting the authorities and filing a report with local or international cybercrime agencies. Crypto-savvy users can track the scammer’s transactions using blockchain scanners and even message them through the blockchain to urge them to return your funds. If the stolen funds are moved to a well-known address like a cryptocurrency exchange, contact the exchange’s support team immediately to explain the situation. They may be able to freeze the assets or help you in recovering your funds.
