What Are the Top 3 Most Common Scams in Crypto?

#1 Rug Pulls

Many crypto investors are looking for opportunities to get in on promising new projects in order to capitalize on impressive growth. A common crypto scam that can take advantage of the willingness of some users to gamble on new projects is the “rug pull.” A rug pull is a scam in which the developers of a project abandon a project and hold on to users’ funds.

Rug pulls are most commonly associated with coins that are listed on decentralized exchanges where assets don’t go through an intermediary between users. Coins may be listed on decentralized exchanges for free and without being audited. Creators of rug pulls may hype up their new tokens on social media websites like Twitter and Instagram. After driving up the price,  these fraudulent developers may then withdraw everything from the liquidity pool, sending the price crashing to zero. They are also very common in the NFT space where NFT project managers will immediately abandon their community.

Signs of a possible rug pull include newly-listed tokens on decentralized exchanges that have low liquidity and have seen drastic price surges. Rug pulls are more common when a significant number of tokens are held by the development team itself, before being available to retail investors.

#2 Phishing

Phishing is one of the most common scam tactics used across the internet as a whole, so it’s no surprise that it is used to target crypto users, too. Phishing in crypto tends to involve gathering information that can be used to access users’ private keys. When scammers have access to a user’s private keys, they may be able to freely access the tokens in their digital wallets.

Phishing is sometimes done by email, as scammers may send users a link that leads to a website that asks users to provide personal information. These websites may be designed to resemble legitimate crypto exchanges that users already trust, with only subtle differences in the URLs or design.

Phishing scams may be combated by avoiding clicking links sent by email or social media websites, no matter how legitimate they appear. Users may instead navigate directly to trusted websites, and verify the URL is correct on any site where private information is requested.

Using public networks can render users vulnerable to phishing attacks. When wifi signals are intercepted and information is compromised, this tends to be referred to as a “man-in-the-middle” attack. Strategies to mitigate the risk of this kind of attack include using VPNs to encrypt data being sent.

#3 Fraudulent Investment or Business Opportunities

Fraudulent investment opportunities may involve ICOs (initial coin offerings). Users may be offered a discount on a recently created crypto token, and asked to transfer a legitimate, active cryptocurrency, like Bitcoin. The tokens received in exchange may not be as described.

Investment scams may also incorporate aspects of ponzi schemes in which existing investors are paid with the funds of newer investors. Ponzi scheme projects tend not to have the necessary legitimate earnings needed to survive long term.

Business opportunities that target crypto investors may also come in the form of promised job opportunities. Users may be offered an enticing and well-compensated job following a paid “training” that requires the transaction of crypto. However, once the funds are sent, the job opportunity may vanish.

How to Identify Crypto Scam Warning Signs?

While there are a plethora of different crypto scams there tends to be some commonalities between all of them. Here are some of the typical warning signs of a crypto scam:

Lofty Guarantees

Crypto is known for being a volatile landscape, and prices can vary wildly by the day. For this reason, it’s a red flag when you’re presented with an opportunity that guarantees drastic positive returns, especially from a known and unexpected personality. See the example below:

If something seems too good to be true, then it likely is.

Private Key Requests

To send a cryptocurrency, you need the receiver’s public address and have access to your own wallet’s private key in order to send funds from your wallet. While a public address can be shared, sharing your private key can provide anyone full control over your funds.

Sharing your private key is also not necessary for receiving crypto transactions, and a request for this information should be met with caution. Some scammers have used this very fact to make their requests seem legit. See the following screenshots for some examples.

In these instances, you’d be required to first deposit crypto into the recovered wallet in order to withdraw the funds or receive the reward. If you need to deposit crypto to withdraw crypto, that’s a red flag.

Avoiding Crypto Scams: The Bottom Line

There are plenty of exciting investment opportunities in crypto. However, scammers may create misleading posts and websites to promote fraudulent scenarios. For example, investors may be encouraged to invest money based on a false promise of future returns.

When it comes to investment and business opportunities, it is often advisable to familiarize oneself with the project’s members and their history. Lack of transparency may indicate the project is not legitimate.

There are steps anyone can take to protect themselves from crypto scams. Blockchain technology itself tends to be robust, but a lack of public understanding continues to put enthusiasts at risk. With awareness, you should be protected against the top three ways you can get scammed in crypto.