Almost everyone who wants to invest their money has looked towards cryptocurrencies at least once in the last few years. Cryptocurrencies like Bitcoin, Ethereum, Solana, and a few more are taking the investment market by storm. Most people invest in cryptocurrencies with the prospect of becoming rich instantly. This leads them to risk and invest in risky or complete scams instead of actual beneficial currencies. There are several types of cryptocurrency fraud and it’s easy to become prey if you’re not careful.
Digital currencies or cryptocurrencies aren’t backed by a central entity or any government. And yet, you can use crypto for the sale and purchase of goods and services. You can even exchange it for any conventional currency. Unlike conventional currencies like the dollar or the pound, the value of cryptocurrencies is driven solely by demand and supply. That’s why the crypto market is extremely volatile, and it can bring tons of losses for those looking to get rich quickly.
As the value of crypto has exploded, so has the amount of crypto fraud. The Federal Trade Commission received almost 7,000 complaints of cryptocurrency fraud from October 2020 to March 2021. The accumulated losses in these reported instances of fraud reached up to $80 million.
To make sure that you can identify and prevent cryptocurrency fraud, we’ve created this guide of common types of crypto fraud.
Common Types of Cryptocurrency Fraud
While the cryptocurrency in itself is a new scam for most people, the fraud is mostly a rehash of classic scams. Some of the most common crypto fraud are:
1. Fake Websites
Fake website scams aren’t anything new. They’re often full of fake testimonials, technical jargon, fake profiles, and reviews to trick a user. Fake website scams in crypto often promise guaranteed profits or quick earnings. Those who aren’t familiar with how crypto works end up investing and losing their money.
2. Celebrity Endorsement
A new type of scam that has emerged with crypto’s success is celebrity endorsement. Masses of the population will buy crypto if it’s promoted by a huge celebrity. A recent example of this is Elon Musk’s tweet about Dogecoin.
Con artists pose as online billionaires successful businesses or well-known celebrities to trick you into buying the currency.
3. Pump-and-Dump
Pump and dump is another scam that came into existence with cryptocurrency. Using messaging apps or social media, crypto promoters try to promote a currency with any means necessary. Their aim is to lure investors to buy, drive up the price and then sell the stake, which then causes the value of the currency to drop. Elon Musk and Dogecoin is the primary example of this. While that can’t be categorized as a scam, it’s categorized as influencing.
4. Ponzi Schemes
Fraudsters and con artists try to sell crypto by creating the illusion of big and guaranteed profits by investing in a particular currency. Federal authorities are pursuing criminal and civil cases against one such scam known as BitConnect, which raised more than $2 billion before it was shut down.
5. Romance Scams
Fraudsters assume the identities of someone else on social media, dating platforms, and other online channels and try to persuade someone from the opposite gender to invest in a particular currency. The FBI’s Internet Crime Complaint Center (IC3) received more than 2,000 reports of crypto-based romance scams in 2021. The total losses from these types of scams reached $133 million in just 7 months of 2021.
6. Fake Wallet, Exchange, or Custodian
Not only individuals, but businesses also deal with several types of crypto fraud. Most of them involve a fake crypto digital wallet, exchange, or a fraudster assuming the identity of a custodian. As of now, there aren’t many solutions that can help businesses be vigilant about this type of crypto fraud.
Warning Signs about Crypto Fraud
There is some basic information that you can keep in mind while dealing with cryptocurrencies. The best way to prevent being a prey of a crypto scam is by looking out for warning signs. Here are some of the most common warning signs of crypto fraud:
- Some unknown person sends you a text out of the blue regarding crypto investments. If they’re trying to get you to invest in particular crypto.
- The pitch for a crypto investment claims that there’s no risk involved or promises guaranteed returns.
- A call, text, email, or social media message claiming to be from a government entity, utility, or any other entity asking to pay bills with cryptocurrencies.
How to Prevent Crypto Fraud?
It’s becoming relatively easy for fraudsters to trick a business with fake or falsified wallet, exchange or custodian information. As a lot of businesses are becoming crypto-friendly, fraudsters are trying to trick them.
Without the use of proper technologies, businesses can’t distinguish between a real person and a fake one. DIRO can instantly verify crypto account information within 90 seconds with automated user consent and impersonation check-in over 195 counties.
The output is a machine-readable JSON file that is accepted as a court-admissible document in case of fraud. DIRO’s crypto verification API allows for real-time verification, thus reducing friction for legit customers and preventing fraud during the initial stages.
