Cryptocurrency scams take many forms. Just as financial criminals will try to steal money from your bank account or put fraudulent charges on your credit card, crypto scammers will do anything to take your crypto. To protect your crypto assets, it helps to know when and how you’re being targeted and what you can do if you suspect that a cryptocurrency or any communications related to it are a scam.

Types of Cryptocurrency Scams

Generally speaking, cryptocurrency scams fall into two categories:

1. Initiatives aiming to obtain access to a target’s digital wallet or authentication credentials. This means scammers try to get information that gives them access to a digital wallet or other types of private information, such as security codes. In some cases, it can include access to physical hardware, such as a computer or smartphone.
2. Schemes that involve transferring your cryptocurrency directly to a scammer, prompted by impersonation, fraudulent investment or business opportunities, or other malicious means, are popular scams.

Social Engineering Fraud

For social engineering scams, the perpetrators use psychological manipulation and deceit to gain control of vital information relating to user accounts. Successful scammers condition people to think they are dealing with a trusted entity, such as a government agency, a well-known business, tech support, a community member, a work colleague, or a friend.

Scammers will take as much time as they need to gain the trust of a potential victim. Then they may eventually ask the individual to reveal private keys or send money to their digital wallet. When one of these “trusted” entities demands cryptocurrency for any reason, it is a sign of something amiss—a scam.

Frauds Promising Romance

Scammers often use dating websites to make unsuspecting individuals believe they are in a real relationship, whether a new or long-term one. Once the individual trusts the scammer, conversations often shift to supposedly lucrative cryptocurrency opportunities and the eventual transfer of either coins or account-authentication credentials.

The Federal Trade Commission (FTC) found that in 2022, nearly 20% of the money reported lost in romance scams was in cryptocurrency. Fraud schemes, in general, promising romance rank No. 1 among all money scams, according to the FTC, with the median amount swindled being $4,400 and the total reaching $1.3 billion.

Imposter and Giveaway Scams

Moving down the sphere of influence, scammers also try to pose as celebrities, businesspeople, or cryptocurrency influencers. To capture the attention of potential targets, many scammers promise to match or multiply the cryptocurrency sent to them in what is known as a "giveaway scam."

Well-crafted messaging from what often looks like an existing social media account often can create and spark a sense of validity and urgency. This mythical “once-in-a-lifetime” opportunity can lead people to transfer funds quickly in hopes of receiving an instant return. Impersonators claiming to be from the cryptocurrency exchange's support or security teams also contact crypto owners to trick them out of funds.

Phishing

Within the cryptocurrency industry, phishing scams target information pertaining to online wallets. Specifically, scammers need a crypto wallet's private keys—a string of letters and numbers that act like a password and are required to access cryptocurrency.

Their method follows the playbook of many standard scams: They send an email with links that lead holders to a specially created website and ask them to enter private keys. Once the hackers have this information, they steal the victim's cryptocurrency.

Blackmail and Extortion Schemes

Blackmail is another popular social engineering method scammers use. Blackmailers make the claim to potential victims that they have a record of adult websites or other illicit web pages the user frequents. The blackmailers then threaten to expose the individuals unless they share with them their private keys or cryptocurrency. Such cases represent a criminal extortion attempt and should be reported to an enforcement agency, such as the FBI.

Fraud Involving Investment or Business Opportunities

The adage “if something sounds too good to be true, then it probably is” is one to keep in mind for anyone venturing into investing in general. It is especially true for cryptocurrencies. Countless profit-seeking speculators turn to misleading websites offering "guaranteed returns" or other setups for which investors must invest large sums of money for even larger guaranteed returns. Unfortunately, these bogus guarantees often lead to financial disaster when individuals find that they can’t get their money back.

New Crypto-Based Opportunities: ICOs and NFTs

Crypto-based investments, such as initial coin offerings (ICOs) and non-fungible tokens (NFTs), provide even more avenues for scammers to access your money. Remember that although the crypto-based investments or business opportunities may sound lucrative, it doesn’t always reflect reality.

For example, some scammers create fake websites for ICOs and instruct users to deposit cryptocurrency into a compromised digital wallet. In other instances, the ICO itself may be at fault. Founders could distribute tokens, which are unregulated, or mislead investors about their products through false advertising.

Rug Pulls

A so-called rug pull occurs when project members raise capital or crypto to fund a project and then suddenly remove all the liquidity—and they themselves disappear and become unreachable. Scammers abandon the project, and investors lose all they have contributed.

Cloud Mining

Platforms will market to retail buyers and investors to get them to contribute upfront capital to secure an ongoing stream of mining power and rewards. These platforms don't own the hash rate they claim to, and don't deliver the rewards after receiving your down payment. While cloud mining isn't necessarily a scam, to keep you money, you must conduct rigorous due diligence on the platform before investing.

How To Spot Cryptocurrency Scams

Cryptocurrency scams are easy to spot when you know what to look for. Legitimate cryptocurrencies have readily available disclosure, with detailed information about the blockchain and associated tokens.

Read the White Paper

Cryptocurrencies go through a development process. Before this process, there is generally a document published, called a white paper, for the public to read. If it's a legitimate white paper, it clearly describes the protocols and blockchain, outlines the formulas, and explains how the entire network functions. Fake cryptocurrencies don't produce thoroughly written and researched white papers. The fakes are poorly written, with figures that don’t add up, and they don't explain how they envision the money raised being used.

Identify Team Members

White papers should always spotlight the members and developers behind the cryptocurrency. There are cases in which an open-source crypto project might not have named developers, which is typical for an open source. Still, you can view most coding, comments, and discussions on GitHub or GitLab. Some projects use forums and applications, like Discord, for discussion. If you can’t find any of these elements, and the white paper is rife with errors, then stand down, it's likely a scam.

Beware of ‘Free’ Items

Many cryptocurrency scams offer free coins or promise to “drop” coins into your wallet. Remind yourself that nothing is ever free, especially money and cryptocurrencies.

Scrutinize the Marketing

Owning cryptocurrencies is generally not a money-making endeavor. They are projects with a stated purpose and have coins or tokens designed to be used to promote the blockchain function. Valid crypto projects won’t be posting on social media or pumping themselves up as the next best crypto.

You might see cryptocurrency updates about blockchain developments or new security measures taken, but you should be wary of updates like “millions raised” or communications that appear to be more about money than about advances in the technology behind the crypto.

Legitimate businesses exist that use blockchain technology to provide services. They might have tokens used within their blockchains to pay transaction fees, but the advertising and marketing should appear professional-looking. Scammers also spend on celebrity endorsements and appearances and have all the information readily available on their websites. Legitimate businesses won't ask everyone to buy their crypto; they will advertise their blockchain-based services.

How To Avoid Scams

There are several actions to take to steer clear of being scammed. If you notice any of the signs, don't click on the links, dial a phone number, contact them, or send them money. Also:

• Ignore requests to give out your private cryptocurrency keys. Those keys control your crypto and wallet access, and no one needs them for a legitimate cryptocurrency transaction.
  
• Shun enterprises that promise you’ll make lots of money.
• Don't engage with investment managers who contact you and say they can grow your money quickly.
• Be wary of "celebrities" contacting you. A real celebrity won't reach out to you about buying cryptocurrency.
• Meet in person any romantic interests you connected with on an online dating website or app. Don't give them money.
• Ignore text messages and emails from well-known or new companies, saying your account is frozen or that they are worried about it and can help you "unfreeze" it.
• Contact a regulatory agency if you receive an email, text, or social media message claiming to be from a government, law enforcement agency, or utility company, stating that your accounts or assets are frozen. Don't answer the initial correspondence through their means of communication. Instead get details on how to connect from an agency's official website.
• Ignore job listings for cash-to-crypto converter or crypto miner openings.
• Scrutinize claims about explicit material a scammer may say they have about you that they threaten to post unless you send cryptocurrency. This is blackmail. Report it.
• Don’t accept “free” money or crypto.

How To Report Scams

Several organizations can help you if you’re a victim of a cryptocurrency scam or suspect one. Use their online complaint forms to seek help:

• FTC fraud report
• Commodity Futures Trading Commission complaints and tips
• Securities and Exchange Commission fraud reporting
• FBI Internet Crime Complaint Center complaint

You also can directly contact the crypto exchange that you use. Find out if they offer fraud prevention or have other measures in place to protect your crypto assets and money.

The Bottom Line

For many people, the mad rush into cryptocurrencies has evoked a sense of the Wild West, when limitless possibilities for enriching themselves was possible. Yet, anyone who's studied the Wild West era knows that many speculators lost it all while trying to get rich.

As the crypto ecosystem gains scale and complexity, it will undoubtedly remain a focal point for scammers. Crypto scams generally fall into two categories: socially engineered initiatives to obtain account or security information, and efforts to persuade a target to send cryptocurrency to a compromised digital wallet. By understanding the common ways that scammers try to steal your information (and ultimately your money), you can know how to spot a crypto-related scam early and prevent it from happening to you.

Investing in cryptocurrencies and other initial coin offerings (ICOs) is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or other ICOs. Because each individual’s situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein.