7 Types of Crypto Scams in 2022

7 Types of Crypto Scams in 2022

The year 2021 was very profitable for crypto investors as the Decentralized Finance (DeFi) system grew significantly. According to statistics, Bitcoin and Ethereum experienced a boom of approximately 60% and 400%, respectively, while smaller altcoins also had a positive uptrend. Moreover, 2021 was the hottest year for the non-fungible tokens (NFT) market, which grew by 21,350%, reaching over 17.5 billion USD in total sales.

Expectedly, bad actors and scammers managed to keep up by raising their fraud activity. As a result, losses caused by cryptocurrency crime (primarily by scams) amounted to a record-high 15 billion USD in 2021, which marked an incredible 79% growth compared to 2021. The improvement of existing cryptocurrency scams and the appearance of new schemes is a concerning issue for e every company and investor in the DeFi space.

This article provides a detailed insight into the most common scams because knowledge is a very powerful resource in the information-centric crypto space.

Common crypto scams – information to consider

Most of the scam schemes may be familiar to people who have been making moves in digital assets for some time. However, enthusiasts that only start investing money into cryptocurrency also have to be aware of the potential risks that come with it. So let us guide you through the methods fraudsters use to make illegal profits:

“Rug Pull”

If you follow any crypto influencers or news websites, you have probably seen information about some trending coin with immense price growth. Maybe you have also found out about such digital assets in the “top movers” section of the crypto exchange websites yourself. The appealing performance of these tokens is quite simply a bait that tricks people into investing. This scam is particularly prominent in the NFT space.

The prevailing number of tokens on the exchanges is legitimate, but there are those made with the only goal of exploiting unaware investors. This scam works simply; scammers artificially inflate the price of the new coin to hype it up and then leave the market with the invested funds.

Squid Game cryptocurrency is the latest famous instance of this crypto scam. The price of SQUID grew from a cent to 2.8 thousand USD over several days and plummeted down to 0 USD right afterward. Scammers prohibited selling the token to cash out around 3.3 million USD.

“Pump and Dump” schemes

Pump and Dump crypto scams threaten any stock market without strict regulation. First, a small group of cryptocurrency holders (usually new or with little to no trading background) bring its price up (pumps it) through ad services and publicity. Then, as soon as any investments come through, the scammer group quickly sells (dumps) all of it at a high price.

This type of scam works is similar to the mentioned rug pull scheme. The main difference is that here you can sell the digital currency at any point, while with the rug pull, it is usually the privilege only insiders have.

Phishing Scams

Phishing attempts in the crypto space refer to a scam that targets personal details of accounts. The main goal of phishing scams is obtaining private keys.

The private key is vital to scammers as it is a unique password that provides exclusive access to a given digital wallet. Getting it allows compromising the security of any crypto wallet immediately. Such scams take advantage of social media and emails. Thus, the most obvious way to protect your money from them is to filter received messages carefully and avoid any suspicious links.

Impersonation Schemes

The most common example is fraudsters pretending to impersonate popular crypto and NFT exchanges’ representatives through emails. What usually gives them away is that they ask about the sensitive information of the account under different excuses. Impersonating Bitcoin wallets or some applications is another way this scheme works.

However, the scammers went even further by creating fake web extensions and sites. In addition to having an identical look to their legitimate counterparts, they provide similar functionality. By creating an account on them, you can invest and even withdraw funds. At a certain point, the fraud page disappears, and people lose their money.

“Pig Butchering”

Among all the investment scams, “pig butchering” is especially fascinating. Knowing how scammers use it is essential, even though it is not unique to the crypto space.

Creating a fake account on a dating site or any social media, they engage in communication with their victim. After gaining some level of trust, they begin to ramble about some unique cryptocurrency investment and lure you into giving your money. Exciting profits a fraudster promises can be too seductive for an unaware victim, so many fall into the trap. After they send cryptocurrency or fiat money, the scam is complete, as it takes minutes for the scammer to get away with stolen funds. The takeaway here is that you should never trust unknown users on social media, mainly when they advertise any crypto investments.

Airdrop Scams

Airdrop is a common practice in the DeFi space. New projects use it to send small amounts of the new tokens to hot wallets for advertising purposes. However, it can also be a part of an advanced crypto scam. After receiving a new cryptocurrency that seemingly holds some value, users proceed to exchange it for some other tokens. This provides the protocol with access to sensitive data, which hackers then use to compromise the security of your account.

Pyramid Schemes

These schemes hold a place among popular bitcoin scams for a reason. They might seem legitimate and bring profits initially, but we do not recommend engaging in them.

Usually, to gain access to the recruiting program, which is the core of this scheme, you have to make a Bitcoin investment. This “guarantees” you cryptocurrency returns on every recruit you invite. However, scammers usually dip with all the money when the pyramid grows too big. The risk of losing all the money is too high compared to the potential profits you can make here.

FAQ

What are the most common Bitcoin scams?

Phishing schemes are the most popular in crypto as they have proven effective despite the ease of conducting. Fraudulent giveaways and impersonation come a close second.

What is the most effective way to protect my crypto funds?

Besides following strict hygiene of social media use, you can also store your digital finances in cold wallets. These hardware wallets have no connection to the internet, which eliminates many external threats.

How to invest safely in the NFT world?

With rug pulls becoming more prominent in the NFT space, it is essential to not get involved into suspicious new projects. Do not get baited by exciting promises and seemingly high potential if there is no firm evidence of the project’s legitimacy.

Which blockchain is the safest to use?

Due to the high transparency of the transactions made through the Bitcoin blockchain, retail investors consider it the most secure cryptocurrency.