Cryptocurrency is sometimes considered the wild frontier of investing which is why this unpoliced financial world is home to so many crooks and scammers.
Table of contents
- £146m Cost Of Crypto Fraud
- Cryptocurrency Scams In 2022
- Protecting Yourself From Cryptocurrency Fraud
- Keeping Safe From Crypto Scammers FAQ
- Related Information
Crypto scams are a big worry for regulators, traders and consumer watchdogs, as they are incredibly difficult to spot in a network that has no command structure.
Unfortunately, crypto hoaxes do occasionally happen, so this guide looks at how savvy investors can protect their money online.
£146m Cost Of Crypto Fraud
Action Fraud is a UK-wide reporting centre, collating statistics about a broad range of cybercrimes and fraud.
In 2021, it reported that crypto scams had cost victims over £146 million, almost 30 per cent higher than in the previous year.
To expand a little on that figure:
- The average instance of crypto fraud costs the victim just over £20,500.
- 11 per cent of reports came from investors aged between 18 and 25.
- More than half of the victims were aged between 18 and 45.
The UK Treasury Committee has published a series of recommendations calling for legal reforms to tackle the scale of the problem.
There are countless tactics that criminals will use to try and present a sophisticated ruse that isn’t easy to spot.
Most of the time, a scam starts with a promotion offering low-threshold investment opportunities to buy into mining or investment projects, with guaranteed high returns, typically advertised through social media to younger users.
The best approach for investors is to thoroughly research any offers, make trades through a respected exchange or broker, and never engage in crypto transactions with an unverified third party.
Cryptocurrency Scams In 2022
Unlawful activities targeting unsuspecting investors usually have one of two objectives:
- Gain access to a digital wallet or verification information to steal crypto, security codes or private financial information.
- Get the target to transfer crypto to the scammer under the premise of investing or buying into a business prospect.
Here are some schemes reported in recent months:
Crypto investment fraud
A standard approach for a crypto scammer is to advertise an investment scheme or high-profit option, inviting new traders to try their hand at crypto, usually with a guaranteed minimum return.
As with any investment, there is no possible way that anyone can offer guarantees, and crypto is particularly high risk – this promise of a high yield will always, inevitably turn out to be a lie.
Misleading websites may look trustworthy, indicative of the level of financial backing a criminal enterprise will pour into this type of scam to get individuals on board.
Often, victims don’t know they have been tricked until they try to make a withdrawal and can be targeted repeatedly with a dummy account showing an ever-increasing balance that doesn’t exist.
Extortion crypto scams
Extortion, or blackmail, is also on the rise although in many cases, the scammer does not have any of the information they claim.
Many cases begin with an email or message stating that a hacker has retrieved sensitive personal details, proof of illicit activities or other compromising information.
The victims must transfer crypto or private keys to protect themselves, although the blackmail material does not exist.
Phishing scams are common, with individuals often receiving an email or text purportedly from their bank or other trusted source, and the same tactic has been replicated to mimic crypto wallets.
Crypto account holders receive correspondence that looks frighteningly believable and need to enter their private key to respond.
Many of these hoaxes claim to be alerting the individual of attempted fraud or hacking – but when they enter their details, the crypto in their wallets suddenly vanishes.
In the six months to March 2021, the Federal Trade Commission reports that a stunning $2 million in crypto was transferred to impersonators claiming to be Elon Musk.
It’s pretty easy to copy a social media account or profile and equally simple to create a post inviting people to transfer their funds – usually within a rushed deadline or with a limited take-up volume – in return for an exciting opportunity or competition.
At the subtler end of the spectrum, social engineering fraud uses more discreet manipulation methods to try and gain account information.
Users may believe they are liaising with the tax office, a respected business, a helpdesk, or someone they know when their communications are going directly to a cybercriminal.
This fraud can start by gently establishing an ongoing message thread to build trust. At this point, the scammer will ask for information that enables them to access the individual’s digital wallet.
Protecting Yourself From Cryptocurrency Fraud
One of the best ways to steer clear of crypto deceptions is to educate yourself about how the exchanges work, how and when you should make transfers, and what options you have to protect your account.
For example, hot wallets facilitate faster transactions.
Still, they are inherently less secure than cold wallets, and if you don’t know the difference, it’s time to look into how you are storing your crypto assets.
It’s also essential never to rely on a social media post to make decisions about crypto transactions or make trades based on online advice, particularly if it’s from someone you don’t know and cannot contact directly.
Finally, keep your private keys under lock and key.
You need your keys to access your cryptocurrency, and anyone with access to this information could drain your account faster than you can log in.
Potential Signs Of Crypto Scams
Several red flags indicate that a transaction isn’t quite right or that you might potentially be an intended fraud victim.
Things to look out for include:
- Any guarantees of returns or profits – no such thing exists in the world of crypto trading, no matter who the campaign appears to be endorsed by.
- Large earnings – any scheme inviting relatively small investments for exceptionally high profits is likely to be fraudulent.
- Promises of cash transfers – a promotion that offers a cash or crypto transfer in exchange for any service is probably not genuine.
- Incomplete information – crypto traders rely on in-depth market data, analysis and tracking, so they wouldn’t even propose a project without complete detail and explanations.
If in doubt, dodge any trade or exchange you aren’t confident is genuine because you may stand to lose far more than any promised gains.
Keeping Safe From Crypto Scammers FAQ
What is the best way to keep cryptocurrency safe?
A great option to safeguard against scams or theft is to use a cold wallet. This type of crypto wallet isn’t connected to the internet, so it’s impossible to access through a cyber attack. That does mean you’ll have to connect your wallet when you want to perform a transaction, but you can store your private keys in a hardware wallet, so your information is inaccessible.
How can a hacker intercept a crypto wallet?
Cryptocurrency wallets and blockchains themselves are secure, which is why most scams are centred on getting you to disclose your private keys or share information in the belief that you’re interacting with a real third party.
For example, a hacker could target people they know have a hardware wallet and then encourage them to use a replacement modified to allow them to steal the crypto keys.
If you receive a notice that your hardware wallet has been compromised with the offer of a free replacement, proceed with extreme caution.
What protections are there against losing money in a crypto scam?
The challenge here is that crypto is decentralised and largely unregulated, so there isn’t anyone overseeing transactions, insuring your assets or offering compensation if your crypto is stolen or transferred due to a scam.
It’s extremely unlikely you’ll recover your funds if you get scammed.
Most law enforcement bodies don’t have the resources or know-how to target hackers, often based overseas or in untraceable locations.
Therefore, the responsibility to identify a potential scam, put safeguards in place, and avoid fraud is yours.
Can a crypto trading account be hacked?
While most cryptocurrency platforms have robust security, there is always the potential for a cyberattack. In 2021, NBC News reported over 20 crypto exchange heists, with over $100 million stolen in six instances.
It’s important to realise that cryptocurrencies are incredibly valuable, and hackers will invest considerable time finding ways to circumvent controls and steal vast sums – almost always with complete anonymity.
How should I report crypto fraud?
If you think you’ve been the victim or intended target of crypto fraud or a scam, the best thing to do is file a report with Action Fraud, either online or by calling 0300 123 2040. You can also contact either the local police or a non-emergency advice line and report instances to Citizens Advice.
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