“…Where it involves money, there is always a scam…”-Anonymous
As much as we Indians are tempted to trade and invest in crypto, we are also prone to falling prey to various scams that have the potential to erode all our investments and lock us away from our own hard-earned money.
With roughly close to 11.5 crore crypto investors, India follows the lead in the total number of crypto investors. But, since investing in cryptocurrencies is not legalized in India; the first thing an investor should do is contact the crypto exchange and report the fraud, followed by seeking help from cybercrime agencies. A look at the most common cryptocurrency scams to watch out for in 2023: -
- Crypto Investment Schemes
Crypto investment schemes usually have scammers contacting investors who pose as professional investment managers. They make false claims to have made lakhs of rupees by investing in cryptocurrency and try to paint a false picture that they can too, mint money by following their lead.
The scammers usually ask the target to pay an initial ‘signing-up’ fee. Instead of investing the same, the scammers steal the payment and may also ask the target for his/her personal information. This usually happens with a claim that it is to deposit the earned income, and the scammer hence ends up gaining access to the target's cryptocurrency investments by fraudulent means.
Cryptocurrency scams also involve using fake celebrity endorsements, where scammers use celebrity photographs to post them on fake accounts, ads, or articles to make it appear genuinely as if the celebrity is promoting a large financial gain from the investment.
A screen-grab illustrating the same is given below: -
- Rug-Pull Crypto Schemes and Romance Schemes (Social Engineering)
In social engineering, a person operates under a fake identity to scam an individual of his money. The victim does not believe the scam to be true, since the scammer has spent considerable time developing the trust of the target.
Rug-Pull crypto schemes involve scammers convincing the target to fund their new project, a Non-Fungible Token (NFT), or an emerging cryptocurrency. After the scammers get the money, they simply vanish in thin air with it. The coding for these investments locks the target from selling the bitcoin after purchase, so investors are left with a valueless & futile investment.
Similar to the above, romance schemes involve typically long-distance and strictly online relationships where one party gains the other party's trust fraudulently. Over time, the scammer starts to convince the target to buy or give money in some form of cryptocurrency post which, the dating scammer disappears. These scams are also referred to as a ‘pig butchering scam’.
A popular example of a rug-pull scheme is the Squid Coin game scam, where the investors had to buy online tokens to earn cryptocurrency. The price of one Squid token shot up from $0.01 to $90 per token. Trading stopped after a while eventually and all the money disappeared as the token value reached zero as people tried selling their tokens but to no avail, robbing investors of $3.38 million in value.
A graphic representation of the market trends of SquidGame: -
- Phishing attacks and Man-in-the-middle Crypto Schemes
Phishing attacks usually involve the scammer sending emails or text messages with malicious links redirecting to a fake website to gather personal details of the target, such as crucial information linked to a cryptocurrency wallet. Private keys are tedious to change once they have been stolen, so a user must never lose access to the same else which, he has to create a new wallet again.
Scammers can intercept any information sent over a public Wi-Fi network, including but not limited to login credentials, wallet keys, and detailed user account information. This is usually avoided by using a Virtual Private Network (VPN) while using public networks to prevent the theft of sensitive information involving cryptocurrencies. The user can directly gain access to the intended website thus avoiding interference of a proverbial ‘Man-in-the-middle’ scammer.
A diagrammatic representation explaining the above: -
- Ponzi and Crypto Giveaway Schemes
The main intention of a Ponzi scheme is to lure existing investors with a promise of huge profits that involves lesser risk. They promise to pay the existing investors with the proceeds from new investors that are lured in by inflating the potential gains. Ponzi is a scheme that runs in concentric circles as there are no legitimate investments and it only involves targeting new investors for money.
Examples include Ukrainians asking for crypto donations to fund their war in exchange for an ‘airdrop’ – a reward for donation.
Similarly, scammers may lure investors into a scheme with promises of great cryptocurrency earnings, including additional bonus crypto earnings. But in reality, there is no such giveaway happening and the target is usually ignorant of the ingenuity until they end up losing their money. The users need to stick to well-known crypto exchange markets to avoid this. Primary research and industry details verification need to be ensured to vet the exchange's reputation and legitimacy before entering any personal information.
- Impersonation Schemes
Scammers will also impersonate recruiters or job seekers to get access to the cryptocurrency accounts of their targets. With this, they offer a lucrative job but require the target to pay up in cryptocurrency as payment for job training.
Scammers steal the identities of SIM card holders and then contact the service provider to provide them with a new connection by impersonating the original. With a new sim card, the scammer downloads consumer information and the existing apps (including the crypto wallet app). Then it becomes easy for the scammer to download the crypto app and gain fraudulent access.
The roadmap ahead
Scams involving cryptocurrency transactions are very serious, especially those involving DeFi and NFTs where crypto transactions are irreversible. As more people begin to see crypto as an alternative financial system, it is the responsibility of industry experts to educate individuals on the safety precautions of handling and safeguarding their digital assets in the world of crypto. A whole new level of fiscal responsibility arises, including understanding the intent and fraudulent mind of the crypto scammer.
Crypto scams have unfortunately become common, and fake links are being created every day to siphon off funds from investors who find their net balances suddenly to be at nil value. With the absence of a regulatory body, consumers are usually clueless about whom to contact and cybercrime agencies exercise limited scope & jurisdiction over such crimes. Hence, user discretion and education are of primary importance when it comes to crypto investing and the safekeeping of funds.