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The cryptocurrency industry has experienced tremendous growth in recent years, and digital currencies have become an important part of many investment portfolios. However, the rise in popularity of cryptocurrencies has also attracted unwanted attention from scammers. From 2020 to 2021, losses from cryptocurrency-related fraud increased by 79%. Such scams led to the fact that investors lost not only almost $ 15 billion, but also undermined confidence in the industry. Main reason — lack of full regulation. BeInCrypto collected various types of fraud, and also compiled a guide on how to identify and neutralize them in time.
What is crypto fraud?
Cryptocurrency fraud usually involves attempts by individuals or organized groups to gain access to users’ personal information, such as a hidden key or security code, as well as fraudulently getting people to send cryptocurrency to a compromised digital wallet.
Cryptocurrency scams can be divided into two main categories:
- Seeking to access targeted physical hardware, a digital wallet, or authentication credentials such as security codes, private keys, or starting phrases.
- Claim cryptocurrency directly from the target by impersonating another person, fraudulent investment offers, fake business opportunities or other malicious means.
Types of cryptocurrency fraud
Pump and Dump
The Pump and Dump scam involves a group of insiders using messaging apps or social media to spread rumors that a well-known tycoon supports the digital currency in question, or fake news that mentions a fundamental improvement to the project. The purpose of this setup is to lure your audience to buy cryptocurrency, raise the price and sell your stake, which will lead to a sharp drop in the value of the currency.
When people buy an entire cryptocurrency, usually a new coin or a coin with a very low trading volume, insiders start selling or “dumping” cryptocurrency at high prices. This move causes a steep sell-off and profit at the expense of those who just bought cryptocurrency during the signal.
Phishing is a common scam in the field of cryptocurrency. In the world of cryptocurrency, phishing means tricking victims into revealing their sensitive data, such as passwords and personal wallet keys. Phishing scams are often carried out via email. At the same time, scammers pretend to be an authority and ask for user credentials, often using malicious links. These scams are also widespread on various social media platforms.
We also told you that Russia is in third place in terms of rampant cybercrime.
The name may seem funny, but it is a very serious and, unfortunately, emotional phenomenon for the victims of crypto scam. Romantic relationship scams usually occur on online dating sites. A scammer sets an attractive profile photo to attract a “pig” (victim) and then “fattens up” them for a period of time through online messages. As the victim gets closer to the perpetrator, they begin to trust him more.
After all, the scammer informs the victim of the huge profits they allegedly made in the cryptocurrency market and advises the victim to continue some of their investments. At first, it seems that these investments pay off well, but the money disappears as soon as it is sent. The scammer uses fake sites, tricking the victim into transferring large sums of money to the criminal’s fake account.
When a victim tries to withdraw his money, her efforts are in vain.
The Ponzi schemes are named after the famous 1920s crook Charles Ponzi. The main idea of the scam has not changed for more than a century. Here’s how it works: A dishonest broker offers an attractive investment opportunity with guaranteed generous returns. Their presentation may include a secret strategy or insider information about a cryptocurrency project. In the beginning, the idea looks legitimate. Your account balance continues to grow and you may be able to withdraw some cash. However, in reality, the scammer pockets most of the money, issues fake documents to cover his tracks, and uses cash from old investors to pay a little.oops. As more investors come on board, it becomes increasingly difficult for the scammer to maintain the ploy. By the time the scheme collapses, your money will have long since run out.
“Pulling the mat”
“Pulling the rug” or rug pull is a crypto fraud in which cryptocurrency promoters pump a new coin to increase its price, after which they disappear along with the funds. Investors are then left with a worthless token that has no fundamentals and no future.
“Pulling the mat” often prevents a non-insider owner from selling their token because it’s encoded in a way that only insiders can get out.
Airdrop fraud is widespread in the field of decentralized finance (DeFi). They are related to a phenomenon in cryptocurrency called token givingaway. This means that it dumps tokens into your digital wallet as a reward for storing a certain cryptocurrency or performing certain actions on a crypto platform or software.
While a legitimate airdrop of tokens is usually done to launch and grow the community, airdrop scams are created for another. The principle of its operation is that it begins with the distribution of coins, when coins that appear to have value are dumped into the user’s wallet. When you try to exchange this token for a more well-known one, you give the protocol more permissions than you think. This allows hackers to gain access to all the assets in your wallet. Once this happens, your wallet will likely be cleared within minutes or even seconds. Not all airdrops are scams, but whenever you are required to perform certain actions, make sure you always do your research!
Traditional hacking and theft
The unique point of sale (USP) of blockchain technology is that blockchain is extremely difficult to change once a block has been mined and added to the chain. The longer the chain becomes, the more difficult it becomes to change any information. This is the reason why many call it invulnerable to hacking, and it is believed that blockchain technology is extremely secure.
Unfortunately, recent incidents have shown that in some situations, hackers can gain access to and change information about the blockchain.
Miners check transactions to make sure they are legal. If one or more hackers gain control over at least half of the mining process, the consequences can be serious. An attacker-miner can create a duplicate version of the blockchain, which is called a fork, where some transactions are not reflected. Miners can then create a completely different set of transactions on the fork and make it look like a real version of the blockchain, despite its fraudulent nature. Hackers can also spend cryptocurrency twice from the fork. Sometimes there may be errors or failures in the security system when creating a blockchain, which can also be used by hackers. One way to reduce the risk of falling victim to this is to do your research and make sure there’s a good team behind the currency.
See also: Fraud with NFT: top 7 most popular schemes
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