How to Spot and Avoid Crypto Scams

Beginner

7 mins read May 10, 2023

Fraudulent schemes have existed for as long as we can remember. The internet is a notable tool used by these perpetrators to scam people of their hard-earned funds. It is no surprise that with cryptocurrencies becoming such valuable assets, fraudulent schemes to scam people of their crypto funds has been on the increase.

What are cryptocurrency scams?

Cryptocurrency adoption has increased worldwide as people have come to accept digital currencies as a hedge against fiat currencies. Cryptocurrencies aren't just a better alternative to fiat currencies, but they are also considered assets. The meteoric rise of cryptocurrencies like bitcoin has gotten a lot of interest, as people are fascinated by the tales of early adopters who were able to turn thousands into millions. However, several may fall into the hands of fraudulent schemers while seeking an avenue to harness this fortune. Cryptocurrency scams refer to all fraudulent activities geared towards duping people of their crypto funds.

An amazing feature of cryptocurrencies is that their transactions cannot be reversed. This means that once a transaction is completed, it cannot be called back. This has helped safeguard the interests of persons performing business transactions, so no party defaults with payments. However, this may also come as a detriment to individuals who fall victims to cryptocurrency scams. This is because there is no way to reverse the funds transferred, which means the cryptocurrencies remain lost.

Cryptocurrencies scams are on the increase, with masked perpetrators duping people of their currencies online. The fact that transactions cannot be traced and are irreversible has made this a ripe business for scammers. Therefore there is a need to identify these crypto scams targeted at the crypto community.

Popular cryptocurrency scams and how to avoid them

  1. Social media scams
  2. Ponzi schemes
  3. Pyramid schemes
  4. Phishing scams

1. Social media scams

Everyone loves freebies which is why you would often find people super excited about crypto giveaways. It is not uncommon to find crypto companies or enthusiasts hosting a giveaway session. However, this has also created an avenue for crypto scammers to thrive. Social media scams are giveaway scams held on social media to lure crypto users. Crypto users are reeled in with promises of their cryptocurrencies being doubled. They are told to send in cryptocurrencies to an address with promises of their cryptocurrencies being doubled or even tripled.

It is doubtful that a legitimate giveaway would require that you send your crypto funds first before getting your prize. This is why you should be cautious so as not to fall into these scams. Suppose perhaps they look like they are from a genuine service provider. In that case, you should contact their customer support or visit their direct website to confirm the details of the giveaway.

Earlier in July 2020, high profile Twitter accounts of Joe Biden, Elon Musk, Bill Gates, and Barrack Obama were hacked, among several others, and one of the biggest crypto scams was pulled. Crypto users were asked to send bitcoin to a particular address with promises that it would be doubled. Several persons fell for that scam because of the popularity and personalities of these individuals.

2. Ponzi schemes

It is often said, especially when it comes to investment, "if it sounds too good to be true, then it most likely is." Perhaps, whoever said that might have had Ponzi schemes in mind. Ponzi schemes are investment opportunities with high profits but with promises of little to no risks. In fact, when you are being convinced of this investment scheme, you are informed that your profits are guaranteed. Investments come with many risks, which should be the first red flag you would notice in these investment schemes.

The interest or profit gained is not from the actual investment, but it is gotten from other investors' funds. The organizer sets up an "investment plan" promising investors a certain percentage for investing. The funds received from the investor are then added to a pool. In order to pay the older investors, they would need to add newcomers to the pool. A cut of the new entrants' funds is then paid to the old investors. Therefore, to pay investors their capital and interest, new entrants must be added to the pool. However, this is not sustainable as the inability to convince investors to participate in the scheme would lead to the collapse of the scheme.

3. Pyramid schemes

Pyramid schemes have the same base structure as a Ponzi scheme but involve a larger percentage of people, and it is more organised and structured. The organiser who is at the top of the pyramid hires new entrants who form the second tier of the pyramid. Each participant in the second tier of the pyramid hires a new set of entrants, forming the third tier of the pyramid. The pyramid grows and expands as new entrants are added to the "investment" scheme.  The person, an investor, introduces to the pyramid to earn his profit is known as a downline.

However, the remuneration structure is very much different from that of the Ponzi scheme. In order to participate in the pyramid scheme, investors are convinced to pay a certain amount for the rights to market a particular crypto product, token, or service. The organiser who brings in the second tier takes a cut from each participant's investment. The same goes for the second tier, which makes their profits from cuts from the third tier. However, it doesn't stop here; the organiser takes an amount from each participant brought in from the second tier, third tier, and so on. The second tier is also entitled to a cut from the third tier, the fourth tier up until the pyramid's end.

Through this structure, the wealth trickles upwards, and only stipends go to those at the lower bottom of the pyramid. Like the Ponzi scheme, the pyramid scheme is prone to dissolve because its source of revenue depends on finding new investors to make back your capital and some profits. Crypto projects that have faced the backlash of the public for allegedly running pyramid schemes include PlusToken, Bitconnect among others.

4. Phishing scams

The scammer, in this case, impersonates a trusted person or company to extract personal information from the victims. Phishing crimes can occur through messaging apps like telegram, websites, SMS, emails, and even telephone calls. The scammer can achieve this through spoofing, which involves creating a website clone or disguising an email address to imitate the legitimate company. They may alter some details, which is often not so evident, so the crypto users cannot detect these changes.

The scammer then proceeds to send you an email informing you about a problem with your crypto exchange. You are requested to provide your credentials to have this problem resolved. They prey on the fear of crypto users about having issues with their crypto wallets that may threaten their cryptocurrencies. Immediately you provide them with these details, they can log into your account and then steal your crypto funds.

How to spot phishing scams

Phishing scams are perpetrated by scammers in various ways. Some include:

  • Emails
  • SMS
  • Telegram/WhatsApp
  • Website

Email

While Yellow Card’s support email is [email protected], a phisher might disguise themself by sending you an email from [email protected] or [email protected]. Make sure you ONLY mail [email protected] for legitimate Yellow Card Customer Support.

What to note

  • You should note that all email from us will come from our domain - @yellowcard.io. Any email that isn’t from this domain is not from Yellow Card and should be deleted immediately.

SMS

What to note

  • Yellow Card does not send out text messages to verify transactions on your account. To ensure only you can perform transactions on your account, we have added Transaction PIN to Yellow Card 2.0 which is a 4-digit pin that authorises external transactions from your account. This PIN should never be shared with anyone else.

Telegram

Telegram is a social messaging platform that allows communities to stay in touch, pass useful information and help one another. However, scammers have turned to this platform to prey on members of crypto communities by sending phishing messages to them.

These messages usually offer unsolicited assistance and request for your personal information such as your Yellow Card account phone number, email address or password.

What to note

  • Yellow Card does not offer support on Telegram. To get assistance from Yellow Card support send an email to [email protected] or use the Live Chat on the Yellow Card Website.
  • Regardless of the platform, we will not offer unsolicited help nor would we request for your personal details. Any assistance you will get from an employee of Yellow Card will be from an official channel.

Website

Scammers go to great lengths to design websites that mirror a legitimate site and direct unsuspecting users to such fake sites via emails, SMS or social media. They then collect sensitive information when users interact with these fake sites.

Such websites have URLs that closely look like the real website’s. For example, any webpage on any domain other than yellowcard.io is most likely a phishing site, no matter how closely it resembles our website just like in the example below.

What to note

  • Paying close attention to the URL will show that it is web.yellowcards.io. This is a fake site. Our website URL is yellowcard.io and our web app URL is web.yellowcard.io. Any variation no matter how small could lead to a phishing site.
  • If you find yourself on a phishing website, close the tab immediately and do not share any sensitive information on it.

Learn more about phishing and how to avoid them.

Additional tips to keep in mind

It would help if you kept in mind certain tips that would safeguard you against exploitation by these crypto scammers and protect other crypto users.

  • Never give your account details to any solicited person

It is essential that in no circumstance should you reveal your account details to anyone on social media. If you have any problem with your account, you should contact the company's official support group. You should also ensure that the email address is the correct one by confirming on the company's website. Most crypto exchanges or wallets wouldn't request your password or crypto address before solving their issues. They have your account information on their systems. They can easily confirm your identity without you having to provide such sensitive information.

  • Report and block any phishing account or profile

Once you note any phishing account or profile, it is your responsibility to report and block these accounts to protect other crypto users' interests, so they don't fall prey to such a cryptocurrency scam.

  • Engage with only the official accounts or profile of your service provider.

A good tactic is to bookmark the official website of your service provider, so you don't mistakenly log into a clone website. You should also follow only the official social media accounts of your service provider to stay informed about the happenings in the company of your service provider.

Final Note

Cryptocurrency scams are on the increase, which means you have to be more cautious to identify and avoid them. Firstly, as impressive as a giveaway may sound, if it requires that you send any crypto first before you can benefit from it, then it is best you steer clear from it. You should never reveal your details to anyone because they could use that to steal your funds. Cryptocurrencies have enough risks without you having to worry about being scammed.

Disclaimer: This article is meant to provide general guidance and understanding of cryptocurrency and the Blockchain network. It’s not an exhaustive list and should not be taken as financial advice. Yellow Card Academy is not responsible for your investment decisions.

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