Don't Be Fooled.
Avoiding Scams in Crypto
It’s one of the only days where you are actually allowed to trick someone, but today we are going to learn about popular scams in the Digital space.
One of the main reasons cryptocurrencies can be scary for newcomers is the number of scams that plague the entire ecosystem. While some of these scams are simple and obvious, others are more complex and sometimes difficult to avoid.
Over the past several years, cryptocurrency scams have evolved. These con artists continually innovate and have been consistently improving their techniques. In 2020 over 1.8 billion USD was lost to crypto scams alone.
Types of Common Cryptocurrency Scams
Giveaway Scam
Scammers will promise you free cryptocurrency as part of a giveaway and will request that you verify your wallet address by sending cryptocurrency to a given wallet address. One such scam netted in over 110,000 USD worth of different digital assets in July 2020. With many crypto twitter handles not being fully verified, neophytes to the space fall pray to this attack easily. An impersonator posts their giveaway address promising to double their sent in crypto.
While social media platforms have recently started to actively crackdown on scam posts and fake accounts, scammers have continued to invent new techniques to promote their giveaway scams.
Investment Scam
This is another rampant scam prominent on Twitter and Reddit. The promise of massive returns with little initial investment. Most investments on blockchain systems run through contracts and don’t ask for money to be transferred out of your account. Contracts like Maker DAO and Compound lock your assets into your current wallet address. This may look like many different services, but if someone is actively asking to send assets then this is a scam. While the scammer might initially reassure you with small amounts of the promised returns, eventually they will take off with all your assets and disappear without a trace.
Believe it or not, these types of scams are very common among newcomers without much knowledge of the industry. Examples of investment scams include Ponzi and pyramid schemes. In some cases, social media influencers might be engaged to help lend credibility and promote fraudulent services and products. Some of these investment scams may also be promoted through some form of contest or marketing campaign.
Phishing Scam
Phishing scams are neither new nor limited to the crypto universe. Threat actors use phishing techniques to get into online bank, email, and other password-protected accounts. While phishing attacks can come in various shapes and forms, the end goal is to trick victims into handing over sensitive data and login credentials to get access to your crypto assets.
A common method used in phishing attacks is to trick victims into visiting a website that appears to be of a legitimate service. The service could be a crypto exchange, a wallet, or some other crypto-related service used by the victim that requires a password or other access credentials. Victims are usually deceived by the use of a website domain address that is very similar to the official address of the real website or platform that they are trying to access.
ICO Scams
An initial coin offering (ICO) is a fundraising initiative for a token project. ICOs can be used for fraudulent purposes, and there have been a few high profile cases involving ICO exit scams.
The con is try to convince people to buy into a new token project by purchasing the new token in an ICO. Once enough people have purchased the tokens, the scammers will disappear with the funds collected from purchasers.
If the token price appreciates due to over-promotion and strong demand, the scammer may dump their stock of tokens to cash out an additional profit. This may result in a corresponding price drop and leave the other purchasers with tokens that have no real value. This scam is also known as a pump-and-dump scheme.
Sometimes it can be difficult to tell legitimate ICOs from scams. With that in mind, most of these overnight successes don’t last anyways. It is best to avoid 99% of initial coin offerings and if considering it, using a very small portion of your funds.
SIM Swap
One of the most devastating of these attacks is the SIM swap attack. In a "SIM-swap" scheme, criminals can intercept sensitive information by taking over a victim's phone number associated with their device's SIM card.
Fraudsters target highly influential Twitter handles by combing through comments and looking for people flaunting wealth in their profiles. This person is then specifically targeted and the attackers begin building their recovery profile on the victim. They deactivate the SIM card on your phone and port its number to a new one controlled by the bad actors. Once this is bypassed, they have access to all of your accounts since resetting passwords is generally linked to your given phone number.
One of the best ways to prevent this type of attack is by using 2 factor authentication (2FA) instead of allowing businesses to send verification codes via SMS text. If your SIM card does become compromised your account can remain safe as most 2FA applications are tied to one device such as Authy.
Tips to Avoid Cryptocurrency Scams
Avoid sending cryptocurrency to unknown external addresses. You can use a block explorer, Etherscan, to check the address and see if the transactions look legitimate or if someone has commented on this address. Many scam addresses have comments of previous victims pleading to return their funds.
Avoid sending cryptocurrency under the false pretext of address verification for a promised giveaway.
Do not fall for fake screenshots promoting cryptocurrency offers and giveaways on social media. Even if the account handle looks familiar, check whether the posts were actually made by official social media accounts.
Be careful about websites promising high returns or unrealistic profits. Do some research on the service or product provider on your own by checking with consumer protection websites and investor warning lists maintained by regulators.
If a website or project claims to be affiliated with a trusted party always confirm the relationship through independent sources.
Watch out for spelling or grammatical mistakes in communications or website domain addresses when working with support teams
as that could be an indication of fraudulent activity.
Always do your own RESEARCH before purchasing new tokens in ICOs or lesser-known cryptocurrencies.
Use two-factor authentication (2FA) to safeguard your account.
Got a lot of positive news this week. Institutional interest is on the rise, folks.
Podcast of the week:
PayPal Opens Crypto Payments for Millions of Merchants by NWL
Square CFO Says There’s ‘Absolutely a Case’ for All Balance Sheets to Have Bitcoin
The chief financial officer (CFO) of payments giant Square, Amrita Ahuja, believes more companies need to get on board with cryptocurrency.
In an interview with Fortune Magazine’s new CFO newsletter on Sunday, Ahuja said her company sees bitcoin (BTC, +1.08%) and cryptocurrency in general as “expanding access to financial services” particularly on a global scale.
“There’s absolutely a case for every balance sheet to have bitcoin on it,” said Ahuja in relation to user adoption and an emerging trend by large firms to pick up the nascent asset class. Read more.
Visa Settles USDC Transaction on Ethereum, Plans Rollout to Partners
Visa has processed a cryptocurrency payment directly on the Ethereum blockchain as part of a new service the payment giant plans to introduce to its partners later this year.
Per a press release shared with CoinDesk, Crypto.com sent a USDC (-0.03%) stablecoin transaction on Ethereum to an account at Anchorage custody under Visa’s name. Crypto.com issues “crypto-backed” Visa cards that allow its users to spend the coins in their Crypto.com wallet.
United States dollar coin, or USDC, is a stablecoin pegged 1-to-1 with the dollar. It is the second-largest stablecoin with an $11 billion capitalization.
Usually, Crypto.com has to sell cryptocurrencies to cover its obligations to Visa in cash, but this new program will allow the company to pay in USDC. The pilot could be a bellwether for mainstream acceptance of crypto-native payment methods because it marks the first time Visa has accepted a cryptocurrency payment in lieu of cash for its services. Read more.
Goldman Sachs to Offer Bitcoin to Wealth Management Clients
Investment bank Goldman Sachs has confirmed it is close to offering crypto to its private wealth management (PWM) clients and has appointed a new global head to manage the segments.
In an internal announcement shared with CoinDesk, Goldman Sachs said Mary Rich has been promoted to global head of the Digital Assets Group for private wealth management at the bank and will work with advisers to educate clients about the digital assets and blockchain technology.
Crypto Firm Uphold Gets US OK to Buy Broker-Dealer JNK Securities
Crypto startup Uphold has been given the green light by a U.S. financial regulator to acquire a broker-dealer firm and begin offering licensed securities.
The approval by the Financial Industry Regulatory Authority (FINRA) paves the way for the digital finance platform to scoop up JNK Securities following its initial filing in 2018, according to a press release shared with CoinDesk on Wednesday.
Uphold is set to become one of the first cryptocurrency businesses in the U.S. to offer securities on an omnibus basis to retail investors, the company said. Uphold also said it now plans to launch fractional equities in the U.S. sometime this year and to provide trading between cryptocurrencies, stocks and precious metals, among others. Read more.
That’s all for the free weekly Crypto Crier. If you enjoyed this article please like and share. If you have any questions, please leave a comment and I can answer your questions further. As with all of my writing, this is not financial advice and is my opinion. I cannot stress enough how important it is to do your own research on all financial endeavors. I hope that these newsletters can help investors realize the current financial systems’ downfalls and usher in a more equitable system without middlemen.
Let’s build something together.
Tell your friends and family. This is targeted at entry level education for possible crypto investors. With more people understanding digital assets we can finally progress to better . 🗣️
If you enjoyed this article, please consider subscribing to my paid newsletter which includes daily analysis of my top picks and setups for entry/exit positions. All of these extras for the price of taking me to lunch.