Tips for Spotting Crypto Scams

Am I in a crypto scam? 

You gotta love crypto, but you've got to be alert and vigilant for crypto fraud and scams. You should constantly be asking yourself, "Am I in a crypto scam?" or "Am I about to get scammed?" it's essential to recognize the warning signs and how to navigate the ecosystem. Let's explore how to identify a crypto scam and how to avoid getting tangled up in one. 

Key Takeaway

The more you up your fraud and scam intelligence game the less you worry about scams. Crypto scam talk may deter newbies and others but it's part of the game. Education is the key to navigate crypto with ease, as if fraud and scams didn't exist. 

Crypto hacks and scams go hand in hand

Hacks and scams may seem like the same thing, but they are very different. Fraudsters often combine hacks and scams to pull off their ever increasingly clever tactics. 

Case Study: For example, Hackers Scammed $500K In Crypto from Twitter Users In Just 20 Minutes. Vitalik Buterin, co-founder of Ethereum, has his X account hacked with the hacker subsequently tweeting:

"To celebrate Proto-Danksharding coming to Ethereum, [Consensys] is marking the moment with a commemorative NFT,” the tweet stated. “‘Proto’ honors the work of the devs who made this possible. The collection is free for the next 24 hours. Claim your piece of history.”

Of course the NFT link was a wallet drainer that siphoned off NFTs worth more than $500K. Vitalik's X account was the hack and the fake NFT link was the scam. Vitalik is one of the most trusted people in the crypto space, so many people didn't give the tweet a second thought and immediately clicked the link with FOMO (fear of missing out) in mind.  

Crypto scam red flags

Crypto scams come in various forms, but they often share common red flags. Redundancy is your friend, and when it comes to crypto scams, the obvious needs repeating to drive home the point. Here are some signs that you might be in a crypto scam:

• Double your money. Crazy, too-good-to-be true offers should be obvious but people still fall for it. No one is going to give you $2,000 because you gave them $1,000 first.
• Unrealistic promises. If an investment opportunity guarantees high returns with little to no risk, it's likely too good to be true. Scammers lure victims with promises of quick and easy money, but legitimate investments come with risk. The higher the risk the higher the return. 
• Pressure tactics. Scammers often use high-pressure tactics to rush you into making a decision. They might say that the offer is only available for a limited time or that you'll miss out if you don't act immediately. They are leveraging FOMO. Real investment opportunities don't come with this kind of urgency. 
• Lack of transparency. If the project's details are vague or the team behind it is anonymous or has no verifiable track record, it could be a scam. Legitimate projects are usually transparent about their goals, technology, and team members. Some legit projects do have anonymous teams for various reasons so lack of transparency doesn't always mean scam. 
• Unsolicited offers. Be cautious of unsolicited messages, emails, or social media contacts offering investment opportunities. Scammers often reach out to potential victims directly, making enticing offers that seem legitimate. 

Key Takeaway

Investors seek investment opportunities inside and outside of crypto. This means you DYOR (do your own research) and make the inquiry. On the contrary, legitimate investment opportunities don't come beating out your door. It simply doesn't work that way. 

Types of crypto scams

• Ponzi schemes. These scams promise high returns and pay existing investors with funds from new investors. They collapse when there aren't enough new investors to pay returns.
• Celebrity offer scams. Michael Saylor has been posted in many deep fake videos offering a double your money back giveaway scam. Just like Vitalik Buterin, many other crypto celebrities have been exploited so scammers can leverage the credibility factor. 
• Phishing. Scammers use fake websites or emails to trick you into providing your private keys or login information, which they then use to steal your funds. 
• Rug pulls. New token projects may be a legitimate way to raise funds, but scammers create new tokens, hype them up, collect your crypto, and then disappear. 
• Pump and dump schemes. Scammers artificially inflate the price of a cryptocurrency through false or misleading information, encouraging others to buy in. Once the price peaks, the scammers sell their holdings, causing the price to plummet and leaving other investors with losses. This is an unfortunate problem even some respective market makers also engage in. 

What to do if you suspect a crypto scam

1. Stop investing. 

If you suspect you're in a scam, stop investing more money immediately. Don't be swayed by promises of recovering your losses by paying a "tax" or some other fee to get your assets back. It's the classic case of scammers attempting to suck as much money as they can from you. This is a classic trick in pig butchering scams.

Key Takeaway

Unfortunately this tip is easier said than done. When a victim is deep in the middle of the scam all their logic had gone out the window. They can't think clearly and more than 90% of the time they continue to ask friends and family for more money until they get sucked dry. At this point noone can convince them their in a scam. 

2. Report the scam.

Report suspected scams to the Cryptocurrency Compliance Cooperative. They track scams and report them to law enforcement. You are contributing to detection and prevention of the overall crypto ecosystem. Reporting helps protect others and can aid in potential investigations even though it likely won't help you get your assets back. 

3. Seek legal and tax advice.

If you've lost money in a scam, consult with a lawyer who specializes in financial fraud and/or a CPA who specializes in crypto tax. They can advise you on your options, including potential deductibility of the loss. Keep in mind, however, it's nearly impossible to recover lost crypto. The best way to not lose crypto to scammers is to know how to spot scams in the first place.

4. Stay vigilant.

Crypto scams are unfortunately common, but by staying informed and cautious, you can protect yourself. If you're asking yourself whether you’re in a crypto scam, trust your instincts and look for the warning signs. Always do your due diligence before investing and remember that legitimate opportunities don't seek you out. Stay vigilant and remember: Prevention is the least expensive method of dealing with crypto scams. 

Remember your goal is always to get a Crypto Bullseye™.

Yours in Crypto,

Kirk David Phillips, CPA, CMA, CFE, CBP

Content Insight

This content has been created through a collaborative effort, combining the capabilities of artificial intelligence (AI) technology and the expertise of a seasoned professional with extensive experience in the crypto space. While AI played a role in generating portions of this material, it has been carefully reviewed, researched, and refined by a human expert to ensure accuracy, relevance, and a nuanced understanding of the subject matter. The information presented herein reflects a synthesis of AI-generated insights and the real-world knowledge contributed by the human expert, aiming to provide a comprehensive and well-informed perspective on the topic. Users are encouraged to verify details independently and seek advice from qualified professionals before making any financial or investment decisions.