How to Avoid Cryptocurrency Scams 

Seemingly overnight, crypto went from what seemed like a joke or short-lived experiment to a potentially very lucrative market for investment and speculation.

The complexity of cryptocurrency and the volatility of its market already pose significant risks, but these are not the only concerns. Due to its anonymity, complexity, and appeal, cryptocurrency has attracted countless scammers and is used by many of them in their activities. Fortunately, by remaining cautious and informed, you can reduce the risk of falling for one of these scams.

Why do scammers love crypto?

The first step in avoiding cryptocurrency scams is to understand why scammers are drawn to crypto in the first place. There are several reasons, each as important as the last:

Appeal: Some cryptocurrencies have seen enormous returns in a short time frame, making investors potential millionaires overnight. Many scams rely on presenting potential victims with an opportunity that’s simply too good to pass up, and so a scam that might seem “too good to be true” for regular financial markets might seem attainable in cryptocurrency, making potential victims less wary of the scam.

Complexity: The cryptocurrency market is very technologically complex, and so the average person has much less of an understanding of crypto than they might of a more traditional market. This lack of understanding allows the scammer to get away with promises and explanations that are barely grounded.

Anonymity: Cryptocurrency is anonymous by design, allowing scammers to take fewer risks when it comes to withdrawing money and exiting the scam.

Regulation: Cryptocurrency is far less regulated than traditional financial markets, which makes it both easier for scammers to set up scams and harder for law enforcement to respond.

Non-reversible: Cryptocurrency payments are not typically reversible like some card transactions or other traditional payments might be, making it easier for the scammer to abscond with the money.

What kinds of cryptocurrency scams are out there?

There are a wide variety of scams possible in cryptocurrency, but most tend to fall into three major categories:

Scam currencies: With so many different currencies on the market, it is impossible to keep track of them all. Scammers take advantage of this by trying to get their potential victims to invest in a “new” cryptocurrency.They tout the performance of their new currency/token, which in many cases simply does not exist, take payment from their victims, and simply disappear.

Investment opportunities: Scammers don’t need to invent a new cryptocurrency to try to convince people to invest with them. Some scammers might pitch a new investment/trading platform, or they might suggest that you just invest directly through them, since they have “insider knowledge.” Like with scam currencies, this allows the scammer to simply disappear once they have the money.

Cryptocurrency payments: Many scammers will ask for payment in cryptocurrency while executing a separate scam, such as posing as a business or government entity that is demanding payment. This is commonly seen in IRS scams, where the scammer convinces their target that they owe lots of money in taxes, or in tech support scams, where the scammer convinces their target that their computer is infected with malware and only they can fix it. In these cases, the scammer requests payment in cryptocurrency to hide behind its anonymity.

What to watch to avoid a cryptocurrency scam

While these scams can take a wide range of forms, there are a few key things to remember when trying to spot a scam:

Payment is demanded in crypto: No government entity will insist that you pay in cryptocurrency.

Over-the-top promises: If it sounds too good to be true, then it is a scam. Beware if you are promised extraordinary returns on your investments, no downsides to your investment, or “free money.”

Communication methods: Many crypto scammers communicate via free messaging services that work internationally. While they can be a great service for communicating with people you know, they are also the preferred medium for scammers. If you are receiving cryptocurrency investment advice/opportunities (especially unsolicited advice) via WhatsApp, Telegram, Facebook messenger, or a similar service, it is a scam.

Investing in cryptocurrencies can be very tempting, as the benefits have the rare potential to be significant. But it is vital that any potential investor keep a watchful eye on the opportunities that are presented to them. By knowing the signs of a crypto scam, you can help keep your investments and yourself safe.