Common Cryptocurrency Scams and Prevention Tips

Wherever money is involved, scams are bound to appear. The same applies to cryptocurrency.

In 2024, cryptocurrency and Bitcoin reached a record-breaking peak. This surge is likely to trigger urgency among investors looking to profit from digital currencies, along with a rise in scammers seeking to exploit this frenzy. Scams increased significantly in 2023, with the FBI's Internet Crime Complaint Center estimating losses surpassing $5.6 billion — approximately half of all reported fraud-related losses. Compared to 2022, total losses rose by 45% in 2023, and with prices soaring in 2024, scammers continue to devise new tactics to target people hoping to generate income.

Digital currency is a type of money stored in a digital wallet, and owners can convert it to cash by transferring it to a bank account. Cryptocurrencies like Bitcoin, however, differ from digital currencies. They rely on blockchain verification and are not controlled by a centralized authority, such as a bank, making them more difficult to recover after theft.

Although cryptocurrency is a relatively new trend, scammers often use traditional methods to commit fraud. Below are some common types of cryptocurrency scams to be aware of.

1. Bitcoin Investment Schemes

The FBI reports that investment schemes are the most frequently reported type of fraud. In Bitcoin investment schemes, scammers pose as experienced "investment managers." These imposters claim to have earned millions by investing in cryptocurrency and promise substantial returns to their victims.

To participate, victims are asked to pay an upfront fee. Instead of profiting, victims lose their initial investment as the fraudsters steal the money. These scammers may also request personal identification, claiming it is necessary for fund transfers, which they use to gain unauthorized access to cryptocurrency accounts.

Another common investment scam involves fake celebrity endorsements. Fraudsters use real photos and overlay them on fake profiles, advertisements, or articles to make it appear as though a famous person is endorsing a lucrative investment opportunity. The scam often appears legitimate, featuring well-known company names like ABC or CBS, complete with professional-looking logos and websites. However, the endorsement is entirely fabricated.

2. Rug Pull Scams

Rug pull scams involve fraudsters hyping up a new project, non-fungible token (NFT), or coin to secure funding. Once they collect the money, they disappear with the funds. The coding for these investments often restricts buyers from selling their coins, leaving them with worthless tokens.

A typical rug pull scam involves a fake Initial Coin Offering (ICO), where scammers advertise a non-existent project or coin. A notorious example is the Squid Coin scam, inspired by the popular Netflix show Squid Game. Investors purchased tokens to participate in online games, hoping to earn cryptocurrency. The price of the Squid token skyrocketed from $0.01 to $90 per token.

Eventually, trading was halted, and the funds vanished. The token value dropped to zero as users attempted—and failed—to sell their tokens. The fraudsters made approximately $3 million from this scam. Rug pull scams are also prevalent in the NFT market, targeting unique digital assets.

3. Romance Scams

Dating apps are frequent targets for cryptocurrency scams. These scams typically involve long-distance, online-only relationships where one party slowly builds the other's trust. Once trust is established, the scammer convinces the victim to purchase or transfer cryptocurrency.

Once they receive the funds, the scammer vanishes. These scams are also referred to as "pig butchering scams."
According to the FTC, romance scams cost consumers $1.179 billion in 2023.

4. Phishing Scams

Phishing scams have existed for years but remain popular. Scammers send emails containing malicious links that direct users to fake websites designed to steal sensitive details, such as cryptocurrency wallet keys.

Unlike passwords, private wallet keys are unique and cannot be changed if compromised. Each key is tied to a specific wallet, and creating a new key often requires setting up an entirely new wallet.

To avoid phishing scams, never input secure information through links provided in emails. Always visit the official website directly, regardless of how legitimate the link appears.

5. Man-in-the-Middle (MITM) Attacks

When users access cryptocurrency accounts on public networks, scammers can intercept their sensitive information. Fraudsters use MITM attacks to capture data sent over public Wi-Fi, including passwords, wallet keys, and account details.

A MITM attacker intercepts Wi-Fi signals within proximity to steal data. The best defense against these attacks is using a Virtual Private Network (VPN), which encrypts data and prevents unauthorized access.

6. Social Media Cryptocurrency Giveaway Scams

Fraudulent posts on social media often promise free Bitcoin giveaways. Some scams also feature fake celebrity accounts endorsing these giveaways to attract victims.

When users click on these offers, they are directed to fraudulent websites asking for verification, which requires payment. Victims lose their money and may also click malicious links that compromise their personal information.

7. Ponzi Schemes

Ponzi schemes pay earlier investors using funds collected from new investors. Cryptocurrency scammers often lure new victims with promises of Bitcoin profits, but there are no legitimate investments—only funds from new recruits.

The main draw of a Ponzi scheme is the promise of huge returns with minimal risk. However, all investments carry risk, and guaranteed profits do not exist.

In 2024, a Ponzi scheme led by Jonathan and Tanner Adam promised 13.5% monthly returns by claiming their bot could exploit cryptocurrency price differences. The $60 million they raised funded luxury purchases instead. The SEC charged them on August 26, 2024, for violating federal securities laws.

8. Fake Cryptocurrency Exchanges

Fraudsters create fake cryptocurrency exchange platforms promising great deals or bonuses. Victims only realize the fraud after they lose their deposits.

To avoid these scams, use reputable exchanges such as Coinbase, Crypto.com, or Cash App. Research the exchange’s legitimacy before entering personal information.

9. Job Scams and Fraudulent Recruiters

Scammers impersonate recruiters to access cryptocurrency accounts. They offer enticing jobs but require cryptocurrency payments for "training."

Remote job scams also target employers. In one case, North Korean IT freelancers posed as U.S.-based professionals to secure remote work. In 2022, a Sky Mavis engineer was targeted via LinkedIn, leading to the $600 million Axie Infinity bridge attack.

10. Flash Loan Attacks

Flash loans are quick loans used for immediate trades. Scammers manipulate decentralized finance platforms by creating false demand through large buy/sell orders. In February 2023, Platypus Finance suffered an $8.5 million loss from a flash loan attack.

11. AI-Driven Scams

With advancements in AI, scammers use chatbots to promote fake tokens or investment schemes. They also create deepfake videos of celebrities endorsing fraudulent cryptocurrency projects.

12. Bitcoin ATMs (BTMs)

Scammers trick victims into depositing cash into BTMs, claiming these machines are "safety lockers." Victims scan a QR code that sends money directly to the scammer’s wallet.

How to Protect Your Cryptocurrency

• Be wary of offers promising large returns.
• Avoid entering private wallet keys on unfamiliar platforms.
• Use hardware wallets for added security.
• Always verify account-related alerts through official sources.