Your guide to the three most common crypto scams
It’s Scams Awareness Week and CoinJar is an official partner. Today we’re looking at the most common crypto scams – investment schemes, romance scams and rug pulls.
You’ve probably all seen the ads or emails about high-profile celebrities – Hugh Jackman! Nicole Kidman! – promoting Bitcoin investment platforms that promise guaranteed 1000% profits.
Click through and you’ll be taken to a legitimate seeming website and asked to register your interest. From there, you may receive a phone call encouraging you to send a small amount of money or crypto to start your account. When that appears to go up in value (and you can usually track it in ‘real-time’ on a sophisticated but completely fake account dashboard), you’ll be asked to send more. The number will keep on going up and up, until you try and withdraw your newfound gains and discover that they were only ever numbers on a screen.
Investment schemes have long been the biggest single part of the scam landscape and cryptocurrencies are driving it to new heights – almost $100 million has been lost to investment-based scams so far this year.
Second only to investment schemes, romance scams are a massive and growing part of the scam landscape, accounting for close to $50 million in losses so far in 2021.
Romance scams generally begin through social media or dating apps. Once an initial connection is made, the scammer will lavish you with attention and compliments. Victims often report chatting to their scammers online for hours each day, developing a relationship that feels profound and real. Some planned to marry – as soon as they were able to meet face-to-face.
Once the relationship has been established over weeks or months, the scammer will claim to be in financial trouble. “I need money to get back to Australia to be with you”. “My mother is sick and we can’t pay her hospital bills”. “I’ll pay you back as soon as I get this job.” Usually a small amount first, but over time the requests can build to tens of thousands of dollars. And then, at the first trace of suspicion, they disappear.
The rise of decentralised exchanges like Uniswap and Sushiswap has made the process of creating and listing a crypto token easier than ever – as well as introducing a new phrase to the crypto lexicon: the rug pull.
Rug pulls occur when the developers behind a crypto project disappear, taking with them the millions of dollars worth of crypto that investors have given them to buy unreleased tokens or as contributions to token liquidity pools.
These projects will often have white papers, development timelines and slick-looking websites to make them seem legit. And in the short term the tokens can do incredibly well, going up by thousands of percent in a matter of days or weeks.
However, if you scrape the surface there are usually warning signs. They’ll typically be meme-based tokens, capitalising on market FOMO or pop culture frenzies (i.e. the $SQUID token fiasco). They’ll often have anonymous development teams, staffed by people with no LinkedIn profiles or professional history. There can be onerous lock-up requirements that stop people from selling their tokens until it's far too late.
According to at least one estimate, more than US$200 million will be lost to rug pulls in 2021. So, if you’re looking to invest your crypto, do your due diligence – and don’t invest in a token named after a TV show.
If in doubt...
Crypto scammers are continuously changing and refining their techniques, so the best thing you can do is approach everything involving your crypto with a healthy degree of skepticism.
If you’re unsure about something, contact CoinJar Support. We’re constantly monitoring suspicious wallets and websites and can help you work out whether something is a scam or not.
The CoinJar Team