Fraud in the cryptocurrency business is a serious problem that can affect both new and experienced investors. Here are some of the main types of fraud that occur in the cryptocurrency market:
1. Pyramids and Ponzi schemes
Cryptocurrency pyramids work according to the same scheme as classic pyramids: early investors make a profit from the investments of new participants. Such schemes promise huge profits in a short period of time, but in the end, most participants lose their money when the influx of new investors dries up.
Example: The BitConnect scheme promised high returns on cryptocurrency investments, but in 2018 the project collapsed and investors lost millions of dollars.
2. ЀДĐčĐșĐŸĐČŃĐ” ICO Đž IEO (Initial Coin Offerings / Initial Exchange Offerings)
ICO is an initial coin offering, where new cryptocurrency projects raise money from investors by issuing their tokens. Many scammers create fake projects with tempting promises, but after receiving the funds, they disappear.
Example: The OneCoin project raised billions of dollars worldwide by promising to create a new cryptocurrency, but it turned out to be a massive scam.
3. Phishing
Fraudsters often create fake websites that look like well-known cryptocurrency exchanges or wallets to steal users' logins and passwords. They also send phishing emails to obtain sensitive information.
Example: Scammers create fake pages that look like the Binance exchange to trick users into entering their details and gaining access to their accounts.
4. Pump and Dump (market manipulation)
Scammers collude with a group of people or use their platforms to artificially inflate the price of a cryptocurrency by buying large amounts of coins. Once the price spikes (called a "pump"), the scammers sell their holdings (called a "dump"), causing the market to crash and latecomers to lose their money.
Example: This often happens with low liquidity cryptocurrencies or new tokens that are easily manipulated.
5. Exchange and wallet hacks
Fraudsters can attack cryptocurrency exchanges or online wallets to steal users' funds. Even large exchanges are sometimes hacked, and users lose significant amounts.
Example: Mt. Gox, one of the largest exchanges in the world at the time, was hacked in 2014, resulting in the loss of over 850,000 bitcoins.
6. Scam projects and empty tokens
Some projects create cryptocurrencies or tokens that have no real value or use, but attract investors through marketing campaigns and false promises. After receiving investments, the project disappears.
Example: The SQUID project, allegedly related to the popular show "The Squid Game", collected money from investors and disappeared without a trace, leaving participants with useless tokens.
7. Smart contracts with vulnerabilities
Many blockchain projects use smart contracts, but if such contracts have vulnerabilities, this can lead to hacks or loss of funds. Fraudsters can intentionally plant such vulnerabilities in order to steal money from the project.
Example: In 2016, The DAO project was hacked due to a vulnerability in smart contracts on the Ethereum platform, and hackers stole about $60 million.
8. Clones of cryptocurrency projects
Scammers can create clones of existing or popular projects with minimal changes and attract investors who are unaware of the fake. These clones may look legitimate, but usually disappear quickly after they have collected enough money.
Example: Scammers may copy an existing project and change only minor details, asking users to invest in the "new" version.
9. Fake exchanges
Some scammers create fake cryptocurrency exchanges that look legitimate, but once users transfer their funds to them, they lose access to their money and the exchange shuts down.
Example: Scam exchanges may attract attention by offering low fees or bonuses, only to disappear with users' money.
How to protect yourself:
Research the Project: Before investing in cryptocurrencies or tokens, thoroughly research the project, its team, and documentation.
Use trusted exchanges: Work only with reputable and large exchanges that have good reviews and high security.
Two-factor authentication (2FA): Use 2FA to secure your exchange and wallet accounts.
Be careful with promises of high returns: If you are promised high returns with minimal risks, it is most likely a scam.
Verify URLs: Always verify website URLs and beware of phishing attacks.
Scams in the cryptocurrency business can take many forms, and it is important to be vigilant, research projects carefully, and not trust promises of easy money.
