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Crypto Scams 101: What They Are and How They Work

Shard Labs Jul 13
Disclaimer: This article is meant to provide general information and to help wider educate people. It is not financial advice of any sort, and it should not be taken in any way as such. Shard Labs would like to remind you that keeping it safe is ALWAYS vital. Never give your wallet keys or access codes to anyone.

What Crypto Scams Are and How They Work

Over the past few years, Web3 technologies and the crypto world have experienced extraordinary growth in popularity and development, capturing the attention of individuals, businesses, and investors worldwide. As the crypto world continues to evolve, its impact continues to expand, shaping the future of finance, technology, and various industries on a global scale.

Cryptocurrencies in particular have become very popular – they offer a lot of benefits thanks to their decentralized nature, but they also attract a lot of scammers who want to exploit people who are new to this space, as it happens in any other industry. That’s why you need to be smart and savvy about these scams, learn how to spot them, and how to deal with them.

But the world of crypto scams may seem overwhelming for newcomers…

However, worry not!

In our three-part Crypto Scams 101 blog series, we break down this complex subject into easily understandable and practical information that will help you protect yourself from scams!

Let’s start from the beginning!

What are Crypto Scams?

Crypto scams are attempts to steal your crypto assets or your private information using fake claims, manipulation, or deceit. Although scams are no surprise in a digital world, crypto scams differ from other financial scams because of the specific characteristics that the crypto world has, such as:

  • Crypto transfers can’t be reversed
  • People have limited knowledge about the crypto world
  • Crypto banking has a decentralized nature, instead of a specific bank or other centralized authority

Since the beginning of 2021, the Federal Trade Commission (FTC) has received reports from over 46,000 individuals who lost more than $1 billion to crypto scams. And that number only continues to grow.

Now that you have a basic understanding of what crypto scams are and how common they are, let’s explore how they have evolved and expanded across different platforms and channels.

The Rise of Crypto Scams Across The Platforms

Crypto scams have increased dramatically in recent years due to various reasons, such as the popularity of cryptocurrency, the lack of regulation and consumer protection in the crypto space, the anonymity and complexity of cryptocurrency transactions, and more. In most cases, crypto scammers will pose as legitimate companies, celebrities, experts, or authorities and usually promise you high returns or urgent payments.

For example, consumers reported losing more than $2 million to Elon Musk impersonators alone since October 2022, according to The Verge.

Social media and other platforms have played a significant role in facilitating these scams, offering a wide reach and anonymity for scammers to target unsuspecting individuals. A big example of a crypto scam that circulated through social media in 2022 was a deepfake video of Elon Musk where “he” is promoting a fake cryptocurrency platform claiming to offer some crazy high returns on crypto deposits. The video, which was poorly made and had a robotic voice, was circulated on YouTube and Twitter, but luckily was quickly debunked by the real Musk and others.

Keep an eye out for the following platforms, as they have also been identified as common channels for crypto scams:

Social media platforms

  • Twitter – Twitter scams are very common and can result in significant losses for crypto users. Scammers pretend to be famous people, companies, or projects in the crypto space and offer fake giveaways, crazy returns on investment, etc. They aim to trick users into sharing personal information, sending money, or engaging in fraudulent activities. It usually happens through direct messages (DMs), deceptive links, tagging from fake profiles, impersonation tactics, and tempting offers. And with the recent introduction of a paid feature that allows any user to obtain a verified blue checkmark, it has become more challenging to distinguish legitimate accounts from potential crypto scams.
  • InstagramFor many people, Instagram is the go-to app for entertainment and connecting with others. Unfortunately, cybercriminals also use this app to trick people online with various types of scams, and crypto scams are one of them. Surprisingly, Instagram is the top platform for cryptocurrency fraud losses, according to the 2022 report by the FTC. Scammers use the platform to lure users into sending or losing their cryptocurrency with fake offers, phishing links, or impersonation. They may pretend to be celebrities, influencers, or projects, and promise giveaways, rewards, or tips in exchange for crypto payments. They may also direct users to fake exchanges, websites, or apps that steal their credentials or infect their devices.
  • YouTube – This popular video-sharing platform, has been a hotbed for crypto scams, especially those involving deepfake videos of celebrities and influencers. Deepfake videos are created by artificial intelligence that manipulates existing footage to make it appear that someone is saying or doing something they are not. Scammers use these videos to promote fake cryptocurrency giveaways, promising huge returns to viewers who send them crypto coins. These scams have been targeting YouTube channels with large followings, hijacking their accounts, and streaming deepfake videos to their audiences. According to some estimates, these AI-powered scams —which are becoming more sophisticated and are posing a severe threat to the crypto community— have made millions of dollars in 2021 alone.

Messaging platforms

  • Discord – Anyone who uses Discord knows it has become a haven for scammers. When it comes to the platform, phishing scams and giveaway scams are among the most common types of crypto scams that you may encounter. Crypto scams on Discord have become so popular that they even go to certain extremes, such as scammers who pretend they are friends, or even potential lovers in order to convince users to invest their money in a crypto scheme.  More on these scams and examples in part 2.
  • Telegram- Crypto scams on Telegram are not that much different from crypto scams on Discord. Scammers will closely analyze and imitate the information from real profiles or groups in order to trick people. Some of the examples are:
  1. Creating fake groups based on the real ones
  2. Pretending to be an admin of the group and reaching out to members (copycat admin)
  3. Pump and dump groups
  4. Phishing scams (more about this in our part two article)
  5. Ponzi schemes (more about this in our part two article) and many more

Email crypto scams

As with messaging platforms, a commonly used technique with email crypto scams is also email phishing. Scammers will take advantage of email lists and other user information that have been exposed to execute this scheme across thousands of people.

Emails may look like they come from legitimate organizations because they use similar branding, logos, and email addresses. The scams have involved so much that it’s getting harder and harder to tell apart a fake email that wants you to give up your account details, and a real one that comes from a product or service that you use.

It’s important to always check every piece of information you have before doing any action.

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Now that you have a basic understanding of what crypto scams are and how they work, you might be wondering about the most common types of scams and who actually falls for them.

In the next part of our Crypto Scams 101 series, we will also explore them all and show you also some real-life examples.

This article is also published on Shard Labs Medium, where people are continuing the conversation by highlighting and responding to this story.

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