Cryptocurrency Scams: How to Spot, Avoid, and Report Crypto Fraud

Cryptocurrency scams reached unprecedented levels in 2024, and the importance of protecting yourself from these internet scams continues to rise. In 2024 alone, Americans lost $9.3 billion to crypto fraud —a staggering 66% increase since 2023. Digital currencies are gaining mainstream popularity, which means there are far more potential scam victims than there were just a few years ago. Scammers are opportunists, so it’s no surprise that cybercriminals are actively developing internet scams that target unsuspecting cryptocurrency investors. Understanding these threats and how to protect yourself has never been more critical. The best way to protect yourself from crypto scams is to understand what they are. The more you know about how these scams work, the more effectively you can avoid getting tricked. Starting with the basics will set a good foundation for recognizing variations on these internet fraud scams. A cryptocurrency scam is any fraudulent scheme that uses digital currencies (“crypto”) to deceive victims and steal their money. Unlike traditional financial fraud, crypto scams exploit the unique characteristics of blockchain technology to make their operations more difficult to trace and nearly impossible to reverse. This is in contrast to traditional fraud, which involves banks, credit cards, or other regulated financial institutions that offer some level of consumer protection. For example, if you are scammed into buying a fraudulent item with your credit card, you can dispute the charges with your bank and often recover the money. In a cryptocurrency scam, there is no central authority to reverse transactions or provide refunds. Once you send your payment, the recipient owns the cryptocurrency and it’s nearly impossible to get it back. That’s why crypto scams are increasingly attractive to cybercriminals. The decentralized nature of cryptocurrency, combined with the speed of irreversible transactions and the ability to transfer value around the world, create a lot of appeal for scammers. Because cryptocurrency transactions are already pseudo-anonymous, it is easier for scammers to avoid law enforcement and operate across international borders. You will often hear that the crypto market is unregulated, but that’s not exactly true. What is true is that it is less regulated than traditional banking. This means that an environment has developed where scammers can launch fraudulent investment schemes without any government oversight. Scammers can even create fake exchanges and investment platforms with little scrutiny. All of this has led to a rise in crypto-related fraud scams and impersonation. 43% of investment scam victims in the first three quarters of 2024 were contacted via social media, where scammers can create fake profiles, use stolen identities, or impersonate legitimate businesses. In that same time frame: Not all investment scams are crypto scams, and not all crypto scams involve investment, but you will often see these two areas overlapping.  In fact, in 2023, 71% of cryptocurrency scams involved investment schemes. Why is that? The answer lies in the types of scams that are most likely to be successful. There are a few particularly common victim profiles of people who fall for investment scams: Crypto scammers can take advantage of people in any of these groups through targeted strategies. For example, Ponzi schemes pay earlier investors with money from new participants, creating an illusion of profitability. Eventually, the scheme collapses. Crypto scammers can easily run a Ponzi scheme with digital currencies. Traditional pump-and-dump scams artificially inflate the price of a stock, then sell large quantities at those inflated prices. Pump-and-dump crypto scams use false claims and marketing campaigns to make a digital currency look more valuable than it is. Scammers lure victims depending on which strategy is most likely to help them get an investment. If their intended victim is new to crypto and/or investing, they can target them with promises that are too good to be true, which a more experienced trader might recognize. A more investment-savvy target may be skeptical of get-rich-quick schemes, but what if they think the deal is coming from someone they trust? That’s why a scammer will impersonate trusted brands and individuals. Scammers also use these strategies: Remember that scammers are smart! They know how to use psychology against their victims.  If they can pressure people into making a fast decision, it’s much easier to get that crypto transferred into the hands of the scammer. Watch for red flags on crypto-related websites, including: It’s important to understand the risk of “rug pulls.” These investment scams occur when a scammer creates or develops a new crypto-funded project, only to abandon it suddenly. (In other words, they “pull the rug out from under” the investors.) When they abandon the project, they also take all of the invested funds with them. All the investors are left with are worthless tokens! In February 2024, Hong Kong-based BitFortex executed what most people describe as a rug pull. They heavily promoted their BitFortex token to attract investors, then withdrew about $56.6 million before going completely dark. Very few, if any, investors have gotten their money back. In some cases, crypto scammers will create completely fake cryptocurrency exchanges that look surprisingly legitimate. These fraudulent exchanges are designed with one goal: steal deposits. Alternatively, they may hack into real exchanges or create phishing sites that mimic popular platforms. To verify if a crypto exchange is legitimate or a scam, follow these steps: Cryptocurrency exchange scams are effective because people don’t spot the signs of a fake page or platform. Are you a likely crypto scam target? Certain behaviors and demographic realities make you more likely to be targeted by fraudsters. This next overview will teach you the ways that scammers tend to target their victims so that you can be guarded against their sneaky attacks. Facebook became available to everyone to use nearly 20 years ago, which means that scammers have had almost two decades to develop and adjust their strategies or tricking people on the platform. When crypto came on the scene, scammers took advantage of Facebook to conduct crypto scams pretty much immediately. Some of the most common methods of defrauding people with cryptocurrency Facebook scams include: One of the main ways that these Facebook crypto scammers make progress is to build relationships with people before introducing “exclusive” investment opportunities. Remember how people are more likely to fall for a scam if they trust the person telling them about it? It doesn’t take long for many of these scammers to establish trust with their victims, even without ever meeting in person. This is even easier for defrauders now that they can use AI to supplement their scams. SMS fishing attacks are also called “smishing.” ( RCS messages are also included in this label of smishing.) In a smishing attack, scammers send cryptocurrency scam text messages that look like they are from a legitimate crypto exchange/wallet provider. The goal of a smishing attack is to get the target to click on a malicious link, which will be used to steal your login credentials or install malware that will access their crypto wallet. How to spot scam texts pretending to be exchanges or wallet services: Phishing attacks use emails, direct messages, or fake mobile apps to trick recipients into revealing their crypto wallet details (including private keys and seed phrases). Unfortunately, these attacks have become so sophisticated that they often perfectly mimic the design and language of legitimate services. Why are scammers so desperate to access to private keys and seed phrases ? It’s because these are essential passwords to your crypto wallet. People who are accustomed to traditional consumer banking may expect a customer service department that can regain access to an account if a password is stolen or misremembered, but crypto services don’t generally provide a customer service platform like this. If your private keys are compromised, the scammer will have total control over your crypto assets and can begin transferring them immediately—and irreversibly. Crypto scams have a significant impact on their victims, from financial losses to emotional trauma. People have lost their entire life savings to these scams, including a man who lost $425,000 to a crypto scam in 2023 after a pop-up warned him that his retirement account had been compromised. Desperate to protect his life savings, he followed the instructions he was provided and wired all of his money to the scammers’ crypto account. Financial damage is obviously the biggest and most apparent impact of any investment scam, and that includes crypto. Many people have lost huge amounts of their savings because of fraudulent investments. The Crypto Scam Tracker documents the latest scams, and you can peruse the list to find out what kind of financial havoc these scams have wreaked. Financial damage may include the loss of retirement money, savings, and investments, but the financial devastation from these schemes often extends beyond the initial loss. There are many accounts of people going into debt because they lose the income they were dependent upon for their living expenses. Victims may be forced to borrow from friends and family, liquidate other accounts, or take out loans in their attempts to recover their losses. Crypto has its benefits, but its nature also makes it harder for victims to recover stolen funds. Traditional banking systems can reverse disputed transactions, but blockchain transactions are designed to be permanent and unchangeable. Beyond financial losses, victims of crypto scams may experience a lot of emotional trauma. Symptoms may include feelings of: Self-blame for falling for the scam can prevent people from seeking help or reporting the crime. It is paramount to get the help you need, even if you feel embarrassed by falling for the scam in the first place. Whether or not you can recover your financial losses, recovering from crypto fraud needs emotional support. If you have fallen victim to these scams, you are not alone. You deserve to be reassured that scammers often use sophisticated schemes that trick even the most intelligent, cautious people. Now that we’ve covered the basic details of several types of scams, let’s go over how to avoid falling for these scams. Avoiding suspicious crypto investment opportunities will go a long way, but how can you really make yourself bulletproof against the scammers? It’s essential to vet new cryptocurrencies, exchanges, and opportunities. Before investing any crypto or using an exchange, research everything you can on the platform and any of its investors. Never invest based solely on social media posts, unsolicited messages, or pressure from strangers online! If a friend or family member is texting you about an opportunity, meet with them in person to discuss it to confirm that it really is them. Never just trust a friend’s word on their crypto investments—they could have been scammed first and haven’t realized it. Warning signs/red flags include: If your banking and crypto security habits are generally pretty strong, the steps you take every day will help protect you against crypto scams. For example, if you already know that you should never share your wallet credentials or private keys, it will be a lot harder for a fraudster to trick you into handing over those details! Legitimate companies will never ask for your private keys, seed phrases, or wallet passwords. These credentials should be treated like the combination to a safe—never shared with anyone under any circumstances. Essential security practices include: If you realize you’ve been scammed, it is important not to panic. We know that can be difficult, especially if you have handed over access to a lot of money! The problem is that people make bad decisions while panicking, and some victims have even fallen for subsequent scams while trying to address the damage caused by the first one. In the immediate aftermath of the scam, document everything you can. That includes screenshots of: If you still have access to your accounts, change the passwords immediately. You may want to freeze your credit, which you can do by contacting the major credit bureaus or signing up for a credit protection service. You will also need to report the scam to the crypto platform, if it happened on a legitimate platform or if it used a copycat of a real crypto exchange. They may not be able to reverse the transactions, but they may be able to freeze the scammer’s account (or accounts) and prevent them from communicating with or victimizing others. If you even suspect that you or someone you know has been a victim of crypto fraud, immediately submit a report to the Internet Crime Complaint Center (IC3). You may also contact your local FBI field office or local police department’s cybercrime division. Here is some of the information you can expect to be asked to provide: Victims who are aged 60 years or older may contact the National Elder Fraud Hotline for additional services. However, be wary of crypto recovery services , especially any that charge an up-front fee. (Especially if that fee is paid via crypto!) It is disturbing to know this, but scammers will create fake recovery services that target crypto victims, promising to help recover lost funds for upfront fees—only to abandon their “clients” or scam them further. Recovering from crypto investment fraud is challenging, time-consuming, and often emotionally devastating. Learning about scams and how to avoid them is a great step to take, but scammers are always evolving. As technology changes, so will the strategies people use to trick their victims into unwittingly handing over passwords, private information, and money. As much as possible, you should stay up-to-date with the latest tactics that crypto swindlers are using. Let’s take a look at some of the best ways to do that. If you’re interested in crypto, you’re probably already following legitimate crypto commentary accounts on social media. Use caution when listening to crypto influencers , who may push untested crypto schemes without truly vetting them. However, if you are going to engage with these accounts, seek out and include influencers who teach about avoiding scams. You can also stay informed about emerging threats by following reputable sources like these: Follow internet scam reporting sites like WhatIsMyIPAddress.com and continue to educate yourself on these scams. Use tools like blockchain explorers to verify transaction histories and token authenticity. Be especially cautious of new tokens or projects that appear suddenly with minimal documentation or development history. New tactics like AI, deepfakes, and social engineering put everyone at risk. Scammers are using generative AI technology to facilitate their crypto schemes. Often, that involves using the technology to impersonate others or generate realistic content. People scrolling on social media often fail to notice that the influencers they are watching are AI fabrications. AI video avatars are incredibly realistic, as opposed to more obvious AI-generated content. Fraudsters have sophisticated technology at their fingertips, which they can use to create fake identities, generate convincing fake websites, and even produce deepfake videos of celebrities or authority figures endorsing their “exciting opportunity” for crypto investing. Your best protection? Staying educated about the latest scams. Crypto fraud and scams have continued to increase in sophistication, as the fraud ecosystem becomes more professionalized. The cryptocurrency landscape changes rapidly, with new technologies, platforms, and potential vulnerabilities emerging regularly. If you can stay educated about both legitimate developments and evolving scam tactics, you’ll reduce your chances of becoming a victim. Remember that even security experts and experienced investors can fall victim to sophisticated scams. The key is maintaining healthy skepticism, conducting thorough research, and never investing more than you can afford to lose in the volatile world of cryptocurrency.