Risky Bitcoin – Scammy Scams (Part 2)

Kash here.

In Part 1 of Risky Bitcoin we covered staying safe with crypto wallets and exchanges.

Don’t worry if you missed it, you can still check it out here.

In Part 2, which is what you’re reading right now, we’re going to dive head first (but safely) into crypto scams.

Or, as I like to call them, “scammy scams” because they’re so evil they’re worth calling out twice.

We’ll be covering…

🥸 Fake ICOs (and other fake crypto projects)

🎣 Phishing

⛽ Pump and dumps (Wolves of Crypto Street)

😇 Social engineering

Let’s get stuck in with a quick overview of these hucksters…

👺 Scammy Scams 👺

If you dabbled in the crypto space back in the 2017 bull market days, you’ll likely have come across a few scams. Back then, Initial Coin Offerings (ICOs) were the big thing, and amongst the legitimate new coins being created there were A LOT of pyramid schemes and just downright dodgy projects.

That’s part of the reason some pundits still label the entire sector as a scam, but I think with banks like JPMorgan saying they’ll “have to be involved” with Bitcoin and Tesla buying up $1.5 billion’s worth, that image is fast changing.

But, that doesn’t mean there aren’t still scams out there, because there definitely are. A report by Chainanalysis revealed $2.6 billion was lost to scams in 2020, although this is much smaller than 2019’s $4.3 billion, which is a positive trend!

Let’s look at some different types of scams and tips for staying safe from each of them…

🥸 Fake ICOs (and other fake crypto projects) 🥸

What is it?

This was huge in 2017 and 1018. An Initial Coin Offering (ICO) is when a company creates a new cryptocurrency and either gives away or sells it to a limited number of “early adopters” before it hits the wider market.

It’s like Initial Public Offerings (IPOs) in finance, where people get to invest in a company before it hits the stock market. Except, because ICOs are largely unregulated, they’ve been a minefield full of fake crypto projects taking people’s money… and then disappearing.

In fact, a research study in 2018 found…

 “78% projects were identified as scams, collectively valued at $1.3 billion”

The good news is Facebook banned advertising ICOs back in 2018 and some countries, like China, have outright banned them too, so regulation is catching up.

How do I stay safe?

🔒 Invest in cryptos that have been audited by third parties (check audits here)

🔒 Don’t invest in crypto projects that are at “the idea” stage, with no minimum viable product (MVP)

🔒 Only invest through established exchanges that audit the coins they allow on their platform (until you’re more familiar with the ecosystem)

🎣 Phishing 🎣

What is it?

This is a proper old school scam, reimagined slightly for crypto. A nefarious scammer will contact you, usually via email or text, and try to trick you into handing over passwords or other personal information so they can steal your crypto.

Here’s an example where the scammer asks you to verify your login details for “an upgrade” to the service, but it’s a link to a fake site where they’ll collect your information…

Another variant is to say get you to send them money to “invest into Bitcoin” and they’ll do all the work for you, obviously never to be heard from again.

These scams are like the classic “Nigerian Prince” email scams, where a so-called member of foreign royalty asks you to send them money so they can send you more back… what a deal!

Bottom line, if you receive a message that sounds too good to be true… it’s probably a scam like this!

How do I stay safe?

🔒 Use a “throwaway” email address for signing up to crypto projects you’re unsure about

🔒 Visit the services website directly rather than following the link in the email (most legitimate projects won’t ask you to verify details with a link in an email)

🔒 Contact a member of the project via the website to check (even if there’s a delay it’s worth waiting to make sure)

🔒 Don’t send crypto (or any money) to a random person with the hope of getting more back!

⛽ Pump and dumps (Wolves of Crypto Street) ⛽

What is it?

Have you seen the movie Wolf of Wall Street? Leonardo DeCaprio portrays Jordan Belfort, a Wall Street fund manager who was “the master” at pump and dump schemes.

He would trick unsuspecting customers to invest in tiny illiquid stocks, sending the price soaring, before his firm cashed out for a profit, leaving his customers to catch a falling knife. He was finally put in jail for defrauding his customers out of $200 million … and now he sells courses on marketing?? What a world.

Anyway, pump and dump schemes are rife in the crypto world, mostly via social media sites like Facebook or Twitter. Like Belfort, these Wolves of Crypto Street will talk up a tiny illiquid crypto as the next big thing… only to cash out when they’ve made a big profit at everyone else’s expense.

Here’s what a pump and dump looks like on a stock chart…

Sure, it’s great for the guys running the gig, who get in while it’s going up… but what about everyone else who’s left with the losses on that ski slope downwards afterwards? Yuck! Horrible, unfair stuff.

How do I stay safe?

🔒 Do your research on long-term crypto investments, not what’s being tweeted the most

🔒 Don’t invest in crypto projects that are at “the idea” stage, with no minimum viable product (MVP)

🔒 Only invest through established exchanges that audit the coins they allow on their platform (until you’re more familiar with the ecosystem)

🔒 Don’t listen to people who get put in jail for fraud and then sell marketing courses!

😇 Social engineering 😇

Not every hacker comes armed with a computer that can tap into the matrix… sometimes they just have the ability to charm the pants off of you, along with the wallet in those pants.

“Social engineering” is when the evildoers of the world manipulate others to either get hold of sensitive information they can benefit from, or ask for money or crypto directly.

It’s like a “more charming” version of phishing, or as CoinDesk puts it…

“They take advantage of human fallibility rather than code vulnerability.”

For example, 17-year-old Graham Clark manipulated Twitter employees to give him access to 130 prominent Twitter accounts, including those of Barack Obama, Bill Gates, Kim Kardashian, and Elon Musk…

Then he posted messages to their followers asking for bitcoin, like this…

(Yer… don’t send any money to that address!)

All together, Graham scammed people out of about $140,000 worth of crypto. And, courtesy of the US justice system, he’s now facing 20 years in prison… that sounds fun!

But there’s plenty more people doing this on a smaller scale out there. And they’re not getting the scrutiny of regulators because they’re not taking over famous people’s accounts.

So, until the legal system catches up, it’s best to take a few of your own steps to protect yourself against this kind of stuff.

How do I stay safe?

🔒 Don’t send crypto (or any money) to a random person with the hope of getting more back!

🔒 Only buy and sell crypto through established exchanges until you understand the crypto ecosystem better

🔒 Then (when you’re ready) move your crypto to a hardware wallet, so no company’s support team can accidentally give out your account details (looking at you Twitter)

🔒 Use different passwords for your social media accounts, so if someone breaks into one they don’t have access to all of them (password managers can help massively with this)

🔒 Use a different email for your crypto logins vs your social media logins, so if someone compromises your social media they can’t access your crypto-related accounts

There we go…

Now you know how to avoid scammy scammers and their dastardly crypto schemes.

As always, if you have any questions about crypto scams, or anything else crypto related…

Simply email your questions to clients@thebetchat.com, and I’ll make sure I cover them in the days and weeks to come.

Thank you for taking the time to read this.

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