There have been few trends in recent years that have caught the eye just like cryptocurrency. The madness of jumping on the next big digital currency to make money is reminiscent of the gold rush of 1849, when over 380,000 gold diggers traveled to California to earn their fortune. Although the two markets differ in that cryptocurrency investors can extract their fortunes from the comfort of their homes, there are similarities in that they have both created a hotbed of criminal activity.
Gold and cryptocurrency are proving to be an irresistible lure for scammers who want to take advantage of satisfied investors’ money. The market at 19and century was filled with “fool gold”, while crypto today is also plagued by scams, exchanges, phishing campaigns and “pump and dump” scams. In 2021, fraudsters around the world even won a record £ 10.5 billion in stolen cryptocurrency.
Knowing the methods used by cyber bandits to commit cryptocurrency fraud is crucial for investors to avoid ending up in an empty gold mine.
Hop on the cryptocurrency
With crypto, investors often get caught up in the hype and skip the basics. Some will invest hundreds of thousands of pounds in a currency without really understanding how it works, how their wallet works, what the private keys are for, and who actually controls their account. We are all used to how traditional banks work, and although there are some similarities, crypto is certainly different.
With cryptocurrency, each wallet has its own unique private key that can be used to transfer coins – similar to the function of a person’s signature. However, not all wallets are created equal, especially from a security perspective. For many, if your private key is lost or stolen, access to your cryptocurrency can be lost forever because the person who controls the private key has all the power and can use and move currency digitally. Understanding these basics is obviously crucial, but crypto investors should also be aware of the fraud threats they face. With that in mind, here are three of the scams preferred by cybercriminals:
Initial fraudulent coin offerings
Cryptocurrency projects have initial coin offerings (ICOs) that generate hype around the launch of a new currency. However, scammers can develop a fake ICO that promises investors significant rewards with very little money or effort. For example, the SQUID coin was an ICO scam that exploited the popular Netflix series Squid Game to get publicity, earning creators over 2.3 million pounds.
Fake ICO creators promise massive returns, but keep the majority of the coins in their own wallet, sit back and watch people exchange physical silver for their currency. As the coin gains traction, owners of a fraudulent ICO can then sell all of their coins at once and disappear – known as a “carpet move”.
2. Pump and dump scams in cryptocurrency
Pump and dump scams see cybercriminals pull the rug when enough money has been invested, causing an immediate market crash. A group of merchants, such as a coin founder or affiliate, will promote a coin using photoshopped images, false testimonies, and false representations to artificially raise the price. Once the price has risen enough to reach its peak, fraudsters sell their shares at once, leaving buyers with useless currency.
Like the dot-com bubble, it can be tempting to jump into the next hot thing, but it’s important to understand exactly which altcoin you are buying and why.
Cryptocurrency exchanges are conducted
Exchanges are another way that scammers take advantage of. Binance, the world’s largest crypto exchange, processes cryptocurrency for £ 58 billion every day, so it’s clear why the exchanges are such big targets for criminal activity because of the amount of wealth they have. Users are not advised to keep their cryptocurrency on a stock exchange – especially if it is a large amount – as they do not own the rights to control it. However, many ignore this advice.
Cryptocurrency for billions of pounds and thousands of user logins have been stolen from stock exchanges through fire abuse, malicious mobile apps, phishing scams and brute force attacks. Organized criminal networks will use these methods to steal credentials and private keys. Once a private key is stolen, the funds are transferred to the fraudster’s wallet so that the buyer has no coins.
Finding a solution to unregulated cryptocurrency
While cryptocurrency is currently unregulated, the industry is taking steps to prevent fraud. Stock exchanges invest in network security and increase their efforts to identify fire imitation. Given the wealth held on stock exchanges, it is an almost impossible task to monitor messages, manually report fake accounts and send payout requests. Advances in artificial intelligence and machine learning, however, mean that exchanges can now not only detect fraud but also eliminate it completely before it reaches consumers.
Users can also take steps to protect themselves. First of all, it is crucial to keep your private key and login credentials to yourself, even if someone may seem convincing. It is also important to prepare before any investment, from researching coins to avoiding anything that seems too good to be true, or using online forums to get different opinions before buying a currency. To protect against phishing, users can take simple steps like installing antivirus software and not having large amounts of currency on a stock exchange.
Find a gold mine or go empty handed?
With rising prices, unprecedented growth and a cry for investment, it is clear why many people compare crypto-craze to the gold rush. Now the crypto boom has opened the door to financial opportunities for coin buyers and scammers. With cryptocurrencies coming from all angles, the industry needs to support and protect buyers from malicious attacks. These crypto-investors should also be careful, do their research and take adequate steps to protect their assets – or they could end up with nothing but “fooling gold.”
About the Author: Mark Crichton is Chief Product Officer at Outseer – the California fintech-based fintech on a mission to free the world from transaction fraud. He has more than 20 years of experience in architecture, implementation, development and strategic consulting in global IT security and payment security solutions.