How do you spot a crypto scam?

If you regularly invest in cryptocurrencies, it’s important to know how to spot a crypto scam. Scammers like using cryptocurrencies because they are difficult to trace and recover. If you lose your money to a crypto scam, your money is most likely gone forever.

Examples of crypto scams include giveaways, Ponzi schemes, phishing, fake ICOs, and fake mining networks:

• Ponzi schemes: These schemes promise high returns on investments but pay profits from new investors, rather than from actual profits generated by the business.
• Phishing: Scammers send emails or messages that appear to be from legitimate sources, but they actually contain malicious links or malware.
• Fake ICOs: Scammers can create fake Initial Coin Offerings (ICOs) to steal from investors.
• Giveaway scams: These scams use social media, fake websites, or impersonate reputable individuals or companies. Once the crypto is sent, you receive nothing back.
• Fake mining apps/networks: Scammers lure victims into joining fake mining apps or networks that either steal your data or charge you fees.

Scammers also use psychological manipulation techniques to exploit the emotions of their victims. Scammers can condition people to think they are dealing with a trusted entity and use tactics that capitalise on human vulnerabilities, such as greed and fear.

Are crypto scams illegal?

The first question you may be asking is, are crypto scams illegal? Well, the answer to that is a bit complicated. Cryptocurrency scams are usually illegal, but not always.

In Australia, cryptocurrency is considered a form of property and is subject to Australia’s financial and tax laws. This classification makes crypto scams illegal and punishable under Australian law. However, some scams are technically legal because they don't involve any actual illegal activity like theft or fraud.

Scams involving Initial Coin Offerings (ICOs), crypto exchanges, and other fraudulent schemes fall under the Australian Securities and Investments Commission's (ASIC) jurisdiction. Penalties for crypto scams can include fines, imprisonment, and restitution.

Red flags to identify a crypto scam

When investing in crypto, you should watch out for these red flags:

Promises of guaranteed high returns with low or no risk

Any investment opportunity that guarantees high returns with little or no risk should be a huge red flag. Crypto is a very high-risk investment and there are never any guaranteed returns.

Unsolicited offers and aggressive marketing tactics

Scammers often bombard potential victims with unsolicited emails, phone calls, or social media direct messages.

Legitimate sources don’t typically use these aggressive marketing tactics. So, if you receive unsolicited offers or are pressured to invest in a cryptocurrency, it is most likely a scam.

Lack of transparency and unclear business models

Legitimate cryptocurrency projects typically provide clear and detailed information about their business model, team, and goals.

Scammers usually avoid providing clear information about their projects or business models. A lack of transparency is another red flag.

Poorly designed websites and spelling/grammar errors

Poorly designed websites or numerous spelling and grammar mistakes are a good sign of a scam.

How to spot a crypto scam: practical tips

Before you invest in any cryptocurrency, do your research! A transparent project goal and an experienced team can be a positive indicator of legitimacy. Look for a well-documented whitepaper that clearly states the project's goals, technology, and roadmap.

Verify the project's website by checking for proper security measures, such as SSL certificates, two-factor authentication (2FA), cold storage options, and encryption. A secure website URL should begin with "https://" rather than "http://". Consistent and professional activity across social media profiles is also a sign of a legitimate project.

Finally, don’t overlook reviews and feedback from credible sources and trusted crypto communities like forums, discussion groups, and other platforms where experienced investors share their insights. Overly positive reviews should be met with caution, as they may be fabricated or paid for.

Tools and resources for verification

There are several resources available to help you verify potential crypto investments or scams:

• Use blockchain explorers to track transactions and verify the legitimacy of a project.
• Use one of the several online databases that list known scam projects.
• Get involved with a community of crypto enthusiasts who give advice and share information.

Can a crypto scammer be traced?

Now you’re familiar with popular crypto scams and how to spot some of them. But how can a crypto scammer be traced if you do get scammed?

Unfortunately, the gap in regulatory measures combined with the anonymity of cryptocurrency transactions and their international nature across different countries makes it much more difficult to identify, find, and take legal action against suspects involved in these scams.

Law enforcement can subpoena legitimate exchanges to block transactions and even identify scammers. However recovering the victims' money can be difficult if the scammer cashes out at a foreign, offshore, unregulated exchange.

Transactions on the blockchain are traceable, making it possible to identify the source of funds and possibly link it to a specific individual or entity. But this transparency doesn't always guarantee that scammers can be identified. Scammers often mask their identities with mixing services and anonymous wallets which makes it more challenging to track them down.

Despite these challenges, there have been successful cases of tracking down and prosecuting cryptocurrency scammers. Law enforcement and cybersecurity experts are working together to develop technology that is more skilled in tracing crypto transactions.

Steps to take if you’ve been scammed

If you suspect you’ve been involved in a crypto scam, report it to ASIC, AUSTRAC, or the police immediately. Prompt action can help prevent further fraud and has a better chance of recovering lost funds and capturing the one(s) responsible.

You may also want to consult a legal professional who specialises in cryptocurrency fraud. They can outline the potential recovery options for you and help you take the appropriate legal action.

You should also share your experience with others to prevent them from falling victim to similar scams.

Protecting yourself from future scams

The good news is that, by the end of this year, Australia plans to introduce a law that forces internet companies to proactively stop hosting scams or face fines. But this is only one measure to stop the onslaught of crypto scams.

To protect yourself, follow the best practices for safe cryptocurrency investing and keep yourself educated on the latest crypto security updates.

You can also protect yourself from scams in the future by doing diligent research, using secure wallets, not responding to unsolicited offers, and keeping yourself alert and informed about the types of different crypto scams.

Staying vigilant against crypto scams

Now that you know how crypto scams work, staying informed and engaged with trusted communities is the best way to protect yourself from crypto scams.

It cannot be stressed enough how important it is to exercise vigilance and caution when investing in and trading cryptocurrencies. By understanding the common crypto scam tactics, red flags, and tools for verification, you can reduce the risk of falling victim to crypto scams.