How to protect yourself from crypto scams

The meteoric rise of cryptocurrencies over the last decade or so has revolutionised the financial industry and captured global attention. But this rise has also led to a sharp increase in crypto scams from increasingly sophisticated scammers.

In 2023 alone, consumers reported losing more than $4.6 billion to investment scams, a 21% increase from 2022. Crypto investment scams such as phishing, Ponzi schemes, pump and dump schemes, and fake ICOs, apps, or websites are the most common and can take many forms.

Scammers will also use psychological tactics like FOMO, authority, and social proof to swindle you out of your money. Let’s explore these in more depth:

• FOMO (Fear of Missing Out): This tactic exploits the fear of missing out and creates a perception of scarcity to pressure you into acting quickly before the opportunity disappears.
• Trust and authority: Scammers may try to impersonate well-known individuals or organisations and leverage their credibility to build trust.
• Social proof: This involves using fabricated testimonials or endorsements from seemingly satisfied customers.

With all these tricks and tactics out to get you, knowing how to spot a potential scam is your first line of defence. Learn how to avoid crypto scams and protect yourself from crypto scammers.

How to avoid crypto scams

If you want to learn how to prevent crypto scams, you should first familiarise yourself with the red flags and how to avoid them. These include things like:

• unsolicited contact
• aggressive marketing tactics
• promises of guaranteed returns
• pressuring you to take action quickly
• not having an Australian Financial Services (AFS) licence
• poorly designed websites and/or whitepapers
• bad grammar

Look out for these warning signs and protect yourself by conducting thorough research on projects and teams BEFORE investing. Verify the website’s legitimacy and look at their social media profiles. Always use secure platforms with web addresses beginning with “https://” and not “http://”, and only store your crypto in secure and trusted wallets.

How to prevent crypto scams

To protect yourself and prevent crypto scams, follow our best practices for safe investing by:

• thoroughly researching projects and teams before investing
• regularly educating yourself about crypto’s security
• using strong security measures like two-factor authentication and strong passwords for all your accounts
• only using trusted platforms and wallets
• never sharing private keys with anyone

Scammers are always coming up with new ways to get money from unsuspecting victims. Staying updated with the latest scam tactics and trends can alert you to a scam going around before it reaches you. Joining crypto communities that regularly share their insights is a great place to start.

What to do if you get scammed on crypto

If you have unfortunately been scammed, report it to ASIC, AUSTRAC, or the police as soon as possible. Block all contact from the scammer, contact your bank immediately, and report it. See if they can stop any pending transactions and warn your family and friends about what happened so they can be on the lookout for any follow-up scams.

In some cases, you may be able to seek legal representation and try to recover some of what you lost. This heavily depends on the specifics of your situation and it is generally difficult to recover money lost via a crypto scam.

How to recover money from a crypto scam

For advice on how to recover money from crypto scams, you should first know that the decentralised and irreversible nature of blockchain transactions makes it extremely difficult to recover stolen funds. Scammers have certain techniques to cover their tracks and make it harder to trace the funds.

After reporting the crime to the relevant authorities, you can enlist the services of a blockchain explorer firm or other recovery service to try and track stolen funds. You can also get legal assistance to explore options like civil lawsuits. While legal assistance and recovery services might improve your chances, success is still not guaranteed.

Even though recovery isn't always guaranteed, acting quickly significantly increases your chances of recovering your lost funds and preventing additional losses. Always choose recovery services carefully, as some of these are scams themselves.

Staying vigilant in the crypto world

To protect yourself against the ongoing threat of crypto scams, you need to be careful when investing. You should be cautious and aware of the tactics these scammers use, and know what tools you have at your disposal.

Blockchain transactions are often transparent and traceable, which can help law enforcement during investigations. However, while blockchain technology can help track transactions, identifying the individuals behind them can be challenging. Scammers use anonymity to their advantage, using techniques like mixing services to obscure their identities and make it difficult for authorities to catch and prosecute them.

Stay vigilant by regularly reviewing and updating your security settings and always verifying a platform or project before investing. Joining trusted crypto communities and following credible news sources can also help you stay ahead of crypto scams.

Steps to take if you’ve been scammed

If you’ve been scammed, the last thing you should be doing is going to the internet to ask, “what do I do if I get scammed on crypto?” Because by then, it’s too late.

After realising that you’ve been scammed, follow these steps:

• Report the scam: Contact ASIC, AUSTRAC, or your local police.
• Inform your bank: Notify your financial institution or crypto exchange about the fraud.
• Seek legal advice: Hire a lawyer experienced in cryptocurrency and fraud cases.
• Use recovery services (cautiously): Only consider legitimate recovery services and be wary of further scams.
• Warn others: Share your experience with others to help prevent others from falling victim.

Try your best to remember these steps so you can take action as soon as the fraud has occurred.

Maintaining security in the crypto world

As financial services and institutions get increasingly more digital, the complexity of scammers will only grow. Staying up to date on the latest cryptocurrency news and remaining active in crypto communities can help you protect yourself from these cybercriminals.

By building a network of educated crypto enthusiasts, you can quickly learn about potential threats and scams, as well as how to prevent them. When you know what to look for and what to do in case of contact with a scammer, you’ll be in a much better position to react. We encourage you to stay proactive and informed, exercise caution, and prioritise the security of your valuable assets in the fight against crypto scams.