Overview

Cryptocurrencies have skyrocketed in value in recent years and are quickly becoming a popular global phenomenon. This phenomenon has also attracted scammers, who exploit this new method to defraud unsuspecting victims. Typical crypto scams usually involve online dating, which can also be called "pig-killing scams."

If any of the following scenarios sound familiar, you may have fallen into a scam. You should report it immediately to avoid further losses.

A brief history

In traditional online scams, scammers trick victims into voluntarily transferring funds to a third-party bank account.

Since most countries have mature banking systems, transactions are subject to strict anti-money laundering regulations. This approach is risky because law enforcement and victims can trace the funds through the banking system.

Regulations regarding cryptocurrencies and their custody platforms/exchanges are still new and incomplete, and law enforcement agencies around the world lack sufficient awareness to respond. This has led to a recent increase in cryptocurrency scams. 

What is a cryptocurrency?

 Cryptocurrency is a virtual currency protected by cryptographic principles. It is a new medium that can control the creation of transaction units while ensuring transaction security.

Most common cryptocurrencies

The most common cryptocurrencies on the market are Bitcoin (BTC), Ethereum (ETH), Tether (USDT), Binance Coin (BNB), Adacoin (ADA), Dogecoin (DOGE), Ripple, USD Coin (USDC) ), Polkadot (DOT) and Uniswap (UNI). There are many cryptocurrencies circulating in the market, and many startups are making full use of cryptocurrencies to actively earn greater profits.

Most common cryptocurrency platforms

We note that the following cryptocurrency platforms currently appear to be popular and trustworthy around the world: Binance, Coinbase, Kraken, Gemini, Crypto, Gemini, and Gate.io.

The most common types of cryptocurrency wallets

There are basically two categories of cryptocurrency wallets: hot wallets and cold wallets.

(a) Hot Wallets: Hot wallets are essentially connected to the internet. This type includes mobile wallets, e-wallets, and web-based applications accessible on most cryptocurrency platform websites. This fact means they are more vulnerable to hackers or scammers. 

(b) Cold wallet: Cold wallet is an offline method that provides users with secure transactions. They are inconvenient to use because they require users to use specific equipment to conduct transactions.

First Contact: Social Media and Dating Apps

Scammers often contact victims through social media, messaging apps and dating apps. Scammers will typically first assess whether the victim is exploitable and then adjust their fraud strategies accordingly (e.g., dating, friendship, investment opportunities).

In most cases, scammers usually pretend to be high-end people with a pleasant appearance in order to meet like-minded successful people ("fake lovers"). Conversations between scammers and victims always revolve around cryptocurrencies and related investment opportunities. He or she will falsely claim to have profited from the investment and recommend to the victim an online cryptocurrency trading platform run by the scammer.

Reality Scam

Fake employees

This type of scam usually involves a few fake employees pretending to work for a fake brokerage. They usually communicate only through email or instant messaging software, help victims log into fake trading platforms, and manipulate victims' funds to transfer to specific external accounts. Scammers pretend to be employees of brokerage companies just to gain the trust of their victims.

Fake exchange

Scammers get victims to successfully log into a website or app that claims to be a legitimate cryptocurrency exchange, and they are able to manipulate what others see. Victims are often blinded by immediate benefits. They try to take advantage of the so-called “optimal moments” by putting more money into cryptocurrencies in order to gain greater profits.

Method

Fake exchange or trading platform

Scammers trick victims into transferring cryptocurrencies to wallets. They often ask victims to transfer small amounts of funds to specific cryptocurrency wallets to show their trustworthiness. After victims are falsely told to make a profit, the scammers ask them to transfer more cryptocurrency to make more money.

When the victim requests to withdraw account profits, the other party will make up various reasons and ask for more funds to "unfreeze" the account. Once the victim realizes that they have been scammed and the scammer discovers that the scam has been discovered, they will immediately terminate the call with the victim.

Fake Initial Coin Offering/ICO Scam

An Initial Coin Offering (ICO) is a form of crowdfunding used to raise money and launch new cryptocurrencies to defraud unsuspecting people. Victims transfer funds to third-party bank accounts or invest large amounts of money in the name of increasing the value of cryptocurrency.

Here are typical red flags to look out for when identifying an ICO:

1. No ICO white paper was released, or the content of the white paper was poorly drafted;

2. Promise fixed profits or guaranteed return on investment (ROI); 3. Websites that use stock images as team member profiles;

4. The company conducting the ICO has limited contact details.

Challenge

Identifying e-wallets used by fraudsters

Victims of cryptocurrency scams pay companies that specialize in cryptocurrency investigations. Criminals falsely claim to be able to provide help to victims, induce victims to remit money, and then benefit from it.

We come across this question a lot when talking to victims.

The victim is located in country A, the fake website claims to be located in country B, the website server is set up in country C, and the scammer uses the phone number in country D to contact the victim.