Blockchain technology and cryptocurrency are designed to offer global financial inclusion without any governmental intrusion. Transactions involving cryptocurrency are fast and seamless at almost zero commission compared to those involving fiat currencies.
The blockchain technology powering these cryptocurrency transactions is decentralized and offers enhanced privacy that helps mask the identity of the parties involved.
It’s also important for crypto platforms to ensure the safety and privacy of users. One effective way to enhance safety is by focusing on cryptocurrency KYC compliance. This process requires platforms to verify user identities, reducing the risk of fraudulent activities. Adhering to KYC regulations not only ensures that platforms are transparent but also helps authorities trace and recover funds in the event of a scam. By choosing exchanges and services that prioritize KYC compliance, you can significantly reduce your vulnerability to crypto-related fraud.
According to a crypto fraud lawyer at Silver Miller Group, a law firm reputed for helping individuals and companies who have been victims of fraud, the decentralized structure of cryptocurrency, coupled with the swiftness and irreversibility of transactions, as well as its global reach, makes it an attractive platform for scammers.
Americans lost over $5.6 billion to crypto scams in 2023, a 45 percent increase compared to the amount lost in 2022. Meanwhile, in the first 6 months of 2024, the FBI received over 18,000 complaints, with losses estimated at over $1.9 billion.
Common crypto scams
Generally, there are two categories of crypto scams: a scam where the criminal gains access to your digital wallet, and a fraud where the criminal tricks you into sending your cryptocurrency to them.
These fraudsters may deploy different tactics to look legit and defraud their victims. Here are a few of some of the most common forms of crypto scams.
Investment scams
This is the most common crypto scam. The fraudsters deploy different tactics to entice victims to believe they will be getting a huge return after sending their cryptocurrency to them.
Some of the common investment scams include:
- Pig butchering: These scammers use social media platforms and dating apps to get close to their potential victims. Once they establish trust, the victim will be directed to invest via a fraudulent investment platform, where they will eventually get scammed.
- Rug pulls: Developers with plans to scam investors will raise funds from investors by selling tokens. They will proceed to withdraw the funds raised and suddenly abandon the project, leaving investors with worthless tokens. About $700,000 was stolen using this scam tactic when hackers earlier in the year targeted McDonald’s Instagram account.
- Fake ICOs: The scammers will create fake Initial Coin Offerings (ICOs) boasting of the stupendous potential the project possesses. In reality, they have no project to execute and will run away with the funds raised.
- Pump and dump scheme: Scammers will artificially inflate the price of a cryptocurrency, and then sell their holdings before the price crashes. They often use social media influencers to create a false sense of popularity and excitement about the cryptocurrency to get more people to buy it.
- Ponzi schemes: The scammers offer victims a too-good-to-be-true return on investment. They use funds from one investor to pay another until the flow of funds cannot sustain the created pyramid anymore or when they decide to cash out investors’ funds and disappear into thin air.
Mining scams
Crypto miners receive tokens as a reward for creating new blocks that are, in return, added to the blockchain. The prospects of this can be exploited by scammers who offer fake cryptocurrency mining software that steals funds.
Phishing scams
The fraudsters may create a fake website that mimics legit and popular ones to get victims’ login credentials and account details.
To get victims to use the fake website, they may send emails pretending to be from a legitimate exchange or individual, asking for personal information or requesting funds.
Giveaway scams
Almost all types of crypto giveaways are scams. In this scam, the fraudsters promise to give away cryptocurrency to people who perform certain tasks, such as following, liking, or reposting their posts.
Meanwhile, the fraudster would have compromised the account of a prominent public figure or company, asking the victim to send a certain amount in return for getting a double.
Crypto recovery frauds
While it is possible to recover funds lost to crypto scams, not everyone offering such service is genuine. You might be falling for another scam that will surely add insult to injury.
The original scammer might sell your details to new fraudsters who may contact you, disguised as a government official or an attorney who can help you recover your lost fund. However, they will request you pay a small donation, retainer, or overdue taxes before you get your money back.
If anyone calls or emails you, claiming to be a government official, do not confirm personal information about you. Call the official agency number that is on the authentic website to confirm.
Ways to recover your crypto fund after a scam
Even though cryptocurrency is designed to offer privacy for its users, all transactions leave a digital trail behind that, when compiled by an expert, can help identify the true identity of the individuals behind the fraud.
Fraudsters often exchange their cryptocurrency using crypto exchanges, which are legally required by law to have Know Your Customer (KYC). Experts can crack and decipher the blockchain to trace crypto transactions and finally identify the receiving address whose owner’s identity can be revealed by the crypto exchange KYC.
To recover your stolen funds, here are some steps you can take:
Cease communication with the scammer
Stop responding to emails, messages, or letters sent by the scammer. Also, stop making more payments to the scammers, even if they promise the payment will help you get back the previous ones.
This might be hard, especially if you are a victim of a romance or investment scam, as you are not only physically invested but also emotionally invested. It is the right thing to do.
Report the scam
Contact your local law enforcement agency and file a report about the scam. Provide them with as much detail as possible, including all the information you have about the scammers and the platform they used.
In addition, report the incident to relevant regulatory agencies like the Securities and Exchange Commission (SEC) or the Commodity Futures Trading Commission (CFTC).
If the scam was through a cryptocurrency exchange, report the incident to their customer support. They might be able to take action or prevent further crimes by the fraudsters.
Document everything
You will need all and every detail about the scam to aid in the recovery of your funds. Take a screenshot of all your communications with the scammers, including emails, messages, and transaction history.
Write a detailed description of the scam itself, including when the events happen, the people involved, the amount lost, and contact information of the scammers or companies involved.
These details will be useful when memories about the event start fading.
Hire a crypto fraud lawyer
Consult with a crypto fraud lawyer with experience handling similar cases to explore legal options. They may be able to help you file a civil lawsuit against the scammers to recover your lost funds.Your lawyer can also provide guidance that will help you navigate the complexities of crypto-related disputes.
