Understanding Crypto Scams: When It’s Too Good to Be True
Kevin Hamilton and Steven Gawthorpe
Crypto scams are on the rise. These two infographics outline what stakeholders need to know about crypto and social media scams—and offer a solution for better assessing their risk exposure
The past few years have seen an explosion in crypto-related scams: in 2022 alone, crypto investment fraud increased 183%, with losses totaling over $2.5 billion.
That’s a real problem for investors, organizations, and individuals involved with the crypto sector. A recent survey of private fund sponsors, investors, and service advisors, for instance, found that fraud was the number one concern for cryptocurrency funds in 2023—ranking higher than platform collapse, regulatory issues, exchange failures, and liquidity issues.
To fight back against crypto scams, it’s essential to first understand them. To that end, below are two infographics: the first, “Crypto Scams 101” outlines the basics contours of these scams; the second, “Spotlight on Social Media Scams” draws on proprietary BRG data analytics, machine learning models, and natural language processing to illuminate the role platforms like Twitter play in such scams.
The latter exemplifies a valuable use case for insurers and financial institutions in understanding their crypto risk exposure—for while there are relatively mature products to assess “on-chain” risk (e.g., chain and network analysis), little in the market exists to identify “off-chain” risks, like the 50% of scams that originate on social media.
SPOTLIGHT ON SOCIAL MEDIA SCAMS SOURCE:
Emma Fletcher, "Reports show scammers cashing in on crypto craze," Federal Trade Commission (June 3, 2022). https://www.ftc.gov/news-events/data-visualizations/data-spotlight/2022/06/reports-show-scammers-cashing-crypto-craze
CRYPTO SCAMS 101 SOURCES:
Federal Bureau of Investigation, Internet Crime Report 2022, Internet Crime Compliant Center. https://www.ic3.gov/Media/PDF/AnnualReport/2022_IC3Report.pdf
Emma Fletcher, "Reports show scammers cashing in on crypto craze," Federal Trade Commission (June 3, 2022). https://www.ftc.gov/news-events/data-visualizations/data-spotlight/2022/06/reports-show-scammers-cashing-crypto-craze
Amanda Hetler, "10 common cryptocurrency scams in 2023," TechTarget (April 19, 2023). https://www.techtarget.com/whatis/feature/Common-cryptocurrency-scams
Coryanne Hicks and Benjamin Curry, "5 Crypto Scams To Watch Out For," Forbes (January 3, 2023). https://www.techtarget.com/whatis/feature/Common-cryptocurrency-scams
Kaspersky, "Common cryptocurrency scams and how to avoid them." https://www.kaspersky.com/resource-center/definitions/cryptocurrency-scams
Crypto Scams 101
Investment Scams
“Pump and Dump”
The scammer(s) promote a new or niche cryptocurrency that they hold in large amounts to potential investors, promising significant returns. Once the price of the coin rises as more investors buy in, the scammers liquidate their position for substantial gains and crash the price—leaving victims holding the bag.
“Rug Pulls”
These tend to be in the nonfungible-token (NFT) space and involve a scammer building an appealing website and putting together sample artwork with promises of a significant roadmap. They then build a community that mints the art—which at this point is “unrevealed”—with a future release date. The scammer then disappears with victims’ crypto.
Ponzi Schemes
Scammers use the buy-in of new investors to generate returns for themselves and/or older investors, because the product itself has no real value or cannot generate the promised returns. Eventually, the scam runs out of new members and collapses.
Phishing Scams
Fake Identity
The scammer impersonates a trusted figure—ranging from a celebrity to a loved one to an investment manager—to convince the target to transfer the crypto to their wallet for promising returns, then disappears with the assets.
Fake Support Teams
Scammers pose as employees of a legitimate cryptocurrency wallet or trading platform company to convince targets to disclose their personal credentials or other sensitive data, which they then use to steal assets.
Cloned Websites
These decoys allow scammers to steal credentials and other login info from users, which can then be used to steal assets from real sites—or drain users’ crypto wallets (e.g., by minting a fake NFT contract).
Fake Emails
Fake emails that appear to originate from a reputable source allow scammers to install malware or convince unsuspecting targets to reveal sensitive information.
Social Media Traps
Fake social media giveaways or personalities encourage targets to either invest in a fake cryptocurrency or click on a phishing link that compromises their personal information.
Malware Scams
SIM-SWAp SCAMS
Scammers gain access to a copy of a target’s SIM card to access two-factor authentication codes that allow them to access users’ crypto accounts.
“Software Update” Malware
The cryptocurrency ecosystem depends on a wide range of software tools, making it easy for scammers to push a fake update that appears to perform a legitimate function. When users download the update, they actually install malware.
Fake Crypto Exchanges and Wallets
These fake cryptocurrency sites offer unrealistically promising crypto deals to entice users to buy through these platforms. Then scammers take the money without providing real coins and/or install malware on the user’s device.
Spotlight on Social Media Scams
Real-World Examples of Social Media Scams
50%
of cryptocurrency scams start on social media
Kevin Hamilton is the leader of BRG’s Global Applied Technology practice. His primary responsibilities involve determining the practice’s technology strategy, developing a worldwide client base, and empowering the team to think outside the box to find solutions.
Phone: +44 (0) 20 3725 8374
Email: khamilton@thinkbrg.com
Steven Gawthorpe, PhD, is a data scientist with more than ten years of experience. He specializes in open-source intelligence techniques for investigating financial crime and corruption.
Phone: 202.559.2154
Email: sgawthorpe@thinkbrg.com