Crypto Scams to Watch Out For

January 17, 2023
Andy Zhou
January 17, 2023
Crypto Scams to Watch Out For

Quick Intro: 

Scams are an unfortunate threat that any crypto user has to deal with. It sucks to lose the crypto you’ve worked hard to earn. The following are some scam types that are specifically targeted towards users of a crypto platform or exchange. Here are some more details to help you recognize these scams, and strategies to avoid them.

Staying Vigilant in a Dangerous World

Scammers will stop at nothing to extract value or private information from their victims. Many of these scams in the crypto world involve modified versions of commonly seen scams in the traditional financial world. However, the main difference is that scammers take advantage of the irreversible nature of crypto transactions, and the general public’s lack of understanding about how crypto works. Arm yourself with knowledge of these schemes to avoid becoming a victim.


Phishing is when a scammer calls you, texts you, emails you, or uses another way to contact you – often posing as a legitimate company or a trusted individual such as a family member or friend. The intention when contacting you is to trick you into clicking a malicious link. Phishing attempts in crypto often take the form of a fake website that tricks you into entering your account credentials. Or, they may trick you into downloading malware onto your device, which then tracks and steals your keystrokes or credentials. 


Recently, there has been a dramatic increase in the number of phishing scams targeted toward users of the popular wallet MetaMask. Many phishing emails will pose as the company that created MetaMask and ask you to click on a link that directs you to a fake website where they can trick you into typing in your seed phrase. The contents of such emails usually include claims that you have to “re-verify” your MetaMask, or “recover your MetaMask” because there was a technical issue. In reality, these emails are all phishing attempts. 


Protect yourself: If you receive an email, look at the email address of the sender and see if anything is suspicious. Scammers will often use an email address that loosely matches the legitimate one. For example, they might use a “0” (zero) in place of an “o” or use the capital version of the letter “i” instead of the letter “L”.


Be extra careful when clicking links, even if they look legitimate. Inspect the URL to make sure it matches what you expect. Or, better yet, bookmark important URLs and never click on links, especially if you need to log in. If the email asks you to log in to your account, go to the actual website to log in instead of clicking the link provided in the email.

Knockoff App/Knockoff Exchange

Scammers will sometimes try to submit fake mobile apps that are knockoff versions of legitimate apps to the Apple App Store or Google Play Store. Unwitting victims may download the app that will take them to a fake website or ask the user to input their seedphrase–thereby stealing all the crypto associated with that seed phrase. Scams like these can sometimes be combined with others, such as phishing.


Protect Yourself: Always check the metadata about the app you’re about to download. Who is the publisher? How many reviews does it have? Are the reviews positive or negative? How long has the app been published?  Fake apps should be easy to spot as they're published by a company not associated with the legitimate app. The app may be new, have many 1-star reviews, or have little to no reviews. If you have any doubts at all, do not download the app. 


Investment Advisor/Investment Scheme Scams

Oftentimes, scammers will pose as investment advisors promising outrageously good returns if you invest your money with them. The goal is to hook you in by making promises and then getting you started with an initial small investment. 


Once you give them a small amount of money, there will inevitably be some issue that will require you to keep giving them money, whether it be a “processing fee” or a “tax fee”. Some scammers even go as far as building a fake website that you can log in to that shows your supposed “great returns”. However, when you try to withdraw funds, there will inevitably be an issue that will not allow you to do so.


Protect yourself: If somebody is offering you unbelievable returns, don’t believe them. Legitimate professionals are typically very cautious, and avoid using declarations like “guaranteed” or “zero risk”. Complete your due diligence and vet your investment advisor to confirm that they have the proper credentials. 


Many victims who fall prey to this scam report meeting their “investment advisor” through social media platforms. If approached over social media, use extra caution. In the US and Canada, and Europe, there are strict regulations against the solicitation of investment products through social media. It’s unlikely that a legitimate advisor would reach you that way. If someone you don’t know reaches out over the phone or through social media and tries to get you to invest with them, chances are it’s a scam. 


Just having a legitimate-looking website is not proof enough. Keep in mind that it is simple for anyone to set up a legitimate-looking website in just one afternoon. 


Finally, if your “advisor” doesn’t ask you for detailed information about yourself, it might be a scam. Real investment advisors are required to know their client’s financial situation before getting them to invest any money. If you're not sure about the advisor you're working with, contact Newton's customer support team before making transactions so we can help you. Keep in mind that in jurisdictions such as Canada, the US, and most other Western developed countries, an investment advisor must be registered with the relevant authorities and regulators before they can provide any type of financial advice. In Canada, an investment advisor must be registered with the OSC/CSA or IIROC–if your “advisor’ is offering services to Canadians and isn’t registered, that should be a red flag. For more information on how to find a certified financial advisor in Canada, please see this link here.


Ponzi Schemes

A Ponzi Scheme is an investment scam where the funds from new investors are used to pay off more senior investors; the supposed business or investment scheme itself does not generate any actual income or cash flows. An example of this would be the famous case of convicted Ponzi Schemer, Bernie Madoff, who defrauded investors of over $60B over the course of decades. 


Unlike the previously mentioned financial advisor scam, in a Ponzi Scheme, the investor could at first see a great return on their investment. However, this is only due to the “returns” being sourced from the funds of newer investors. Eventually, the Ponzi runs out of newer investors to throw more money into it, and investors stop earning big yields. When they start withdrawing their funds, the entire scheme collapses. 


Protect yourself: Before investing in any opportunity, you must understand how the business or opportunity generates its returns.  Don't let yourself take the mindset of “as long as the price goes up, I’m happy”. Do your own research, and understand the tokenomics before you invest.

Romance Scams

A charming individual, often from a foreign country, will reach out to you via social media and send you their pictures. They will claim that they’ve fallen in love with you upon looking at your picture and claim they require a small amount of money to buy a plane ticket so that they can come to meet you. It sounds like a movie or a fairy tale story, and, surprise! It’s just too good to be true. 


The pictures are stolen from someone who has no idea their likeness is being used in a scam – the pictures may even be AI-generated. Inevitably, once you’ve given the person money, they’ll claim that there is some other issue that requires more money before they can come to meet you.


Protect yourself: People often ignore logic when it comes to love. Scammers take advantage of that fact. It is important to stop and think about the likelihood of the perfect romantic partner simply coming across your social media profile and falling in love with you. Not to say that it is impossible, however, it is highly unlikely. 


If you’re suspicious, get the person to prove they’re real. Ask them to hold up a piece of paper with a specific date on it and a word of your choice. If the pictures are fake or the person does not exist, they will likely not be able to create that picture.

Fake Crypto-Related Service

Sometimes you’ll receive a letter that looks extremely professional, claiming that it’s from a firm that specializes in the recovery of lost crypto. 


These letters often originate as a result of some social media post the victim made beforehand. The victim might’ve indeed accidentally sent an unsupported crypto to an exchange or trading platform. This would result in the person (at least temporarily) losing access to the crypto as the platform they’re using is unable to post the funds to the account. In this stage of grief or panic, the would-be victim will often post on social media about how panicked they are after realizing their mistake. 


It is at this point that someone will reach out to the would-be victim and provide them with an email that claims they can recover the crypto and all they need to get started is either a small payment of crypto, or they may ask the seed phrase of the victim’s wallet. 


Of course, these letters are scams and designed to trick you into sending them crypto and/or tricking you into providing the scammers with your seed phrase. In reality, none of what the sender of the letter claims is legitimate. 


Protect yourself: Once again, never reveal your seed phrase. A legitimate company would never ask for the seed phrase to your private wallet. There are no circumstances where an external company would need to know your seed phrase since it is not required to send crypto to you. All that is required to send crypto to another wallet is the public wallet address of the recipient. Further, recognize that crypto transactions are irreversible so think twice before sending anyone any crypto. 


Keyloggers track which keys are pressed on your keyboard and in what order. This info is then sent remotely to a hacker or scammer who parses through the info for items such as passwords to online accounts and seed phrases. If the hacker finds a seed phrase, they would gain full control over all the crypto associated with that seed phrase. 


Protect yourself: Run antivirus software on your device. Do not type your seed phrase anywhere except when you’re in the process of restoring a wallet. Do not keep digital copies of your seed phrase, whether it be a word document stored locally, or a file in cloud storage. 

Ready to get started in crypto?


Now that you have some knowledge on how to stay safe in the wonderful world of crypto, if you haven’t already, why not give a try?


We have a fantastic customer support team if you ever have any questions using any Newton product or feature! 


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Andy Zhou

Content Creator at Newton. Andy has 5 years+ of experience in equities research. Andy is the author of "Hyperbitcoinization: A Story About a Revolution" as well the host of the "The Bitcoin Advocate" podcast.

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