The danger of crypto scams: what you need to look out for

The crypto investment sector is a new, innovative world that unfortunately also attracts a large number of fraudsters who attempt to scam interested investors out of their money with ever more sophisticated (yet typical) scams. In this article, you can find out how to protect yourself against this risk.

Headlines about victims of crypto scams are nothing unusual. At the end of 2023, the case of a Brazilian man who fell victim to the crypto mafia in Zurich caught people’s attention. Fraudsters often have an easy job, as for inexperienced investors it can prove difficult to distinguish between reputable crypto brokers and dubious ones.

A wide variety of crypto scams

The scams used by crypto fraudsters are varied. They create fake wallets with the goal of obtaining the private access keys of the investors they defraud. Fraudsters often send fake e-mails or other messages pretending to come from a legitimate crypto platform.

They also repeatedly use social media platforms to advertise fake crypto giveaways that involve participants first having to send a certain volume of crypto assets in order to supposedly receive a larger amount in return.

Alternatively, fraudsters may advertise seemingly profitable arbitrage models that promise to generate a continuous return. A small profit is initially always paid out with the goal of incentivising the victim to make further transactions. This scam almost always works according to the principle of a Ponzi scheme, whereby the supposed profits are simply redistributed from one affected party to another.

The offering of supposedly profitable cloud mining solutions is not unusual. Here, it is claimed that mining can be used to earn passive income, whereas in fact no mining activities are carried out at all.

Increasingly professional scams

It is regrettable to have to report that the scams are becoming ever more professional. It is therefore all the more important to familiarise yourself with the traps in order to better protect yourself against them. We would like to explain three of these increasingly common scams below:

📞 Support fraud:

You are contacted by phone or via social media channels by people who you have never actually met in person. They offer you assistance in opening a crypto wallet or registering with a crypto exchange. In order to enable them to provide the supposed “assistance” in the best way possible, victims are asked to open a link.

This may be a link to software that allows for your computer to be controlled remotely, thus allowing them to (in theory) provide you with better support. In reality, however, you grant the attacker access to your own computer, including the private keys to your digital assets.

🔀 Address spoofing fraud:

Wallet addresses comprise long strings of letters and numbers that hardly anybody is able to remember. Address spoofing, also sometimes referred to as address poisoning, is a fraud method that sees fraudsters generate crypto addresses that have the same start and end characters as those of the victim’s blockchain address. The aim of the fraudsters is to get their victims to transfer cryptos to the fake address instead of the real one.

The problem is acute, as various modern crypto wallets do not display the entire blockchain address for reasons of user-friendliness. In many instances, only the start and end characters are displayed. If a wallet becomes infected with a virus, the address can then be exchanged without coming to anyone's attention. It is thus all the more important to check the entire blockchain address before transferring cryptos.

💰 Stablecoin fraud:

Stablecoins now account for a considerable portion of the transaction volume on blockchains. The growing level of acceptance they enjoy is making them increasingly attractive to fraudsters, who generate fake stablecoin tokens with the same name, such as USDC or USDT (the two cryptos are the two most popular stablecoins).

The fake tokens are then labelled with the same price as the corresponding original. As a seemingly genuine asset with a real price, investors new to the crypto scene are tempted to exchange their real bitcoins, ether and other cryptocurrencies for these worthless imitations. In order to be certain whether a stablecoin is real or not, you can, for example, check the stablecoin’s smart contract address – the so-called token contract.

Websites such as Etherscan can be helpful here. The images below show two screenshots from Etherscan. The first screenshot shows the real Tether stablecoin with its current market capitalisation and real token contract address. The second, on the other hand, shows a fake Tether stablecoin without details of any market capitalisation and with a fake token contract address.

_{^{Source: etherscan.io}}

_{^{Source: etherscan.io}}

Important legal information

_{This publication is intended for information and marketing purposes only, and does not constitute investment advice or a specific individual investment recommendation. It is not a sales prospectus and does not constitute a request, an offer, or a recommendation to buy or sell investment instruments or investment services, or to engage in any other transaction. Maerki Baumann & Co. AG does not provide legal or tax advice. Investors are therefore advised to obtain independent legal or tax advice concerning the suitability of such investments, since their tax treatment depends on the personal circumstances of the investor in question and is subject to change at any time. ­Maerki Baumann & Co. AG holds a Swiss banking licence issued by the Financial Market Supervisory Authority (FINMA). This publication is expressly not intended for persons domiciled in Germany or so-called U.S. persons.}
 

Editorial deadline: 21 August 2024

Maerki Baumann & Co. AG
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