Cryptocurrencies are still unregulated in different parts of the world, and the crypto space faces an uptake of scams and frauds. The most prevalent ones are phishing attacks, fake initial coin offerings (ICOs), and ponzi schemes disguised as lucrative investment opportunities.

According to a 2024 Fast Company report, the trust of crypto traders is the weakest point of exploitation for scammers. Starting with manipulative messages, scammers use different strategies to carry out their frauds.

They impose a sense of urgency or a “too-good-to-be-true” investment opportunity, while in fact, they are fake opportunities in disguise.

Fast Company noted the techniques of these fraudsters who take advantage of the volatility of crypto prices and industry. They use social media to build realistic – while in fact a professionally faked profile – to build trust with their victim.

The report also highlighted that as the crypto industry grows, the prevalence of scams increases. “Romance scams”, for instance, grew significantly in 2023.

Romance scams, according to the report, is when a fraudster attempts to build a relationship overtime with the victim by repeatedly pretending to message them accidentally. This indirectly pushes them to invest money in fake opportunities. Fast Company also wrote that this kind of scam often takes advantage of the victim’s loneliness.

Another scheme is “pump-and-dump”. They are a kind of market manipulation scams where fraudsters artificially inflate the price of a cryptocurrency and then sell off their holdings at the peak, leaving unsuspecting investors with worthless tokens.

FTX & Alameda Research scam scheme

A popular crypto scam scheme was caused by Samuel Bankman-Fried, founder of FTX and Alameda Research. In 2023, his venture was described by media outlets like ABC News, New York Times, and Reuters as “one of the biggest financial frauds in American history”.

According to a 2024 statement from the U.S Department of Justice, Bankman-Fried’s scheme swindled customers of over $8 billion from FTX customers, despite claiming “he did not intend to do any criminal wrongdoing and plans to appeal his conviction and sentence”.

The statement mentioned that Bankman repeatedly and falsely claimed FTX keep deposits safe and not use them for any purpose. Bankman-Fried also emphasized that FTX kept customers’ deposits separate from company assets and that Alameda did not have privileged access to FTX funds.

However, Reuters reported that Alameda siphoned more than $1.7 billion from customer deposits and defrauded its direct investors of more than $1.3 billion, with false financial statements covering this misuse of customer funds. The stolen money went to private investments and $100 million worth of political contributions.

Before its bankruptcy and before the fraud came to light, FTX was the second-largest crypto exchange in the market, according to Tech Report. Alameda was also connected to FTX as a purported customer of the platform.

Did you know?

Did you know that the biggest crypto scam to date swindled investors out of $8 billion over a course of three years?

The lifespan of the average crypto scam reached a record low of 70 days in 2021, with FBI reports further showing that crypto investment fraud was up 183% between 2021 and 2022 and 53% in 2023, according to Tech Report.

Globally, crypto scams have generated less revenue since 2021, but scammers have increasingly targeted Americans, Tech report stated.

The challenges of combatting crypto scams

The challenging thing about combatting crypto scams is how transactions are often global and anonymous as well as the rapid evolution of technology.

Experts, in interviews with Fast Company, emphasised the need for greater international cooperation and consistent regulatory frameworks, as well as introducing mandatory certifications and licensing for crypto businesses and reducing online anonymity.

Additionally, it is important for crypto traders to do their own research (DYOR) before investing in any digital currency, manage their investments wisely, and stay informed by educating themselves with advice and support from trusted crypto community groups.

The experts also warned crypto traders to be cautious about any unsolicited offers or communication demanding urgent payments or promises of unrealistic, guaranteed high returns. If unsure, it is important to check that clear information is provided about the project and its leaders.

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