Here’s how to protect yourself from cryptocurrency troubles

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A lot of investors have shunned cryptocurrencies and for good reason. After all, who wants to invest in something that is made up, has no real use other than to help commit crimes and is as unstable as a chair with two legs.

That said, investors who got in during the early days of, say, bitcoin or Elon Musk’s joke, dogecoin, have made plenty of money and aren’t afraid to brag about it. So much so that even diehard conservative investors are at least giving cryptocoins another look, especially since Canadian securities regulators and the United States Securities and Exchange Commission are putting tougher rules in place to help protect the innocent.

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Despite that new oversight, cryptocurrency fraud and illicit activity are still prevalent, leaving investors with questions about the safety of putting any of their money into the industry’s hands.

“The decentralized and pseudonymous nature of many cryptocurrencies makes it challenging to trace fraudulent activities back to their perpetrators,” says Tony Anscombe, chief security evangelist at ESET Canada Inc., a Thornhill, Ont.-based cybersecurity firm. “Transactions on the blockchain, unlike traditional banking, are often irreversible, which provides the fraudsters with a certainty of monetizing their crime.”

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Here, he offers his take on why cryptocurrency fraud is so prevalent and how investors and consumers alike can protect themselves.

Q: Why is cryptocurrency fraud so rife?

A: The absence of regulatory oversight in the cryptocurrency space leaves investors susceptible to various scams and fraudulent schemes. The lack of a central authority to monitor and regulate transactions also contributes to the prevalence of fraud, as there are fewer safeguards in place to protect investors. Additionally, the rapid growth and popularity of cryptocurrencies have attracted opportunistic individuals seeking quick riches without understanding the risks or processes needed to keep their investments safe.

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Unsolicited emails or social media ads lure victims with the promise of big returns on their crypto investments. They’ll usually link to a legitimate-looking investment app or website. However, it’s all fake, and the money will never be invested or returned. According to the FBI, cryptocurrency scams totalled US$3.96 billion in 2023, a year-on-year increase of 53 per cent.

Q: What are the most common types of cryptocurrency fraud to watch out for and how do they work?

A: The most common types of cryptocurrency fraud encompass a range of deceptive practices with criminals building a confidence and trust relationship with the victim.

• Scams such as Ponzi schemes promise high returns on investment, but are reliant on funds from new investors to pay returns to earlier investors, leading to inevitable collapses when the influx of new capital diminishes.
• Social engineering is often used through dating apps and social media to gain the trust of victims and then claim they or a close friend is an expert at investing in cryptocurrency and is making large amounts of cash, then offer the victim a piece of the action if they want to invest.
• Phishing scams involve tricking individuals into revealing their private keys or login credentials, enabling fraudsters to access and steal their cryptocurrency holdings.
• Fake initial coin offerings (ICOs) lure investors with promises of revolutionary projects or products, only to disappear with investors’ funds once the ICO concludes.
• Pump-and-dump schemes artificially inflate the price of a cryptocurrency through misleading information before orchestrating a co-ordinated selloff, leaving unsuspecting investors with substantial losses.
• Fraudulent wallets or exchanges deceive users into depositing funds, only to abscond with the money or manipulate transactions for personal gain.

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There are also recovery scams to look out for. When falling victim to a cryptocurrency scam or cyberattack, resulting in stolen funds, you feel regret and shame, not to mention anger over the monetary loss. Unfortunately, for many victims, this isn’t where the story ends. Imagine an even worse outcome: you are approached by someone or see an advert offering cryptocurrency recovery services, but instead of getting your funds back, all they do is make off with the upfront fee you paid them.

Unfortunately, this type of “recovery fraud” is increasingly common, and the FBI issued a public service announcement about it last year.

Detections of malware specifically designed to steal cryptocurrency from users’ wallets (cryptostealers) also surged 68 per cent during the first half of 2023, according to the latest ESET Threat Report. One of the most popular is Lumma Stealer, a.k.a. LummaC2 Stealer, which targets digital wallets, user credentials and even two-factor authentication browser extensions.

Q: How can investors reduce the risk of falling victim to cryptocurrency fraud?

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A: Investors can mitigate the risk of falling victim to cryptocurrency fraud by implementing several strategies. First, it is essential to conduct thorough research before investing in any cryptocurrency project or platform. It pays to be skeptical of any low-risk, high-return investment schemes, even ones that may appear to be endorsed by celebrities or other trusted individuals. And it’s always better to pay for goods online by credit card, as there are more buyer protections that way. No legitimate business is likely to demand that you pay them in advance in crypto.

Verifying the legitimacy of projects, teams and exchanges can help identify potential scams before funds are committed. Utilizing hardware wallets for secure storage of cryptocurrency assets adds an extra layer of protection against hacking and theft.

Practice caution with unsolicited offers in email, over social media or via messaging apps, and never share private keys or sensitive information online. Separate emotions and investments, especially with any romantic or confidence scammer you meet online offering investment advice, even if you feel a close connection with them. Turn to a trusted, reputable exchange with good reviews and some legacy in being a sound platform for trading cryptocurrency.

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