The rise of cryptocurrencies has attracted both technology enthusiasts and investors; However, with billions of dollars traded daily, it has also become a popular space for malicious actors. Cryptocurrency platforms and exchanges are the backbone of the digital asset market and provide users with a way to exchange cryptocurrencies for fiat money or other digital assets. Their central role in facilitating these exchanges makes them attractive targets for scammers. One study identified more than 1,500 fraudulent domains on more than 300 fake apps posing as legitimate exchanges; These scams have collectively caused financial losses exceeding $520,000 (Xia et al., 2020).
A popular exchange or platform scam method is typosquatting, where scammers create domains that are almost identical to legitimate exchange and platform websites. When unsuspecting users misspell a URL, they are then redirected to these fraudulent sites where their credentials and/or assets are stolen. Likewise, another growing threat is fake apps that often imitate official platforms or swap apps using identical interfaces. These mobile apps are found on legitimate app stores, further blurring the line between legitimate and fraudulent platforms (Xia et al., 2020).
While decentralization is a hallmark of blockchain technology that offers privacy and autonomy, this also creates risks. Decentralized exchanges have become attractive targets for scammers because they allow peer-to-peer trading without intermediaries. This lack of centralized oversight means that users often must verify the legitimacy of transactions themselves (Aspris et al., 2020; Liu et al., 2019). Additionally, tracking illicit activities is challenging due to the anonymity that cryptocurrencies provide. Blockchain’s immutability ensures that once a transaction is confirmed it is not reversible, a feature that fraudsters can exploit to their advantage (Kuo et al., 2017; Liu et al., 2019).
Scammers can also take advantage of different psychological tactics to manipulate their victims. For example, fear of missing out (FOMO) is a powerful motivator in trading and price volatility in the cryptocurrency market contributes to a sense of urgency and FOMO. Scammers will take advantage of FOMO to promote fake investment opportunities, such as fraudulent initial coin offerings (ICOs) or pump and dump schemes. In a pump and dump scheme, scammers will artificially inflate the price of a low-value cryptocurrency by spreading misleading information. Once the cryptocurrency price peaks, scammers sell their holdings and leave other investors with worthless crypto tokens. These schemes exploit something called “herding behavior,” where traders often blindly follow perceived market trends without verifying their legitimacy using trusted external sources (Liu et al., 2018; Liu et al., 2019).
Investor sentiment also plays an important role in cryptocurrency trading. Studies have shown that positive sentiments (often measured using search trends or social media activity) can actually drive price changes, not only for Bitcoin but also for altcoins (Anamika & Subramaniam, 2021). Scammers will take advantage of this dynamic by creating fake videos or news articles to further manipulate market perception (Anamika and Subramaniam, 2021). For example, deeply fake videos of Elon Musk and other prominent figures have been created endorsing fake investment plans. Videos like these take advantage of the trust associated with prominent figures and, as a result, convince victims to invest in scams (Xia et al., 2020).
Some examples:
1. Typographic squat:
- A well-known exchange was attacked by a typo squatting domain that collected login credentials from unsuspecting users. Upon logging in, users found that their accounts were depleted and inaccessible (Xia et al., 2020).
2. Fake apps on google play:
- Thousands of users downloaded a fraudulent app posing as a major cryptocurrency exchange before it was removed. The app not only collected login credentials but also installed malware to access sensitive information (Xia et al., 2020).
3. Phishing:
- Scammers pose as exchange representatives on platforms such as
As scams become increasingly sophisticated and technology advances, vigilance in the cryptocurrency space is vital. Here are some steps to help you safeguard your investments:
1. Check URLs and apps
- Always check that the website URL is accurate.
- Use bookmarks for frequently visited platforms and exchanges.
2. Enable two-factor authentication (2FA)
- Add an extra layer of security by enabling 2fa on your exchange and platform accounts
3. Be careful with unsolicited messages
- Avoid clicking on links or responding to messages from unknown sources, especially those offering investment opportunities.
4. Educate yourself
- Stay informed about common scam tactics.
- Follow trusted news sources and community forums for updates
5. Report scams
- If you encounter suspicious activity, please report it to the relevant platform or exchange and warn other community members.
As the cryptocurrency market matures further, combating scams requires a collective effort from the community. Platforms and exchanges should use enhanced security measures, such as employing fraud detection and offering additional security features such as trusted device notifications. In Newton Crypto LtdWe take security seriously and offer multiple options for customers to help improve their account security through our security checklist, including: multi-factor authentication, trusted device registration, login activity, and codes. antiphishing to authenticate any communication from us. As an investor, be sure to be vigilant and exercise caution when trading cryptocurrencies. Always do your own research.
References
Anamika, M. C. and Subramaniam, S. (2021). Does sentiment affect cryptocurrencies? Behavioral Finance Magazine, 24(2), 202–218.
Aspris, A., Foley, S., Svec, J., & Wang, L. (2020). Decentralized exchanges: the “wild west” of cryptocurrency trading. SSRN Electronic Magazine.
Kuo Chuen, D.L., Guo, L., and Wang, Y. (2017). Cryptocurrency: a new investment opportunity? SSRN Electronic Magazine.
Liu, Y., Tsyvinski, A., and Wu, X. (2019). Common risk factors in cryptocurrencies.
Liu, Y. and Tsyvinski, A. (2018). Risks and benefits of cryptocurrencies.
Xia, P., Wang, H., Zhang, B., Ji, R., Gao, B., Wu, L., Luo, X., and Xu, G. (2020). Characterization of cryptocurrency exchange scams. Computers and security, 98101993.
