How to protect crypto investments

The reasons are varied. At the same time, everyone understands that as long as monetary assets and funds exist in any form, there will always be criminals trying to steal them, and they will use different methods depending on people’s trustworthiness, technological developments and other factors.

A few days ago, this was confirmed by a study of the well-known blockchain company TRM Labs, which noted that from the decrease in the value of different coins investors lost much less than from the actions of scammers. Researchers calculated that in 2022 people around the world lost $11.5 billion due to the actions of fraudsters of all kinds, namely:

• $7.8 billion — investments in various financial pyramids; and

• $3.7 billion – as a result of hacking.

Separately, TRM Labs noted that $1.5 billion disappeared after investing in the darknet and on platforms specializing in selling everything prohibited.

As the variety of cryptocurrencies grows, so do preferences of scammers. The study notes that in 2016, 97% of stolen cryptocurrencies were bitcoins, and in 2022 - only 3%. Now investors are much more likely to steal Ethereum (68%) and Binance Smart Chain (19%).

The activity of the crypto-market is not regulated in most countries of the world, although authorities in many corners of the planet are working on it. It is not controlled by a financial regulator or protected by law enforcement agencies to the same extent as traditional bank accounts. Maybe for this reason, or maybe because of the low educational level and naivety of crypto-investors, they are attacked by criminals. Of course, over time, people will have more experience, the market itself will become more secure, and the security situation will improve.

But for now, I think, it will be worth remembering the most common schemes of fraud in the crypto-market, and draw them to investors’ attention.

• In the first place, as with classic bank accounts, there are methods of phishing and social engineering techniques. They lure people out of their financial information and then bankrupt their accounts. Scammers often try to reach the owners of wallets through social networks or other means, and then extract the necessary data or convince them to invest in a knowingly fraudulent project. Some campaigns are very large scale.

For example, there was a scammer attack in the US last year, which the US FBI called The Pig-Butchering Scam and warned the citizens about it. The scam is long-playing: scammers contact investors through social networks, start a long correspondence on different topics (interesting to the person, selected by the person’s profile), and then offer friendship or romantic communication. The offender pretends to be the victim's true companion by hacking into the victim's profile. All this was done in order to offer a person at a certain point an allegedly profitable investment in cryptocurrency on a fake platform, an investment that subsequently evaporates like smoke along with an old/new friend. The FBI reported that people were trying to extract as much money as possible, pushing for investments of ever larger amounts, and did everything to ensure that they did not withdraw anything from the crypto wallet. As soon as investors tried to cash in the investment, the site demanded to pay taxes on profits, fees and commissions for processing transactions. And it all ended with the scammers closing the fake crypto-platform when they realized that they could no longer profit from deceived victims.

• The second common method is a fake ICO. This abbreviation implies the initial offer of coins, similar to the initial placement of shares – IPO – by corporations in traditional finance, which have already rolled out in the market, made a name for themselves and can count on attracting the attention of investors. But only in the case of ICO is it about the start of young and risky projects that advertise themselves as promising – with potentially large profits in the future. Unfortunately, however, many of these projects later turn out to be scam, that is, fraudulent.

The idea of an ICO is to raise more money from primary investors for development. The principle is simple: buy tokens now very cheaply or invest in the blockchain project your liquid tokens (the project tokens modified), and when the project is promoted and becomes famous, you will be able to resell them much more expensive and you will be able to earn more. But it could end up with the scammers disappearing along with the platform.

• The third method commonly used by criminals is to set up fake crypto exchanges. Fake crypto exchanges imitate the authentic site's name, menu, and connect fraudulent support services. Fakes can be promoted through banner ads, social networks, and email newsletters. Therefore, it is very important to carefully consider investment offers that are supposedly profitable and not go/invest in unfamiliar places on unprotected pages. An example of this was when the Binance exchange entered the Turkish market last year. In Istanbul and other cities, advertisements with fake phone numbers targeting people who did not support Binance soon appeared, with scammers seeking financial information and luring them into risky projects with false promises of excessive profits.

These are just a few tricks that scammers use. There is no doubt that criminals will always invent something new to get into people's pockets. This works not only with cryptocurrencies, but also with classical funds. It remains to be hoped that there will be an adequate response from law enforcement agencies, which will quickly find the crooks, and the supervisory bodies, which are obliged to carry out preventive work.

But even more important for the investors themselves is to always be on their guard and not to take advantage of questionable and outright criminal offers, no matter how lucrative they may seem. Everyone remembers that free cheese is nothing more than a mousetrap. Each new investment idea, its sources, as well as its organizers, should be checked and re-checked by questioning and thinking critically about everything.