/ Scams

How do cryptocurrency scams work?

A cryptocurrency inspired by the hit Netflix show Squid Game made headlines last week when it completely collapsed. Do you know how apparent ‘rug pull’ scams work?

Last week the BBC reported that the cryptocurrency ‘Squid’, based on the phenomenal success of the Netflix series Squid Game, had collapsed in an apparent scam. The new digital token wasn’t quite as straightforward as buying and selling currencies either, which likely helped the perpetrators pull it off.

It was promoted as a ‘play to earn’ cryptocurrency. This is when tokens are bought to play online games in which you can earn more tokens which can then, in theory, be traded for other cryptocurrencies. 

But in this case, the tokens were completely worthless. According to Gizmodo, soon after its launch, the developers made off with the money victims had paid them – an estimated $3.3 million.

Explosion of ‘alternative’ cryptocurrencies

There has been an explosion of ‘alternative’ cryptocurrencies recently. Hundreds are being launched all the time, hoping to follow the rise of Bitcoin. Many, like Squid, attempt to piggyback off of trends, and are increasingly promoted by celebrities and online influencers. 

But regardless of what the cryptocurrency is called, or who is endorsing it, there is absolutely no regulation in this space. This makes the cryptocurrency scene a bit of a Wild West – and a potential playground for scammers.

What is a ‘rug pull’ scam?

Crypto scams tend to follow similar patterns. First there will be a lot of hype created online, with heavy advertising on social media and forums. The returns and rates are engineered to give an illusion of lucrative returns very early on.

The bigger the hype, the more people will invest, and the value might genuinely go up.

Then, without warning, the founders will disappear – and so will all your money. This is called a ‘rug pull’ scam.

There’s understandably a lot of excitement around crypto, which can lead to plenty of criminals capitalising on those eager to make money in a tough economic climate. It’s essentially gambling but, in the case of a scam, there is never any chance of winning.

How are crypto scams promoted?

Most cryptocurrency investment opportunities are promoted in similar ways, so it can be difficult to tell the real deal from the scams. But there are a few things to be sceptical about:

Being regularly bombarded by the same persuasive adverts online and on social media.

Unsolicited emails and messages on social media and forums promoting crypto investments. Sometimes these messages can be highly personalised and claim to offer insider tips.

Fake news stories designed to look like genuine media coverage that report success stories of those who have apparently made huge profits from crypto investing.

Fraudulent use of celebrities or influencers to promote a cryptocurrency or exchange platform without their knowledge. 

Social media accounts portraying the ‘luxury lifestyles’ of those who have ‘made their fortune’ on crypto. They’re easily fabricated.

Four signs of a crypto scam

⚠ Huge hype and unrealistic promises of high returns. Investors should be warned from the start that dabbling in crypto is at your own risk, and your investment could go up or down in value.

⚠ Initial investments are quickly lucrative, and you’re encouraged to invest more money to take advantage of great rates.

⚠ The new currency has a novelty name or design these could be trying to capitalise on a current trend which is usually just that a short lived fad.

⚠ The inability to sell the crypto you’ve bought, or exchange it for other cryptocurrencies.

Even if your friends, family or contacts encourage you to invest in cryptocurrency, it can’t hurt to be sceptical. Some operate similarly to pyramid schemes with those sucked in encouraged to ‘recruit’ relatives and friends for financial gain.

Some celebrity endorsements should also be taken with some cynicism. They can be easily faked, with stars’ names being used without their permission or knowledge.

However, celebrities are genuinely increasingly collaborating with, and promoting, crypto platforms. But ask yourself: is the singer, footballer or YouTuber really an expert in finance and investing? Of course not all crypto promotions and endorsements are scams, but do as much research as possible before making risky investments. If you do want to experiment, make sure you’re using an established exchange platform.

You probably won’t get your money back if things go wrong. Many high street banks block customers from buying cryptocurrency for this reason.

Are you tempted to invest in cryptocurrency? What’s been your experience? Have you spotted potential scams or even been a victim?

Comments

[Moderator: this comment has been deleted as it did not adhere to the Community Guidelines. Please don’t use comments to post spam or to promote businesses (either your own or others).]

This comment could be promotional so it has been reported for review by the moderators. The company mentioned is based in New York. There is not much useful information on its website and it is not clear whether or not it can assist UK residents. The website contains numerous literacy errors, no names and qualifications of its agents are stated, and there are no references to its competence or the extent to which it meets any professional standards of investigation and recovery action.

It has not yet been removed. @jon-stricklin-coutinho, Jon, is it an acceptable comment?

My bad – that one’s gone now.

With the mention of cryptocurrency we’ve been getting a lot more spam comments of late – the one that previously appeared above is a good example. Please do keep reporting them as you have been and we’ll action them ASAP.

Helen Hamilton says:
2 December 2021

I am still getting phone calls from (supposedly) Microsoft saying that my computer needs attention. I haven’t used a computer for years as the one I had was broken long ago.