The victims and perpetrators of crypto fraud often have one thing in common: an interest in making quick money. Criminals are always looking for new ways to get their hands on money and are creative in their methods. The large rise in cryptocurrencies in recent years gives them numerous opportunities to do precisely that. Anyone looking to invest in cryptocurrencies should therefore be aware of the risks involved. Find out more in this article about the most common types of crypto fraud, how to recognize it and how to protect yourself against it.
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Created on 25.08.2023
| Updated on 07.11.2023
How to protect yourself against crypto fraud
In recent years, the popularity of cryptocurrencies such as Bitcoin and Ethereum has skyrocketed. They have gone from being a niche market product to a widespread asset class. However, this increase in demand has also drawn the attention of fraudsters and scammers. Crypto fraud has become a very serious problem that must not be underestimated. In this guide, you will find out more about crypto fraud and how to protect yourself against it.
What are the different types of crypto fraud?
It’s not just developers, companies and investors exploring the relatively new territory of cryptocurrencies − fraudsters are, too. The latter are constantly on the lookout for ways to steal cryptocurrencies and investments from investors. The tactics they use to do so are varied and sophisticated. We’re going to take a look at some of the most common types of crypto fraud.
Phishing and fake websites
In the case of crypto phishing, fraudsters primarily have their sights on information from digital wallets, especially the private keys needed to access crypto funds. Their approach is strikingly similar to conventional phishing. Scammers send out fake e-mails or create bogus websites that resemble legitimate crypto exchanges or wallet providers. Their aim is to lure users into disclosing their login details or transferring money to bogus accounts. Once they have this data in their possession, the hackers can access the cryptocurrencies in the victims’ wallets with ease.
In addition to the use of advertising and manipulated search results, the number of spam e-mails that promise big profits with cryptocurrencies is rising. The intention is always exactly the same: to generate a fear of missing out, or FOMO, in the recipient – in this instance, the prospect of making an easy profit. To strengthen this feeling, images show supposed investor success stories. These also involve trying to entice recipients to transfer money to the bogus website.
Consumer protection recommendations
Do not click on the contents of these e-mails. The e-mail content is just an image that will take you to a fraudulent website. Similarly, don’t click on any “Unsubscribe” buttons.
Fake apps and fraudulent wallets
Just as widespread are scams with fake apps that can be downloaded from the major stores (Google Play and Apple’s App Store). Scammers create fake versions of trading platforms or official crypto wallets that look deceptively similar to legitimate wallets or trading platforms. But if users transfer their cryptocurrencies to wallets like these, their investments will be stolen.
Fraudulent initial coin offerings (ICOs)
An initial coin offering (ICO) is a new method for raising capital in which companies or projects issue cryptocurrencies to gather funds from potential investors. It is similar to the concept of an initial public offering (IPO). However, instead of traditional shares, digital tokens or coins are issued to investors. The tokens or coins may be linked to physical assets, such as company shares. ICOs have become established in recent years as a popular method for funding crypto projects.
Criminals, too, have realized the potential in ICOs and put a great deal of effort into creating premium marketing materials and renting out supposed office spaces to trick potential investors. They purport to offer new cryptocurrencies through initial coin offerings and collect money from interested parties. However, there are often no legitimate applications or companies behind these projects, and the scammers usually vanish along with the money after the supposed ICO.
Distorting the market with pump and dump schemes
This trick involves scammers influencing the price of a given cryptocurrency by artificially stoking interest. In other words, they advertise certain cryptocurrencies − for instance, via e-mails or social media platforms like X, Facebook or Telegram − as highly promising investment opportunities. The fear of missing out (FOMO) compels investors to jump on the bandwagon, and the price rises. Once the price has reached its peak, the scammers sell their stock at a profit. This, in turn, leads to a dramatic drop in the price, which causes the investment to decline in value in a matter of minutes.
Fraud on social networks
Another form of crypto fraud can be carried out on social media. Specifically, scammers use fake social media profiles or groups to masquerade as crypto experts and to offer investment tips or bogus services. Victims are frequently promised they will get back x times the amount of cryptocurrency they paid in. The messages are usually very skilfully worded, and the senders come across as legitimate.
It’s important to note that this list is not exhaustive. Scammers are exceptionally creative and inventive when it comes to thinking up new ways to trick their victims. This is why it’s vital to always be on your guard and to keep up to date with the latest scam techniques so that you can recognize suspicious activities as quickly as possible.
How to recognize crypto fraud
Three warning signs indicative of attempted fraud with cryptocurrencies
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If an offer promises unrealistic profits in a short space of time, be sceptical. Scammers often try and entice potential victims with high returns. However, it isn’t possible to accurately predict how an investment will perform in future, given that prices can both rise and fall. This is why offers trying to seduce you with guaranteed success should be viewed with caution. It is highly likely that a scam is behind these sorts of investment offers.
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It’s normal for companies to do at least some advertising. Crypto scammers, however, need to target as many people as possible in a short time frame, which is why they invest in comprehensive marketing campaigns. Their aim is to get their hands on large sums of money as quickly as possible. If you feel an offer is being advertised in an overly pushy way, or you’re faced with far-fetched, unsubstantiated claims, we recommend finding out more about the provider.
Scammers often use the tactic of sales pressure and the FOMO effect to try and sway potential victims. One trick they use, for example, is that they claim there is only a limited time frame or a limited number of places for an investment. This puts pressure on investors to act fast, so that they don’t miss out on the alleged benefits. Remember that serious investments require enough time for you to research them thoroughly.
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Another potential warning sign is a lack of information and transparency on the part of the provider. If you do not see important information about the company, its structure, team members or business practices, then caution is advised. Reputable companies are usually open and transparent about their activities and provide relevant information to inspire potential investors with confidence. For instance, each ICO contains a whitepaper that explains the concept of the cryptocurrency and how it works. An incomprehensible or even non-existent whitepaper is a warning sign that could suggest dishonest intentions. If it’s not apparent who’s behind the cryptocurrency, you are best off steering clear of it.
How investors can protect themselves against crypto fraud
General precautions to take when investing in cryptocurrencies
There are certain general precautions you should always take to protect your investment if you decide to invest in cryptocurrencies.
Protect your wallet
If you decide to invest in cryptocurrencies, you no doubt know that you need a wallet for your private keys. If you are asked to disclose your private key as part of your investment project, it is highly likely this is not a legitimate transaction. Only you or a trustworthy counterparty (e.g. your principal bank) should have access to your private key. It is a very good idea to use strong passwords and to activate two-factor authentication for your wallets. You should also ensure that your private keys are stored securely.
Additionally, be wary of wallets that originate from unknown providers or make suspicious requests, and keep your software and firmware fully up to date in order to plug the usual security gaps. Only use apps from official platforms such as the Google Play Store or the Apple App Store. To check if a crypto wallet app is legitimate, we advise sending only a small amount the first time you make a transfer. If you notice something suspicious when updating your wallet app, cancel the update and uninstall the app.
Use secure trading platforms
If you are looking to enter the crypto market, it’s advisable to use a reliable trading platform, to read up thoroughly on it in advance and to check if it has a good reputation. Precautions such as two-factor authentication and encrypted communication are indicators of that fact. If you want a trustworthy service for trading cryptocurrencies, we recommend doing this directly with the bank.
Verify the identity of projects and individuals
Before investing in a project, you should verify the identity of the individuals or companies behind it. Look for information about the team, the founders and their track record. An overview from the Swiss Financial Market Supervisory Authority (FINMA) could come in handy for this. They maintain a list of financial providers licensed in Switzerland. If a company does not appear on that list, then caution is advised. FINMA also maintains a warning list with information on companies that may be offering their services without a licence. Also be sure to listen to the community and read reviews and progress reports by other investors. Be sceptical if there is not much information available or if something looks too good to be true.
Only invest in products you understand
The general rule for both traditional investments and cryptocurrencies is to do your research beforehand. If you aren’t sure how a particular cryptocurrency works, read up on it yourself. Whitepapers provide information on who issues the cryptocurrency and how it works. Reviews and progress reports from other investors can also be useful. We also recommend analysing the exchange rate trend of a cryptocurrency. If the price has only ever risen and never fallen, this may be indicative of a currency that is not legitimate.
Use common sense
Quick profits generally come with a certain amount of risk. So be sceptical if high returns are promised within a very short space of time. Just like in other situations, you should never simply share your bank or credit card details or a copy of your passport/ID card with a third party. Be wary if you receive a phone call out of the blue with an offer to invest in cryptocurrencies. Ignore these sorts of offers, and never share sensitive data with unknown individuals.
I’ve already fallen victim to crypto fraud: what should I do?
If you have fallen victim to crypto fraud, you must act quickly, especially if you have already made payments or disclosed personal information.
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In short: no-one who has been impacted by crypto fraud should feel ashamed to tell the police. Even though it’s quite unlikely for victims to recover the money they have lost, you should report the crime to the cantonal police force in your canton of residence straight away.
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Always inform your principal bank. If you have made a payment with a debit/credit card or via bank transfer, or if you have disclosed personal data, inform your principal bank right away.
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It isn’t unusual for crypto scammers to sell the data they have harvested to other criminals. With that in mind, make absolutely sure you change your login details, e.g. usernames and passwords, so that no further damage is done. If crypto fraud is committed on social media, you can report this to the relevant platform.
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Make sure you also exercise caution when strangers, such as private investigators or lawyers, offer you help, and don’t pay any fees to release the blocked funds. These are also often attempts at fraud.
How your principal bank can protect you from fraud
If you find ensuring the safekeeping of your cryptocurrencies too laborious, and you’re looking for a user-friendly, secure way to trade in cryptocurrencies, you will find the right solution with selected banks. Processing crypto transactions through a bank can reduce the potential risk of fraud, as regulated Swiss banks are obliged to comply with certain regulations that generally offer protection against fraud. Banks can deploy tried-and-tested practices, and they have expertise in recognizing and reporting suspicious activities.
More and more Swiss financial institutions now provide reliable services for cryptocurrencies. Find out about the various products on offer at your leisure and check which solution is best for you. Did you know? PostFinance will start offering its customers the opportunity to trade and safeguard cryptocurrencies over the course of 2024. Find out more here about the potential benefits of processing your crypto transactions via a bank.
In the end, however, it’s important to bear in mind that the ultimate responsibility for ensuring secure investments lies with the investor. The same rule therefore applies to cryptocurrencies as to any other type of investment: only invest money you can afford to lose.
