How to protect yourself against crypto fraud

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.

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. 

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

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.

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.