5 Top Crypto Scams to Watch in 2022

In this unregulated space, crypto investors must be vigilant.

Many investors are wary of cryptocurrencies because they are still unfamiliar and, as yet, largely unregulated. Although bad actors and scams may ding the reputation of the entire ecosystem, as far as the overall crypto industry is concerned, there are also “a lot of good projects and good people” working on digital asset products, says Merav Ozair, blockchain expert and fintech professor at Rutgers Business School. However, “the nature of being decentralized means that a bank, regulator, or law enforcement agency has no control over the network or crypto assets,” says Jonathan Wykes, managing director at crypto exchange CEX.io, who adds that “unless your crypto was scammed by another user on a centralized exchange, getting stolen crypto back is nearly impossible.” In a new, relatively opaque space where there’s a lot of money to be made, it’s hard even for savvy investors to navigate risks, says Alma Angotti, partner in financial services at management consulting firm Guidehouse. Here are five crypto scams investors should watch out for in 2022.

Phishing scams

Phishing scams are as old as the internet, and they work pretty simply. An attacker sends you an email or link directing you to a site that steals your credentials. Today’s cryptocurrency phishing scams steal crypto wallets and passwords stored on computers, says Ariel Zetlin-Jones, associate professor of economics at the Tepper School of Business at Carnegie Mellon University. After stealing your credentials, hackers can then access your cryptocurrency and non-fungible tokens, or NFTs. Such breaches can involve “your bank account, your PayPal account, your Venmo account and your crypto account,” says Angotti, who adds that phishing scams can be a particular problem if you have a self-posted wallet. “If somebody gets the private key, it’s gone, and you’ve just lost it,” says Angotti. “If it’s a big enough fraud, law enforcement might trace it and recover it, but if you’re the average person, you’re not going to get law enforcement attention.” Digital-asset owners should follow many of the same precautions internet users have always used against phishing scams: Don’t open unknown attachments and don’t visit unvetted websites.

Investment schemes

Many crypto scams aren’t so different from traditional investment scams. For centuries, bad actors have been defrauding investors by telling them there’s an easier way to make a buck with no tangible product behind their claim. One recent example outside the crypto world involved a biopharmaceutical company, Theranos, which claimed it had developed blood testing technology that would revolutionize the industry. A federal indictment said the blood tests were not capable of consistently producing accurate results, and a jury found Theranos executives guilty of wire fraud in an investing scheme worth more than $1 billion. Angotti says that in the crypto world, this scam “as old as time” would work like this: An apparently legitimate person would say, “Give me your money and I’ll invest it in a crypto hedge fund or a new platform or network design.” But in fact they’re just stealing the money without any intention of developing the product or platform they’re describing. Investors must do their own due diligence to make sure they understand the risks involved before betting on a crypto venture, Angotti says.

Unsustainable projects

Zetlin-Jones says he’s reluctant to jump into investments he doesn’t know much about, which is a good rule of thumb. Instead, investors should think broadly about risk and try to distinguish a risk from a scam. He says this is like “trying to distinguish between motive and intent.” In other words, not every crypto scam starts out as a scam; some are unsustainable projects. Ozair says that “what we hear about Terra (LUNA), Celsius and BlockFi was not a scam, but they all tried to do something that was not sustainable,” and there are plenty of examples of projects that failed because they didn’t make sense financially. “If they don’t make common sense, then why do you think they’re going to work?” says Ozair. Doing research on new products and the people behind them is an important step to avoid investing in an unsustainable project.

Registered broker scam

In this scam, a bad actor will call an investor and pretend to be a registered broker who is a real person, says Angotti, who has had clients who reported encountering this ruse. The scammer might even tell an investor to check them out on a reputable site, such as the Financial Industry Regulatory Authority’s BrokerCheck site. The scammer gets people to send money by promising to invest it in crypto for them, but instead steals the funds. Then the jilted investor calls the broker-dealer about the theft, but in many cases the impersonated broker didn’t steal anything, says Angotti. A variation on this scam, Angotti says, is “the plain old romance scam”: A crypto holder might think they have a romantic partner in a foreign country, and that partner says their mother needs money for a surgery or there’s some other financial emergency. The partner asks the investor to help via a wire transfer, but then disappears once the transaction is complete.

Meme coins

Another risk for crypto investors to watch out for involves meme coins, which are cryptocurrencies inspired by an internet meme or joke. The most famous example of a meme coin rush was the Dogecoin (DOGE) surge of 2021. Of course, Dogecoin wasn’t invented to be a scam. It was created, at least in part, as a way to poke fun at Bitcoin (BTC) and other cryptos. The problem with meme coins like DOGE, Ozair says, is that they “don’t have a use case and aren’t supposed to have a use case.” Instead, the coins themselves are pure speculation. Ozair says that some meme coins do have a utility behind them, though, and that can give them merit similar to other types of investments. Of course, other so-called digital assets can be outright fakes. “The promotion of fake NFT campaigns on Instagram has helped scammers make a fortune defrauding users,” Wykes says. To avoid such scams, Ozair says, be skeptical of heavily hyped products and, as always, proceed with caution when making any new investment.

5 top crypto scams to dodge in 2022:

— Phishing scams

— Investment schemes

— Unsustainable projects

— Registered broker scam

— Meme coins

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5 Top Crypto Scams to Watch in 2022 originally appeared on usnews.com

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