Crypto scams are becoming more elaborate and pervasive as the sector goes mainstream

Choosing a fraudulent investment opportunity could lead to the complete drain of your entire crypto portfolio. Crypto is not protected in the same way

Crypto scams are becoming more common as the sector goes mainstream. Here are some of the worst scams to watch out for in 2022.

Crypto scams are becoming more elaborate and pervasive as the sector goes mainstream. Choosing a fraudulent investment opportunity could lead to the complete drain of your entire crypto portfolio.

Crypto is not protected in the same way it would be if you put your money into a bank or other protected financial service.

Many cryptocurrency investors have fallen foul to scammers, without realising it's a trap until the last minute.

The amount of detected illicit activity from cryptocurrency scammers has dropped in 2022.

Read more: Crypto live prices

The total revenue lost to crypto scams so far in 2022 currently sits at $1.6bn (£1.32bn), according to a report by Chainalysis. This was down 65% from the same period last year.

However, this decline appears to be linked to falling prices across the entire cryptocurrency sector when compared to 2021.

Below is a list of some of the worst crypto scams prowling the burgeoning web3 market in 2022, how to spot them, and how to avoid them.

Crypto giveaway scam

On Twitter (TWTR), many people get sent direct messages stating they will receive "free crypto" if they send a small amount of cryptocurrency to a wallet address.

When the victim clicks on the link in the message they are given instructions on how to send the crypto to a certain wallet.

In this scam, victims never receive the cryptocurrency that was promised in return.

To make the process seem more legitimate, a hacker will often compromise or impersonate a prominent public figure or company.

Scam tokens in a cryptocurrency wallet

When a person connects their digital wallet to a decentralised cryptocurrency exchange, scam tokens may appear in their wallet that usually seem to be worth thousands of dollars.

The immediate reaction of most people is to sell the tokens.

However, this is a serious scam, and if you sell you will lose all your money.

What would Karl Marx think about crypto? — The Crypto Mile Episode 7

When you sell the token, you activate a smart contract that transfers all of your other legitimate cryptocurrency tokens to the scammers who sent you the bogus coins.

If you receive a strange token in your digital wallet that you did not trade yourself, just ignore or hide the token from your wallet.

Do not interact with the token as this will set up the smart contract that will steal the private keys to all of your funds.

The rug pull

A "rug pull" or exit scam is when you buy into a new coin or NFT and when the value of the coin rises to a specific point, the developers behind the scam remove all of their holdings and so plunge the value down to zero.

The infamous Squid Game cryptocurrency scam in October 2021 was an example of a rug pull scam that caught the attention of mainstream media outlets.

Encouraged by former memecoin success stories, early investors in the Squid Game cryptocurrency saw the token as a way to make gains of upwards of 10,000%.

Read more: Crypto: What is Ethereum's Soulbound token?

Soon the hype and fear of missing out became feverish, a multitude of retail investors got on board and the charts for Squid Game went green and pitched upwards at a steep angle.

Then one morning in early November, a red vertical line suddenly appeared on the memecoin's price chart, the token's value plummeted to a pittance and it could not be traded on any decentralised exchange.

The memecoin’s Telegram group was deleted, and all trace of the project’s social media footprint was wiped and it became apparent that the whole enterprise was a rug pull.

The crypto-sphere is unregulated, and there are no official bodies to turn to when scammers strike.

Celebrities with vested interests in NFT projects

Truth in Advertising (TINA), a non-profit consumer advocacy group, sent letters to 19 celebrities, saying that their promotion of various NFT projects are misleading since they have a “material connection to the NFT companies they are promoting".

According to Federal Trade Commission law in the US, these connections must be laid out in full in conjunction with any kind of endorsement.

Singer Justin Bieber and actress Reese Witherspoon, both proponents of the NFT space in different ways, were among the list of celebrities that TINA reached out to.

Celebrity endorsement of NFT projects pumps the price of these digital assets.

Reece Witherspoon has promoted the World of Women NFT collection, which claims to celebrate “representation, inclusivity, and equal opportunities for all".

Witherspoon has used her Twitter account to promote the NFT collection but failed to include a caveat in her endorsements that she has a partnership with the organisation behind the collection.

Mining pool scam

Another pitfall to avoid is the cryptocurrency mining pool scam,