How scammers exploit trusted platforms for crypto fraud

Key takeaways

• Fraudsters deploy various kinds of tactics, such as phishing attacks, fake tokens, Ponzi schemes and pump-and-dump tactics. Warning signs include unrealistic promises, lack of transparency and sudden price surges.
• Scammers exploit platform vulnerabilities, including weak security features, insufficient monitoring and compliance, and the use of trusted branding to trick users.
• To avoid scams, secure accounts with multifactor authentication, verify platform legitimacy, spot phishing attempts, and avoid emotional or impulsive investments based on hype.
• Frameworks like MiCA and FATF promote transparency and accountability, safeguarding users. Collaboration among regulators and leveraging blockchain’s transparency are crucial for combating crypto fraud.

From phishing emails mimicking Binance to fake tokens listed on trusted exchanges, scammers exploit the credibility of well-known crypto platforms. By preying on emotions such as fear and greed, they deceive users into revealing sensitive details or making impulsive decisions.

Understanding these tactics is your first defense. Whether it’s enabling multifactor authentication (MFA), verifying URLs or scrutinizing investment opportunities, taking proactive steps can safeguard your assets. 

This guide explores the strategies scammers use, red flags to watch out for and actionable tips to keep your digital investments safe from fraud.

What are trusted crypto platforms?

Trusted crypto platforms refer to reputable services that make crypto transactions and storage secure. Examples of trusted crypto platforms include exchanges like Binance, wallets like MetaMask and decentralized finance (DeFi) platforms like Uniswap. These systems have gained users’ trust due to their reliability, user-friendly interfaces and robust security features.

There is another side of the coin, though. The enormous user base of these platforms has made them prime targets for scammers. Fraudsters find ways to take undue advantage of these platforms’ reputations to deceive unsuspecting users. 

Scammers present a potent threat; you must exercise caution even on trustworthy platforms. Recognizing risks such as unauthorized access to your account is crucial. You must be aware of emerging threats and be proactive to keep fraudsters at bay. The platforms, on their part, also need to take adequate measures to curb the threat.

Common crypto fraud schemes on trusted platforms

Crypto scams are deceptive schemes that trick you into losing your funds. To scam, fraudsters employ tactics such as unrealistic investment returns, creating replicas of crypto platforms or hacking into user accounts. These scams manifest in diverse forms, including phishing attacks, counterfeit exchanges and Ponzi schemes.

Phishing scams 

Phishing is one of the most widespread crypto fraud tactics scammers use to steal your login credentials and funds. For instance, you might receive an email or a message that looks like it is from trusted platforms like Coinbase or Binance, telling you there is an issue with your account and asking you to click on a link to resolve it.

But here is the catch: The link leads to a fake website, and as soon as you enter your details, the scammers gain access to your account and funds.

Fraudulent schemes like CryptoWallet.com, BitcoinPrime.io and Wexly.io used phishing tactics to steal login details and funds. 

Best practices to avoid phishing include:

• Always double-check the URL before you click any link.
• Enable two-factor authentication (2FA) for added security.
• Never share your private keys (recovery or seed phrases) or login info in emails or messages.
• Look out for strange wording or design in messages — if something feels off, it probably is.

Fake token listings and fraudulent projects

Sometimes, scammers create fake tokens or projects and list them on trusted platforms to trick you into investing by promising huge returns or seeming like they are backed by strong technology. But, in reality, they have no real utility, and once they have made enough money, they vanish with your investment. 

Here are examples of various crypto scams where fraudsters often exploit trusted platforms to steal users’ funds. 

• WEX Exchange: One of the most infamous cases, WEX Exchange emerged from the shutdown of BTC-e and was accused of money laundering. After going offline in 2018, its operators disappeared with hundreds of millions in assets. 
• QuadrigaCX: Another high-profile incident was QuadrigaCX, where the sudden death of founder Gerald Cotten revealed that he had mismanaged and stolen users’ funds, leading to a $190-million loss. 
• PlusToken: Similarly, PlusToken, a Ponzi scheme disguised as an investment platform, defrauded investors of over $5.7 billion.
• Thodex: In 2021, Thodex’s CEO fled Turkey with around $2 billion, leaving users empty-handed.

These incidents underscore the importance of due diligence when navigating the crypto space to avoid falling victim to scams.

Red flags to watch for:

• No clear project roadmap or white paper.
• Unrealistic promises of huge returns.
• Lack of transparency about the team or token development.
• Low liquidity or no real trading volume.

Did you know? In 2023, Americans lost more than $5.6 billion to crypto scams, marking a 45% rise compared to 2022.

Social engineering and impersonation fraud

Social engineering fraud exploits human emotions to steal money. Scammers imitate platform staff or social media influencers, using false accounts, and then put up urgent demands to deceive you into disclosing sensitive information or sending money. They misuse your trust and use panic to carry out their objectives. 

In many cases, attackers may send emails claiming to have hacked your computer and having compromised webcam footage. To make the threat look more credible, they may include a Google Street View image of your residence. They may then pressure you to pay them in crypto to prevent the purported exposure of sensitive information.

In 2023 and early 2024, numerous fraudsters on X impersonated Elon Musk to scam users. Similarly, scammers created fake Binance support profiles, pretending to help with account issues but instead stealing login credentials and funds.

Musk changing his name to “Kekius Maximus” on X has people talking — and not just about the name. Scammers could jump on this, creating fake tokens or projects to cash in on the buzz. Stay sharp, do your homework, and don’t fall for anything that looks too good to be true.

This is how you can avoid social engineering and impersonation fraud: 

• Check for official verification marks in any communication.
• Do not respond to unsolicited DMs asking for personal info.
• Look for grammar or spelling errors in messages.
• Verify requests through official channels.

Ponzi and pyramid schemes

Ponzi and pyramid scams take advantage of the legitimacy of reputable cryptocurrency platforms to entice victims. Scammers promise great returns for recruiting new members, typically concealing the deception behind investment possibilities or coin launches. When recruitment of new members slows down and funds dry up, these projects fail.

Bitconnect, a now-defunct cryptocurrency network, operated a Ponzi scheme that reached a peak market capitalization of $3.4 billion. The founders promised unreasonably high profits through “lending programs,” taking billions of dollars before closing down. 

Similarly, Forsage, posing as a smart contract platform, had a pyramid structure, in which incentives were purely based on new investors. The scheme raised more than $300 million from millions of retail investors worldwide.

Here are some ways to identify pyramid and Ponzi schemes early:

• Promises of guaranteed high returns with no risk
• Emphasis on recruiting others for rewards
• Lack of a clear business model or product utility
• Pressure to invest quickly or secrecy around operations
• Absence of transparency about team and project goals.

Did you know? During the first half of 2024, investment scams accounted for 46% of all cryptocurrency fraud, with victims losing $375 million.

Pump-and-dump schemes

Pump-and-dump techniques artificially inflate token prices. Here, scammers buy large amounts of a low-value token, pumping its price artificially. Once naive investors believe the hype, scammers sell their holdings, causing the price to fall. These frauds frequently leverage social media channels to create hype and entice victims.

In 2021, the price of the Squid Game token skyrocketed before its developers vanished with millions. Similarly, Save the Kids, supposed to be a charity project, turned out to be a scam. The anti-whaling mechanism designed to restrict large transactions was altered shortly before launch, enabling whales to offload their tokens freely.

Here are a few tips for identifying and avoiding pump-and-dump schemes:

• Be cautious of tokens with sudden, unexplained price surges.
• Avoid investing based on social media hype alone.
• Check for limited liquidity or abnormal trading volumes.
• Research the project’s fundamentals, use cases and team.
• Avoid FOMO (fear of missing out) when prices rise rapidly.

Platform vulnerabilities that scammers exploit

Crypto scammers capitalize on a range of vulnerabilities within cryptocurrency platforms. A significant factor contributing to these scams’ success is the decentralized nature of cryptocurrencies. 

This decentralization can impede rapid responses to security breaches, creating opportunities for scammers to exploit vulnerabilities and capitalize on delays in identifying and mitigating threats.

• Weak security features: Unsecured identification processes and lack of security features, such as multifactor authentication (MFA), make platforms vulnerable. An exchange breach in 2023 took advantage of a platform’s poor identity verification processes, allowing scammers to create bogus accounts and steal funds. Strong security procedures and adequate identity checks are a must for protecting users.
• Insufficient monitoring and compliance: Inadequate transaction monitoring lets criminals launder money undetected. For instance, the 2024 Lazarus Group hack exploited poor activity oversight on smaller exchanges to move stolen crypto. Effective compliance systems, which detect questionable transactions and enforce anti-fraud measures, are critical for preventing such fraud.
• Scammers use trusted branding: Scammers utilize trusted branding to get users to reveal critical information. In 2024, fraudulent versions of the MetaMask and Trust Wallet apps duped victims into providing private keys. To avoid such scams, verify platform URLs, download apps exclusively from official sources, and check security certifications.

Did you know? According to the 2020 F5 Labs Phishing and Fraud Report, 55% of phishing websites incorporate targeted brand names to easily capture sensitive information.

Real-world examples of crypto fraud on trusted platforms

Scammers exploit vulnerabilities and deceive users, even on seemingly secure platforms. Understanding these cases is crucial for investors to enhance their awareness and mitigate risks.

Exchange hacks and data breaches

Exchange hacks have resulted in enormous losses for the cryptocurrency industry. The Mt. Gox hack in 2014 is among the most infamous cases, with attackers stealing 850,000 Bitcoin (BTC), taking advantage of loopholes in security protocols. The exchange ended up going bankrupt. Binance suffered a breach in 2019 when hackers exploited API weaknesses to steal more than 7,000 BTC, costing Binance almost $40 million.

Scammers profit from such exchange breaches by channeling stolen assets through mixers or decentralized platforms, making recovery more difficult. They exploit inadequate security measures, low user knowledge and code vulnerabilities.

Ledger holiday phishing scam

The Ledger holiday phishing scam targeted Ledger wallet customers by taking advantage of their holiday purchasing habits. Scammers sent fraudulent emails claiming that a security upgrade was required for Ledger wallets, typically with a holiday-themed urgency. 

The emails contained malicious links directing readers to fake websites impersonating Ledger’s platform. Falling for the scam, victims entered their recovery words, granting scammers access to their funds.

NFT scams

As the non-fungible token (NFT) market grows, scams have become more common, targeting unaware collectors. In 2024, phishing attacks on OpenSea users increased. Scammers sent fake emails or links pretending to be from the platform, tricking users into approving malicious transactions that emptied their wallets of NFTs and funds.

A common tactic used in NFT scams is sleepminting, where fraudsters create fake NFTs identical to well-known collections, deceiving buyers into believing they are originals. They may also pretend to collaborate with renowned artists. An example of such tactics is scammers launching a “limited edition” collection claiming to be associated with a famous artist, only to disappear with investors’ money.

The role of social media in amplifying crypto fraud

Bots and fake accounts amplify scams by creating artificial hype around fake projects or tokens. Some influencers may knowingly or unknowingly promote fraudulent schemes to their followers. Plus, some scams are disguised as legitimate opportunities, exploiting users’ trust.

Social media platforms such as X, Telegram and Reddit play a significant role in amplifying crypto fraud. Scammers use these platforms to spread fake investment opportunities, phishing links and fraudulent giveaways, often impersonating trusted figures or brands. For instance, fake profiles mimicking the likes of Elon Musk lure users into sending crypto with promises of high returns.

Social engineering thrives by exploiting human emotions to circumvent rational decision-making. Scammers deploy several types of tactics to influence decisions: 

• Curiosity: A natural human inclination, curiosity is leveraged to create interest and encourage engagement with potentially malicious content. 
• Fear: Induces anxiety, prompting individuals to act hastily without careful consideration. 
• Greed: The desire for excessive gains blinds individuals to potential risks, lowering their guard. 
• Urgency: Fraudsters create a sense of urgency to pressure individuals into making quick decisions, leaving little room for thinking critically. 
• Help: Scammers target the inherent human desire to get help for deceiving the victims. They impersonate staff members of reputable platforms and cheat unsuspecting victims under the garb of assistance.

How to protect yourself from crypto scams

By staying vigilant, securing accounts and approaching investments logically, you can minimize your risk of falling victim to crypto scams.

• Spot fake offers: Avoid offers that ensure high returns or free crypto giveaways. Any offer promising unreasonable returns is suspicious.
• Be aware of phishing attempts: Scammers often send phishing links through emails, direct messages or fake websites designed to steal credentials or funds.
• Secure your accounts with best practices: Enable security measures such as MFA on all crypto accounts, use strong and unique passwords, and store recovery phrases offline. Regularly monitor your accounts for unauthorized activity.
• Verify platform legitimacy before investing: Make sure the platforms you are investing your funds in are legitimate. The URLs should be the real ones; otherwise, critical information will be passed on to scamsters. For app downloads, always rely on trusted sources.
• Avoid emotional investments: Fraudsters exploit FOMO emotions in users. You should always research a project’s fundamentals and avoid impulsive investments driven by hype or urgency.

Role of regulation in preventing crypto fraud

Regulation plays an important role in combating cryptocurrency fraud by establishing transparency, security and accountability norms. Balanced regulatory measures prevent fraud while fostering innovation.

Frameworks such as the Markets in Crypto-Assets (MiCA) in the European Union and the Financial Action Task Force (FATF) guidelines have globally necessitated tougher Anti-Money Laundering (AML) measures and increased customer due diligence and transparency requirements for crypto platforms, thereby safeguarding customers from scams.

Effective regulation requires platforms to implement strong security protections and monitoring mechanisms, decreasing fraud vulnerabilities. It also builds trust between users and investors, promoting the responsible expansion of the crypto ecosystem.

But the decentralized nature of cryptocurrency makes compliance difficult, as anonymous stakeholders and jurisdictional disparities hinder oversight. The solution lies in taking advantage of blockchain’s transparency for compliance and collaboration between regulators across the world. 

Written by: Dilip Kumar Patairya