A major drawback of cryptocurrencies is the prevalence of scams, whereby bad actors create schemes that deceive innocent people of their funds, whether in crypto or fiat.
A September 2022 report by the United States Treasury department highlighted that scams are the largest form of crypto-asset-based crime going by 2021 transaction volume representing more than half the value of stolen funds in that year.
According to the report, the number of scams in 2021 rose by over 60% year-over-year, while the value of stolen crypto assets rose by over 80% in 2021 to $7.8 billion.
The report notes:
“$2.8 billion of this total came from a relatively new but increasingly common scheme known as a rug pull.”
In Africa, based on Luno data, scams are by far the leading crypto crime types with 95% of all crimes discovered in the exchange involving customers being scammed.
Below, we list what happens in a rug pull, alongside other common African scams in 2022:
Rug Pulls
Rug pulls have dominated the headlines so far in 2022 when it comes to cryptocurrency crimes.
According to the US treasury report, rug pulls are a type of scam in which developers build out what appears to be legitimate crypto-asset projects, misleading investors into purchasing tokens associated with a project, before ultimately draining the funds provided by those investors and disappearing, typically driving the token’s value to zero.
While the treasury report points at these kinds of scams as new, 2 of the most high-profile rug pulls occurred in South Africa between 2019 and 2020. Both scams posed as legitimate crypto investment businesses under the names Mirror Trade International and AfriCrypt, before directors vanished.
While engaging in the crypto world, it is important to be careful and not fall into schemes that sound good, or too good. Like any other investment, it is crucial that you research the entity involved and the people behind the business before committing your funds.
Phishing Scams
Phishing was already common on the internet before cryptocurrencies. According to Microsoft, this is an attack that attempts to steal your money, or your identity, by getting you to reveal personal information on websites that pretend to be legitimate.
Some of the information that phishing schemes target include:
- Credit card numbers
- Bank information
- Passwords
In crypto, scammers target your crypto account or wallet information, particularly an individual’s private keys. According to Coinbase, a private key is like a password of a string of letters and numbers that allows you to access and manage your crypto funds.
If someone gets access to the private key of any of your wallets, they will be able to steal your funds. It is important to follow all guidelines in protecting the private key when setting up new wallets. You should also write down the seed phrase to your account in a place that only you can access.
Still, in phishing, fake websites posing as legitimate try to get you to enter your private key, often saying you will receive funds or some kind of reward.
Phishing attacks are quite common in Africa with many who get defrauded complaining about how they got lured into inputting their login credentials on illegitimate websites.
Upgrade Scams
Since cryptocurrencies are largely software operations, they often need to undergo software upgrades. This is often a time that scammers can take advantage to try and scam innocent people.
For example, when the Ethereum Blockchain underwent a major software upgrade on September 15, 2022, scammers impersonated Ethereum Founder, Vitalik Buterin, on several Twitter profiles, trying to get people to join in a chance to win $ETH that was allegedly being distributed together with the much advertised ‘Merge’ upgrade.
Scammers allegedly used the Zimbabwe Parliament Twitter handle to impersonate the Ethereum Founder:
Our State institutions are run by amateurs, and it is so embarrassing.
The parliament of Zimbabwe twitter handle @ParliamentZim has been hacked, and they don’t know what to do as the hacker embarrassingly keeps posting.
Who allowed it to be hacked?
How did we really get here? pic.twitter.com/qPeiFdPYK2
— Hopewell Chin’ono (@daddyhope) September 14, 2022
SIM-Swap Scams
In a sim-swap, scammers manage to get a hold of your sim card and get access to your phone information. According to Kenya’s leading telco, Safaricom, fraudsters replace and take over the customer line.
“Fraudsters go to the extent of registering an existing number on a new SIM card in order to intercept notifications, one-time passwords, online banking profile, and transactions as well as changing the account security settings.”
When they gain access, they can determine security keys including 2-factor authentification keys, and use these to gain control of crypto wallets and other accounts.
To be protected, you need to ensure your SIM card has an active SIM lock, use strong passwords, and keep personal information off social media.
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