Crypto bull markets are like the tide. They lift all boats, including those of crypto investors and criminals. The more interest there is in a digital asset, the more attractive it is for scams and scammers.
Crypto exchanges represent an attractive vector of attack for criminals. The exchange ecosystem often deals with customers’ KYC information, rendering users doubly vulnerable to scams, exploits, and data theft. Crypto exchange scams are all scams that happen within the exchange ecosystem, including phishing, fake ICOs, pump-and-dumps, trading bots and signals, exit scams, impersonation scams, etc.
What strategies do scammers use to target you through your crypto exchange, and what can you do to avoid them? We answer these questions and more below.
Identifying Scam Crypto Exchanges
Some crypto exchanges only masquerade as legitimate service providers. Criminals may set up such operations looking to steal digital assets and personal information from their clients. They fake trading volumes to achieve a semblance of legitimacy and level arbitrary fees to steal money from their victims.
How do you recognize a scam crypto exchange? What are some of their common characteristics?
- No KYC and AML regulation. KYC and AML aren’t privacy-friendly, but all legitimate exchanges observe such regulations. If a crypto exchange doesn’t have a KYC policy or doesn’t care about AML, it is probably a scam crypto exchange.
- Bad design. Ad-hoc, scammy operations often feature poorly designed websites with poorly written or copied content and copy.
- No customer support. Crypto exchanges are relatively support-intensive operations. Every legitimate crypto exchange boasts a solid support department. Scam crypto exchanges don’t bother with customer support.
- Suspiciously generous promises. If something seems too good to be true, it is most likely a scam. This adage is doubly true in the crypto world, where scams and fraud abound.
- Negative community feedback. If people on crypto forums and social media slam an exchange as a scam, it most likely is. Run a search on the name of the exchange and the word “scam.”
- Scant or no information on the people who run the exchange. When those who operate an exchange aren’t keen on sharing information about their identities, you’re probably dealing with a scam crypto exchange.
- Unsolicited, overly generous offers. Scammers like to tempt their victims through generous offers. They don’t hesitate to use email, social media channels, and even phones to cold call people and try to appeal to their greed.
- Security problems. Some crypto exchanges are well-known for the hacks and other security breaches they frequently suffer. Such operations have poor security measures in place. Stay away from them.
Community feedback is one of the most powerful tools you can use to avoid crypto exchange-based scams. Only use exchanges that have been around; the public knows them well, and there is overwhelming evidence that they’re trustworthy and reliable. Understand that legitimate exchanges have KYC and AML policies in place. They will also report your crypto activities to the relevant authorities.
Decentralized exchanges are more privacy-friendly but more likely to be scam-plagued.
What can you do if you happen over a scam crypto exchange? Reporting them is always an option. By doing so, you can ensure that other people don’t fall for the scam.
Preventive Measures for Investors
To ensure the cryptocurrency exchange you use is not scammy, go through this practical checklist:
- Look for regulatory compliance.
- Check for reputation.
- Check the security measures the exchange has taken.
- Double-check trading volumes and liquidity.
- Check the assets the exchange supports and the fees it charges.
- Evaluate customer support.
- Assess the transparency of the operation and its willingness to communicate with you.
There are many tools at your disposal to assess the credibility and legitimacy of a cryptocurrency exchange. Here are some of these tools in no particular order:
- Financial and crypto news websites
- Blockchain explorers
- Research platforms
- Security audits
- Regulators’ websites
- Scam alert forums and portals
- Individual background checks of team members
- Social media monitoring tools like TweetDeck
- Whitepapers, regulatory filings, etc.
Safe crypto practices and proper wallet security can help you avoid scams or mitigate their effects. More specifically, such practices can help you:
- Protect against theft
- Reduce the severity of phishing attacks
- Reduce exchange failure risks
- Enhance your privacy
- Protect against malware and human errors
- Be confident and in control of your assets
Steps to Report a Crypto Scam Exchange
How do you report a scam crypto exchange? Here’s a quick step-by-step guide to act as a blueprint for crypto exchange scam victims.
1. Gather Evidence
Your interactions with crypto exchanges and scammers leave a trail. This trail comprises documents, transaction histories, messages, etc. Here’s what you can do to ensure you back your case with solid evidence:
- Save all communication and keep copies of this evidence in different locations.
- Save your transaction history on the platform, including your deposits, withdrawals, and everything that may take place between them.
- Take screenshots of your communications, transactions, the platform’s website, etc.
- Delve into the crypto transactions you had using a blockchain explorer. Save all relevant data like addresses, transaction IDs, and timestamps.
- Ensure the safety of the evidence you gather by copying it onto multiple air-gapped devices.
2. Report to Regulatory Authorities
After you gather your evidence, you must identify the relevant regulatory authority. The agency to which you can report crypto crime is likely your regional law enforcement or consumer protection agency. Financial regulators, dedicated financial crimes task forces, and the local securities commission are also possible options.
Once you know to which agency you can report the crime, ensure you understand the reporting procedure.
Make your formal complaint. Provide a detailed description of the incident and include all relevant proof. Don’t forget to include your contact information.
After your report, continue to cooperate with the authorities to facilitate the favorable resolution of your case. Don’t hesitate to inquire about the status of your case if authorities don’t contact you.
You may want to hire legal counsel to help you navigate the bureaucratic intricacies of reporting and following up.
3. Notify Crypto Communities
By notifying the crypto community, you help others avoid scams and sabotage the scammers’ “business model.” Here’s what you can do:
- Post on social media.
- Write and publish articles on the matter.
- Seek out forums and communities and warn their users.
- Make a YouTube video.
- Reach out to well-known influencers.
- Reach out to crypto news portals.
- Encourage others to overcome shame and share their experiences.
4. Engage with Cybersecurity Firms
Cybersecurity firms can help you trace the funds you lost to exchange scams. A firm like CNC Intelligence Inc. can help you:
- Trace your funds
- Work with law enforcement to recover your money
- Gain access to legal expertise
- Get qualified investigators on your case
- Get identity theft assistance
Recovering stolen crypto assets requires persistence, expertise, and legal savvy across different jurisdictions.
Recovering From a Scam: Is it Possible to Recover Stolen Money?
Conventional wisdom says it is “incredibly unlikely” that you will recover your stolen crypto assets.
In reality, tracing and recovering crypto is challenging but not impossible.
Cybersecurity firms have access to software tools that allow them to trace transactions and link addresses to real-world identities.
They can cooperate with local law enforcement halfway around the world, produce subpoenas, and freeze assets in preparation for recovery.
As an individual, your chances of recovering your stolen assets are small. When you hire experienced investigators, however, those chances increase exponentially.
Conclusion
Crypto exchange scams include all scams that use the exchange ecosystem. From exit scams to phishing and pump-and-dumps, criminals can use exchanges for many nefarious purposes.
By choosing a compliant, reputable, and legitimate exchange, you can spare yourself much potential heartache and financial losses.
If you happen to fall victim to a crypto exchange scam, try to overcome your sense of shame and alert the crypto community. Do not hesitate to seek others’ opinions on exchanges and the services they offer. People hate scammers and will do what they can to cause them problems, including giving you an honest account of their experiences with them.
Educate yourself about scam crypto exchanges, and don’t hesitate to report them to the appropriate authorities should they cause you harm purposefully or through inaction and inadequate safety measures.
We offer complimentary consultations to determine whether our Asset Tracing, Recovery Assistance, and Intelligence Services are appropriate for your case.
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