Crypto Scams In Canada: Red Flags And How To Avoid Them

People have been trying to get rich quick for eternity. With cryptocurrency booming, it provides another way for people to make money and lose money. Since cryptocurrency is so volatile, often gaining and dropping more than 20% in a day, many people take advantage of this. Day trading and holding long term are the traditional ways to make money in crypto, but today there are more and more get-rich-quick opportunities out there that often end up being scams. Additionally, there are scammers actively preying on people who are vulnerable to these schemes. Cryptocurrency can be complicated and if you don’t know how to protect yourself and your funds, then it is easy to fall for scams. Scammers know this and target those who are new to crypto, or those looking to get rich quick. In this article we’ll look at some of the most popular crypto scams in Canada and how to avoid them.

How Do Email Scams And Phishing Work?

Email scams are popular with crypto scammers because it’s one of the easiest ways to fool people. If you have an account with a crypto exchange then you would expect emails from them from time to time. Scammers dupe people by sending a fake email that looks real. These emails have the same branding as the exchange and at a glance they appear legit. Upon closer inspection, you’ll notice that the sender’s email address is not accurate. For example, an official address might be info@crypto.com, but the fake email comes from info@crypto.ai or something completely different.

The point of these emails and texts is to get you to click on malicious links that could infect your device with a virus or malware and potentially drain your wallets or steal your seed phrase. Sometimes these phishing links come in the form of text messages. Often you’ll get one claiming to be from a company or brand you know. They’ll say you have a refund or are eligible for a special offer, to encourage you to click the link.

Another type of email scam will pretend that you need to verify your documents, or validate your account, or some type of common request that an exchange might feasibly make. The links take you to a fake website where they convince you to input your personal details, seed phrase or other private information, which results in your crypto being stolen.

Here is an example of a request that has appeared to many Metamask wallet users:

This request is completely fake. Metamask will never ask you to verify anything with your seed phrase.

It’s important to double check the sender’s email address before clicking on any email link. You should also have good anti-virus software and never keep your seed phrase on your device.

How Do Fake Mobile Apps Steal Crypto?

A common crypto scam is with the use of fake mobile apps. Perhaps you go to download a wallet or the app of an exchange you use. Instead of downloading the real one, you accidentally download the fake one. When you start setting up your wallet, the app will steal your seed phrase and drain your funds. It’s important to double check you are downloading the correct app. Check the number of reviews and ratings and check the publisher details to make sure it’s real. The Canadian Anti-Fraud Centre also advises buying hardware wallets directly from the manufacturer.

How Can I Spot A Fake Crypto Exchange?

When signing up for a crypto exchange, you’ll want to use one that is secure and compliant. In Canada, check whether the platform appears on the CSA’s list of authorized crypto platforms and whether the firm is registered through the Canadian Securities Administrators’ National Registration Search. A FINTRAC money services business registration is a separate anti-money-laundering registration, which you can look up here, but it is not investor protection by itself. You can also check our list of the best crypto exchanges in Canada. We carefully audited and reviewed over 60 exchanges so far and rated them using several factors including security and compliance with Canadian laws.

There have been times when exchanges pop up and users flock to them, handing over millions of dollars in trading activity, only for the exchange to collapse with customers’ money missing. Examples of this are Mt. Gox and QuadrigaCX. The Ontario Securities Commission’s staff review of QuadrigaCX concluded that its collapse came from fraud by its CEO and co-founder Gerald Cotten, and that the platform operated like a Ponzi scheme. More than 76,000 clients were owed a combined $215 million, and the bankruptcy trustee could recover or identify only $46 million.

What Is Pig Butchering And Fake Investment Fraud?

The Canadian Anti-Fraud Centre describes a scheme in which fraudsters build trust through dating apps or social media, claim expertise in crypto investing and direct victims to fake trading platforms. Victims are told to buy crypto from a legitimate exchange and transfer it to an address the fraudster controls. The platform shows large paper profits and may allow a small withdrawal to build confidence, then more deposits are demanded. The CAFC also warns that there is not the protection from fraud when using cryptocurrencies that there is with a credit card, and that unsolicited pitches promising high returns in a short time are a warning sign.

Are Celebrity Crypto Endorsements Real?

Sometimes on social media you might see a celebrity tweet about a cryptocurrency. They’ll say they are giving away some crypto and encourage people to send them crypto first in exchange for more. These are fake. YouTube also has a problem with allowing scam videos and livestreams. Often a livestream on YouTube will have a crypto wallet address or a website address where it directs viewers with the promise that you can double your money. It might not fool most people, but the scammers will usually stream video footage of a celebrity known in the crypto world to make the promo seem more legitimate. When people see this well-known crypto person on a video livestream talking about crypto, it appears as if that person is endorsing the promo.

What Are Malicious Smart Contracts?

One crypto scam that not that many people think about is that of malicious smart contracts. The world of decentralized finance is a place where there is money to be made, but it is also a risky place. DeFi is the wild west of crypto. When everything is decentralized, meaning no one is in charge, there is no one to be held accountable. A centralized exchange might have insurance, but a decentralized exchange will not.

Let’s say you use Metamask to connect to various decentralized finance apps. Some examples would be PancakeSwap, Beefy.Finance, or any other app that offers yield farming, staking, or daily rebases. Scammers will often con people with a fake website that looks just like the real thing. The URL will also appear similar. When the user connects their Metamask (or other wallet) to this fake website, they are unknowingly about to give their crypto away.

Say you want to deposit some crypto into a yield farm to earn crypto rewards. Before you approve the transaction on your Metamask wallet you first have to approve the smart contract. You’ll simply click an “approve” button on the app and confirm it in Metamask. If you have connected to a fake website, however, when you go to approve the contract you will be approving a fake smart contract. Unknowingly, you will be giving that smart contract permission to drain your Metamask wallet. Even if you have a hardware wallet connected to Metamask, approving a smart contract can drain your funds. To avoid this crypto scam, you must double check the URL of the app or website you are connecting to. Make sure it is the official URL every single time you visit.

How Do Giveaway Scams Work?

Similar to the fake celebrity endorsements, there are many giveaway crypto scams. This is a popular crypto scam because it takes no time at all to set up. The scammer will ask you to send them some crypto and in exchange they will send you twice as much back. These scams often appear as YouTube comments or in the comments on Facebook posts or Twitter threads. Often the scammers will use the name of an official exchange, wallet, cryptocurrency or well-known person to make the giveaway appear real. Unfortunately, too many people fall for these. This is a classic example of “if it’s too good to be true it probably is.”

What Are Fake ICOs?

An Initial Coin Offering (ICO) used to be a popular way for crypto projects to generate initial income for their project. The project creators would hype their project and then sell a portion of the coin’s circulating supply to the public, usually before the project has launched. People buy the coin thinking the project’s launch is just around the corner, possibly with the intention of selling once it’s released to make some profit. Only, the project never materializes. Sometimes the project founders will disappear completely and other times they will announce “problems” and come up with fake excuses why the project can’t go ahead. Then they will disappear. ICOs are not as common anymore because they became so popular with scammers. If you do wish to participate in one, make sure that the project is real first. Are the founders’ identities known? Do they have partnerships? What does the crypto community think about the project? Do your research before investing in any new crypto.

What Is A Rug Pull?

A rug pull is the new fake ICO. In the wild west of DeFi, many new projects are created every day. Sometimes these projects are forks of successful existing projects. A fork is a copy of the smart contract with some updates or changes to make it a bit more original. An example would be OlympusDAO, arguably a successful project that allowed people to stake their OHM tokens in exchange for daily rewards. Many new projects copied OlympusDAO’s code, thereby becoming Olympus forks. Sometimes these new forks turned out to be scams. The fork creators would hype up the project and encourage investment. The project would run for a few weeks until the price reached a nice number and the project had many investors. Then, the creators would pull all the liquidity or sell all of their own holdings causing the price to plummet. If all liquidity is gone, then no one else can sell. This is known as a rug pull where the rug is pulled from under you. To avoid a rug pull, make sure tokens in the liquidity pool are locked (cannot be drained) and try to avoid investing in forks.

What Is A Pump And Dump?

A lot of celebrities have no clue when it comes to cryptocurrency. They will accept money to promote a product without having ever used it or knowing what it is. A good example is when Kim Kardashian promoted a crypto called EthereumMax (EMAX) on Instagram. On October 3, 2022 the US Securities and Exchange Commission charged her with illegally touting the tokens, because she did not disclose that she was paid $250,000 for the post. She settled, without admitting or denying the findings, paying about $1.26 million and agreeing not to promote crypto asset securities for three years. Many of her fans bought this cryptocurrency with the hopes of buying a new coin that their favourite celebrity endorsed. The SEC’s case was about the undisclosed payment, and it is a good lesson in how a hyped token can be sold to the public.

A classic pump and dump is where the creators of the crypto hype the coin so much that many people buy it. Then, they sell their own holdings which tanks the price. People lose what they put in. It’s quite common for someone with a large following to buy a crypto, hype it up and promote it to their followers. Then when the price goes up, they sell causing the price to tank.

What Are The Red Flags Of A Crypto Scam In Canada?

Almost every scam on this page trips at least one of the same alarms. If you see two, stop and verify before you send anything.

How Can I Avoid Crypto Scams In Canada?

There are several ways you can avoid crypto scams in Canada.

• When using a crypto exchange in Canada, check that it is on the CSA’s list of authorized platforms and use the National Registration Search for the firm. You can also check its FINTRAC registration. If an exchange is not Canadian then it should be registered and compliant in its jurisdiction. Never give your personal details to an exchange that is not regulated.
• Always double-check the website URL. You can unknowingly connect to malicious smart contracts, fake exchanges, fake apps and wallets if you don’t check the URL. Similarly, always check you are downloading the real app.
• Consider asking the crypto community on Reddit if you’re not sure about a cryptocurrency, website, email you’ve received, or anything else you’re unsure about. Treat strangers who message you first with suspicion.
• Keep your crypto wallet secure. Write down your seed phrase on a piece of paper and keep it somewhere safe. Never keep your seed phrase on your device or anywhere connected to the internet. Never give your seed phrase to anyone, ever. No legitimate exchange, wallet or service will ever ask you to validate your seed phrase or input it in any way.
• Walk away from anyone who found you online, claims crypto expertise and wants you to move money to a platform you have never heard of.

How Do I Report Crypto Scams In Canada?

It’s not always possible to trace crypto scammers, however it can happen. If you are a victim of a scam, you should be able to trace which wallet all your funds were sent to by looking at the blockchain’s scanner. For example, if you’ve had an Ethereum token stolen then search the receiver’s wallet at etherscan.io. There are other scanners for different blockchains.

From there, you might be able to trace which exchange (if any) the funds end up. If the scammer has gone through a KYC procedure then the exchange will have their identity. If you know your funds ended up at an exchange, contact the exchange and they might be able to freeze the scammer’s account in time before they sell everything. If you post in the r/cryptocurrency subreddit on Reddit then people may help you trace the scammer, but never hand your seed phrase to someone offering to recover your funds.

The Canadian Anti-Fraud Centre takes reports online at reportcyberandfraud.canada.ca, where you can choose to remain anonymous, or by phone at 1-888-495-8501, Monday to Friday, 10 am to 4:45 pm Eastern. It asks you to contact your local police as soon as possible if you have been victimized, and says it is important to report whether you are a victim or not. The CAFC supports police by keeping central information rather than investigating cases itself. You can also start at its reporting page.

Remember, scams are easy to fall for, so double-check everything and never give away your seed phrase. If something is too good to be true it probably is.