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Bybit Learn
Bybit Learn
Beginner
Mar 2, 2022

How to Avoid P2P Crypto Scams and Fraud

The peer-to-peer technology that powers Bitcoin and other cryptocurrencies is often hailed as safe and secure, since blockchains record the transactions. These records are then viewable by the public. However, like any growing industry with lucrative returns, the crypto world has its fair share of scammers

One prominent example was a company called Bitconnect, which ultimately shut down operations in 2018. The scam resulted in a whopping $3.45 billion being stolen. To this day, it’s the biggest example of an initial coin offering (ICO) scam, having promised investors 40% returns for their investment in what turned out to be a Ponzi scheme.

While there hasn’t been another crypto scam as large as Bitconnect to date, crimes involving cryptocurrencies have experienced a surge around the world. A recent report found that scammers took $14 billion worth of crypto in 2021, nearly twice the $7.8 billion taken in 2020. 

ICO scams like Bitconnect are just one type of tactic employed by crypto criminals. In this guide, we’re going to focus on P2P scams and how you can avoid them. 

What Is a P2P Scam in Crypto?

A P2P crypto scam occurs on peer-to-peer (P2P) exchanges that connect sellers and buyers. The platform functions as an arbitrator with an escrow service to facilitate transfers. Scamming occurs when the seller tries to bypass the escrow system by asking for payment from an external medium. After the buyer makes the payment, the seller will claim they didn’t receive the funds and refuse to hold up their side of the deal. In P2P there’s usually some level of trust required, and scammers often abuse this for their own purposes.

P2P platforms connect people who are selling cryptocurrencies with others who are looking to buy. Traders interested in selling cryptocurrencies can create an ad on a P2P platform. The platform then advertises a list of traders who have a buyer’s desired tokens, and the buyer can choose the trader they want to buy from. 

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(Source: Unsplash)

Ideally, when using a P2P platform for trading crypto, both parties should provide an appropriate e-wallet or bank account for completing the transaction. The P2P platform holds the crypto being traded in escrow and releases it once the transaction is successfully completed. While the majority of trades are usually completed without issue, there are malicious actors who may attempt to scam you. 

Decentralized finance can be a bit of a Catch-22. On the one hand, the lack of a singular governing body allows for greater freedom. However, without standardized oversight, scammers are free to commit fraud and deceive unsuspecting investors in a variety of ways. The most common types of scams are as follows:

  • Identity fraud: This occurs when a buyer or seller attempts to use an unknown third party’s payment account to complete a transaction. They may send you this new payment information via chat, and ask you to send the money there. Once you complete the transfer, they’ll claim they didn’t receive the funds. 
  • Payment reversal fraud: A buyer and seller agree to trade crypto on a P2P platform. The buyer then transfers funds to a seller’s account to get them to release their crypto. However, once the crypto has been left the seller’s wallet, the buyer calls their bank within 72 hours to report they never authorized the transfer. They may claim the transaction was fraudulent or a mistake, so the bank cancels the payment and reverses the transaction. The seller loses their crypto, as well as the proceeds from the sale.

Fortunately, it’s possible to combat P2P scams as long as you perform your due diligence. We’ll go into further detail on how to do this later on in this article.

It’s also important to point out that P2P scams are different from flash loan attacks, which occur on P2P lending platforms. A flash loan attack is an exploit which abuses the smart contract security of decentralized finance (DeFi) platforms that offer loans without requiring collateral. It’s not the same as a P2P scam. 

While crypto scams in general are common, they’re often sensationalized in news headlines and only account for a small fraction of the total cryptocurrency trading volume. Cryptocurrency exchanges reportedly saw over $14 trillion in trading volume in 2021, so the $14 billion taken by scammers in that year is a drop in the bucket. 

How Are P2P Scams Different in Crypto?

P2P scams are neither a new concept nor unique to crypto platforms. They’ve existed in some form or another for as long as P2P platforms have been around. Whether on traditional P2P or crypto P2P platforms, the scams generally involve either some kind of man-in-the-middle (MITM) mechanism, or an attempt at a third-party transfer.

Since P2P platforms aren’t as heavily regulated as brick-and-mortar banks, the burden of due diligence sits squarely on the shoulders of the user. When choosing a P2P platform or app to use, watch out for these common red flags before you start trading:

  • Lack of escrow system: P2P platforms act as an overseer for all parties involved in a transaction by providing a secure escrow service. One person agrees to sell an amount of crypto, which is held in escrow until the payment is confirmed. The lack of an escrow system is a major flag for any crypto trading platform offering P2P services.
  • Poor ratings from customers: Reviews are where customers truly speak their minds. When choosing a P2P app, check the reviews to see what other users have said about it. It’s a red flag if a lot of people have complained that they’re not able to make withdrawals or purchases, or that they can’t reach the customer support team to get quick responses.
  • The website isn’t secure: Never send sensitive personal or financial information through an unsecured website. A site that doesn’t have a valid SSL certificate, which certifies that private information is transferred securely, may be out to steal your information. In the navigation bar, you should see https (i.e., the address starts with www.https) in the URL, along with a lock icon (🔒)This is a quick way to check if a site is secure. 
  • Lack of social media presenceAny good P2P platform will have a strong and active social media presence. When users have complaints or questions and other channels of communication aren’t working, the social media accounts of crypto trading platforms are usually the most viable options. It’s not enough to just have a social media page; the platform must also actively interact with its users and community online. 

Examples of P2P Scams in Crypto

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(Source: Unsplash)

There are a variety of scams which occur on P2P crypto platforms. Below is a sampling of the most common ones. 

Ecommerce Scams

Ecommerce scams involve transactions on dubious ecommerce websites. Scammers entice unwitting victims with low prices for products they want to buy. The scammer then sends the victim a different P2P crypto seller’s payment information, claiming that it’s their account. Once the victim pays for the item, the crypto seller sends crypto to the scammer on the other end, who vanishes. 

Romance or “Love” Scams

Romance scams prey on the emotions of unwitting victims in order to distract them from a scammer’s true motives. It may sound like something you’d never fall for — but romance scams are actually widespread and one of the more common scams out there. According to the U.S. Federal Trade Commission (FTC), in 2019 there were $201 million in losses attributed to romance scams, with more than 25,000 victims. It was the second-most reported crime to the FBI that year. 

Scammers typically find victims via dating apps — such as Tinder — and forge online relationships with them, gradually building trust by feigning personal interest to “groom” the mark. At some point, the scammer begins to manipulate the victim into “helping the scammer with their financial issues” by sending fiat currency or cryptocurrency.

Unbeknownst to the victim, the scammer has in fact provided the identification details of an unwitting crypto seller — who will send crypto to the scammer, thinking that it’s a typical crypto-to-cash transaction. The scammer runs away with the cryptocurrency. Once the victim realizes the scheme, they’ll try to cancel the transaction. But the consequences won’t negatively affect the scammer — only the crypto seller.

“Romance” scammers simply will not stop once they’ve found a willing victim. Oftentimes, the marks the scammer has targeted are isolated, perhaps elderly and even with mental clarity issues. The mark may at some point become aware that they’re entangled in a web of deceit, but they often simply can’t bring themselves to sever the emotional attachment they’ve formed with the criminal because of the ersatz attention they’re receiving. 

Investment Scams

These are similar to love scams, except that instead of preying on the victim’s personal emotions, the scammer takes advantage of an individual’s financial desires — whether it’s a bout of FOMO or a desire to quickly profit from an investment. In this scenario, the scammer finds victims and entices them with “guaranteed” gains. It can involve a fake website or app to build some façade of legitimacy, and then the scammer will ask the victim to send money to an account in exchange for Bitcoin they’ve supposedly earned.

In reality, the account — which the fraudulent scammer has set up — is actually owned by a crypto seller. According to the FTC, there were 7,000 reports of investment scams between October 2020 and March 2021, resulting in $80 million in losses. 

Erroneous Transfers, Chargeback, and Fake Receipts

Once a P2P transaction has been completed, a scammer may try to void the transaction by taking advantage of legitimate bank processes. For example, the scammer may call their bank to cancel the transaction and claim that the transfer, or that their account was stolen. The bank will typically acquiesce by voiding the initial transfer request. 

Another common exploit is to abuse the chargeback feature on payment platforms such as PayPal. This particular variant usually targets crypto sellers on P2P platforms. Once the deal goes through, the scammer triggers a chargeback within 72 hours to reverse or cancel the payment. The scam is completed when the victim rushes to approve a transaction without first confirming that the money is firmly in their bank account or e-wallet. 

The end result is that the victim is left with neither the crypto nor the proceeds from the sale — and instead, an awfully sour taste in their mouth. To compound the problem, once a victim loses their money in this way, the scammer sometimes tries to scare them into not reporting the theft to the police — by claiming that the cryptocurrency is “illegal,” or beyond the purview of state authorities.

When conducting P2P transactions, it’s important to closely check the information being sent to your counterparty. Scammers sometimes manipulate screenshots and other photos to claim that they’ve fulfilled their end of the deal — and then pressure the victim into sending payment. 

How Do I Avoid P2P Scams in Crypto?

P2P scams are easy to avoid if you take a few simple precautions.

  • Take screenshots: Make a habit of taking screenshots of all of your transactions as proof that they were completed. It’s important to have concrete evidence of a scammer acting in bad faith. If issues arise, calmly gather all evidence, such as screenshots and correspondence, and use it to make your case with the P2P platform and to prevent chargeback attempts. 
  • Escrow service: Use the platform’s escrow service. P2P platforms typically lock the crypto amount posted in a seller’s ad to ensure the seller doesn’t scam buyers. Don’t be afraid to walk away from a transaction if things start to become suspicious. 
  • Identity verification: Only use reputable P2P platforms that verify the identity of all users in compliance with KYC verification. You should also take the time to verify a user’s identity before starting a transaction by making sure sure their payment account details matches the identity listed on the platform.
  • Confirm transactions: Always check your crypto wallet or bank account to confirm that a transaction has successfully been completed. Don’t authorize a crypto transfer until you’ve personally confirmed the payment. In addition, don’t rely on the buyer for proof — as they may send you fake evidence of payment.
  • Stick to in-platform conversations: Limit your conversations with the buyer or seller to the P2P platform. Don’t agree to use outside communication channels like Skype, Zoom, Discord, Telegram, WhatsApp, etc. That’ll only make it easier for them to deny the transaction and raise a false dispute against you. 
  • Customer support: If you’re unable to reach an agreement, immediately contact a P2P platform’s customer support team for assistance. Reputable platforms typically have a system in place to investigate and handle disputes. You should always report any suspicious activity. 

To illustrate how a typical P2P transaction happens, here’s how transactions on Bybit’s P2P platform work. Once a buy order is submitted, the amount of coin specified will be reserved by Bybit. The buyer can complete the payment using over 80 different methods, including credit cards, debit cards, in-person cash payments, and more. If the seller doesn’t release the coin within 10 minutes of receiving the payment, Bybit’s customer support has the right to release the coin from the reserved funds to the buyer after verification.

Bybit also has a daily transaction limit for unverified users. Depending on the fiat currency being used, the platform requires identity verification for transactions over 1,000 USDT. If a buyer or seller has an issue with an order, they can log in to their Bybit account and click on the support icon in the bottom-right corner to contact Bybit’s customer support via chat or email. Parties can send their order number and any applicable screenshot(s) as evidence and then wait for dispute resolution.

The Bottom Line on P2P Scams in Crypto

P2P cryptocurrency scams may be on the rise, but there are multiple steps you can take to make sure you don’t become a victim. Always be on the lookout for third-party transfers, and make use of the platform’s escrow service. It’s important to reiterate that P2P crypto scams aren’t always the same as other crypto scams out there, which you can read more about here.

To get started with P2P trading, check out Bybit’s P2P trading platform