How to identify and avoid cryptocurrency scams

Protect your money by developing the required knowledge and instinct for identifying and avoiding cryptocurrency scams using the information and strategies shared in this post.

“The phenomenal growth in the value of cryptocurrencies like Bitcoin over recent years has attracted investors, speculators, and thieves.” ~CipherTrace

A total of $1.7 billion was lost to cryptocurrency scams in 2018 according to a report published by the popular cryptocurrency analytics firm, Cyphertrace.

According to a report by the Wall Street Journal (WSJ), cryptocurrency scams took in more than $4 billion in 2019 alone.

As of July 2020, cryptocurrency scams have already accounted for more than $381 million as reported by Bitcoin.com.

What are Cryptocurrency Scams?

Cryptocurrency scams are any schemes or systems devised and designed to swindle you.

They operate mostly by playing on your, ignorance, GREED, and desire to get-rich-quick.

Promising you “free money” or a “once in a lifetime opportunity” to make some highly unrealistic returns on investment (ROI).

It’s easy and simple. All you need to do is send this small $$ amount. And if you want to “make it BIG” at once, use some of that money in your retirement savings account. blah blah blah”

And who doesn’t want to be “rich overnight”. But don’t.

Types of Cryptocurrency Scams

Now let’s take a look at the common ways that cryptocurrency scammers operate and the strategies they use to trick you into sending them your money.

Types of Cryptocurrency Scams

If you want to skim-read, you can click on any one to jump to their respective section on the page.

1. Presale or ICO Scams
2. Bitcoin Account Manager Scams
3. Phishing Scams
4. Support Team Scams
5. Cloud Mining Scams
6. Investment Platform Scams
7. Pump and Dump Scams
8. Giveaway Scams
9. Influencer Scams
10. Exclusive Private Sale Pool Scams
11. OTC Trade Scams
12. Rug Pull Scams
13. Internal (Self-Hack) Scams
14. Scam Crypto Exchanges
15. Scam Crypto Wallets
16. Exchange Listing Scams
17. Partnership Scams
18. Accomplice Scams
19. Referral (Affiliate) Scams
20. Begging Scams
21. Love Scams

Ok, now that’s a long list.

Let’s briefly explain each of them, how they work, and the best ways to avoid them.

Types of Cryptocurrency Scams:

1. Presale or ICO Scams

Initial Coin Offerings (ICO) and Presales are a way for cryptocurrency projects to raise capital by selling their tokens to early investors at discounted rates.

So, you’re asked to buy the token via their website, telegram, discord, etc. at a discount.

It’s simple, send the Bitcoin or Ethereum equivalent of the token you want to buy and be among the first holders.

After the presale, the token will be listed on an exchange for trading at a much higher price, usually, almost 2x the ICO price and you can sell it for a big profit if you don’t want to hold it for the long-term.

Or you can just sell a part to remove your original capital and some of the profit and ride the rest to the moon or hell.

Now that’s ideally how it’s supposed to work but scammers are taking advantage of this to defraud unsuspecting investors.

In a scam ICO or presale, everything goes as usual, but you will not receive the promised tokens.

And sometimes, they will even send you the tokens but walk away quietly. Thus leaving you with a token that’s worth less than an ass wipe.

You wouldn’t be able to sell or do anything whatsoever with it. You simply just got robbed.

Feel free to organize a mourning party for your money because it’s so gone.

How to Avoid Falling a Victim?

1.  Never participate in ICOs of projects with an anonymous team. Period!
2. Buy into only ICOs conducted via launchpads of established exchanges (initial exchange offerings -IEOs) and platforms such as TrustSwap Launchpad, etc. Almost all major (top 10) exchanges now have launchpads that you can participate in.
3. Moreover, IEOs guarantees that the token or coin will be listed on the exchange that hosted the IEO. Thus guaranteeing that you will be able to sell if you want to.

2. Bitcoin Account Manager Scams

I want to say a big thank you  to “Scammer Name” helping to manage my Bitcoin account. In invested only $1,500 with them and in less than 2 weeks they grew it to $15,000. I advise you to try “Scammer Name” if you want to double your money.

Hi! I am “Scammer Name”. A cryptocurrency account manager. Do you want to double your money?

This is one of the lamest cryptocurrency scams to fall for.

And they’re everywhere.

Especially in the comments section of popular posts on Twitter, Instagram, Facebook, Telegram groups, etc.

Once you send them your Bitcoin or any cryptocurrency for that matter to “manage” or “grow” it for you, they’ll disappear, block you, or tell you that you need to send more to receive your earnings.

How to Avoid Falling a Victim?

1. Simply ignore any kind of account manager messages that you come across.
2. If someone has to “manage” your cryptocurrency investment for you then you’re already a failed crypto investor.
3. Lastly, even if you must invest through a third-party, then go with traditional and licensed investment funds and asset management companies available within your jurisdiction. Not some random, anonymous internet user that calls themselves expert traders.

3. Phishing Scams

Phishing scammers clone popular companies’ apps, or websites in order to get you to give them your personal information such as your email address, password, credit card information, or any other sensitive information that will help them access the main website and steal your crypto.

The way this works is that you will be presented with a website or mobile app that looks exactly like that of a well-known company that you probably have an account with.

The scammers will encourage you to log in through this website or app to update your account or for whatever reasons.

Phishing websites look like this: bihance.com (mimicking binance.com), cryptosorted.info (cryptosorteb.info) mimicking cryptosorted.info)

If you’re not vigilant, you’ll hardly notice the misspelled URL.

Once you login, through their clone website or app, your password will be automatically sent to them which they will use to access your account on the original website.

How to Avoid Falling a Victim

1. Always triple-check the link in that email before you click on it and once on the website, double-check to be sure the URL is that of the original company website.
2. Never click on a shortened URL in your email. Also, verify the email origin to be sure it’s coming from the official website.
3. Always login to your accounts via the same link you have been using before now. Bookmark it or manually type the URL. Stop following every link you see in your email or social media communities.
4. Before you download that mobile app, read the reviews, and check the number of downloads to be sure you’re now getting the fake one.
5. If possible, go directly to the company’s website and click the download link from there to your app store. It will take you to the original one.
6. Never react too quickly to any overly urgent requests to login into your account for any reason. That moment of excitement will not allow you to see the misspelled URL or the obviously fake mobile app you’re downloading

4. Support Team Scams

This is a classic support impersonation scam where the scammers pretend to be members of the support team of your exchange, wallet, or any other website where you have money.

The scammer will approach you via email, telegram, Twitter, or anywhere they can reach you pretending to be a member of the support team and offering to help you resolve an issue you’re having.

This is very popular on Telegram. Immediately you join a new community or ask a question in the group a scammer with the same profile name and picture and an almost identical username as an admin will DM you.

Requesting you to explain your problem to them so that they can help you resolve it asap blah blah blah.

In the end, they will ask for your login details or private key or that you deposit a small amount into a wallet they will provide you in order to speed up the resolution of your issue.

If you do any of the above, you have successfully been scammed. Any funds you have in that wallet or exchange will be gone.

How to Avoid Falling a Victim?

1. Support teams never message you first. So whoever is in your DM or inbox no matter how legit they seem is a scammer.
2. Most times the support team is only accessible from the official website via a live chat or email correspondence. When in doubt, go their website and click the support link for instructions on how to contact support.
3. If you have to send any money to resolve the problem it’s a scam.
4. If you have to give them your password or private key to resolve the problem, it’s also a scam.

5. (Cloud) Mining Scams

Cryptocurrency mining is a way to bring new coins into existence through some complex mathematical process that requires the use of special equipment.

A number of mining pools and cloud mining services have sprung up to decomplex mining and make it possible for the regular guy to make money from cryptocurrency mining without having to deal with the overwhelming technical details.

All you have to do to benefit is contribute to these mining pools or purchase a virtual mining rig and the company allocates a share of it its mining rewards to you proportionately to your share of the pool.

The way mining scams work is that they promise you very high and unrealistic daily, weekly, or monthly mining rewards to entice you to invest with them.

All you have to do is create an account with them, purchase the amount of mining power that you can afford —more is better.

And then just sit back and watch the money rolling in.

Not so fast! as soon you discover that the Bitcoin you’re mining is just some numbers on the screen. You can’t withdraw them to your own wallet, and your original capital is never coming back.

How to Avoid Falling a Victim?

• Ignore all mining offers especially those that promise very high consistent fixed daily rewards as mining does not guarantee a fixed return.
• Avoid using any mining pools or cloud mining service without a verifiable track record and plenty of customer reviews or testimonials.
• When in doubt don’t invest. And by the way, mining is so no longer profitable for the small investor so why even take the risk.

6. Investment Platform Scams

Investment platform scams are no longer as rampant as before (2017-2019) but they still exist.

These platforms ask you to invest with them and you will receive a certain fixed percentage every day, week, or month.

Usually, there are various investment plans to choose from with a specific amount for each plan.

The claim to use your money for various things from trading to mining or some other sophisticated stuff.

It’s all BS and a complete Ponzi Scheme where the money from new investors is used to pay the old ones to encourage more people to join until things go south.

How Not to Fall a Victim?

1. Never invest your crypto on any investment platform. There’s no exception. The market is way too volatile for anyone to guarantee any fixed regular returns.

7. Pump and Dump Scams

Pump and dump scams come in two ways (afaik).

The first is via pump and dump groups and the second is project teams that regularly pump and dump their own coins on investors.

In the first case, the pump and dump groups profit from members by buying a coin ahead of everyone (members), and dumping on them immediately after giving the call.

They make the members pump their own bags, dump it on them, repeat and rinse.

In the end, very few members benefit from the exercise and the rest are left holding coins worth less than half their original value.

They will even ask you to go do some form of marketing to get in new buyers to buy your shitty coins or encourage you to try and be faster in buying and selling in the next pump they’re going to call.

It’s all scam. The only people who benefit from these groups are the admins giving the call. Any other person is just plain lucky to catch a profit.

In the second situation, some projects exist to make the founders rich through pumps and dumps.

The founders will regularly manipulate the price of the coin through any means available for their own benefits.

In most cases, it’s nearly impossible to break even with these coins as the team constantly milks the market of value and there may not be enough demand to sustain any organic upward price movement.

Except you’re able to buy in after a dump and wait for the next pump and be quick to take profit.

You can easily identify this type of project by the nonchalant and unprofessional attitudes of their team. They hardly show any form of serious concern for the progress of the project except what’s necessary to keep the pump and dump program running for them.

Some will even go a step further to fool you with their manufactured and over publicized humility and transparency.

I have seen teams that actually show some level of commitment to the project, questionably transparency but they’re constantly pumping ad dumping on the market. (I wouldn’t mention names but I know a few).

Their commitment and much-advertised transparency is just a smokescreen to cover up the real thing they’re doing behind the scene.

How Not to Fall a Victim?

1. Never participate in any organized pump and dump group or schemes.
2. When you find a project with a nonchalant and/or unprofessional team, avoid them.
3. Beware of the team that advertises too much how transparent and committed to the project they are. In the first place, transparency and commitment are not bragging right. That is what they should do naturally but the foolish scammers think they’re doing anyone a favor by being “transparent” and committed.
4. If a particular coin experiences some irregular unexplainable pump and dump on a regular basis and it’s almost becoming a pattern, beware.

8. Giveaway Scams

When last did you come across a social media post or website promoting a giveaway by one major company, influencer, or celebrity?

Asking you to send any amount and get 2 to 10 times of it in return?

That’s a classic giveaway scam.

How Not to Fall a Victim?

1. If you have to send money to receive the giveaway, it’s a scam. No exceptions.
2. Verify that the giveaway is being organized via their official social media accounts or website. Otherwise, it’s a scam. No exceptions.
3. And even when it’s from their official account verify it from one or two sources. Is the giveaway announced on their website, Twitter, and Telegram groups?
4. Accounts of these companies and influencers can be hacked and used to run scam giveaways as happened with the last major Twitter hack so verifying from multiple channels is the new standard.
5. And, finally, you need to stop looking for free money. Nobody will want to just double your money for God’s sake.

9. Influencer Scams

This is becoming really concerning as your favorite influencer is selling you out for money.

Influencer scams work in several ways.

Firstly, these guys are paid to recommend some questionable projects. In some cases, they promote these projects to get their followers to buy-in so they can exit (dump) with profit.

How Not to Fall a Victim?

1. Recognize that influencers are business people. Your interest is at best secondary on their agenda. They’re loyal to their pocket first, to the company that pays them second, and to you third.
2. Listen to everything and everyone but make your decisions personal. You’re alone is responsible for the outcome of your investment decisions.
3. Avoid listening to influencers that are known for promoting snake oil and questionable projects. (John McAfee I’m looking at you).
4. Always DYOR before investing in anything. Be responsible.

10. Exclusive Private Sale Pool Scams

Some private, closely guarded groups exist to help their members participate in private sales of new cryptocurrency projects.

Members of these groups contribute to a common pool with which the administrator(s) use to purchase private sale tokens and distribute to members proportionately to their share of the pool.

Now the price of tokens is usually heavily discounted in a private sale but the capital requirement is high which is why small investors pull resources together in order to help themselves.

Unlike the legit ones, Scam pools will collect money from members and disappear. Leaving you high and dry.

How Not to Fall a Victim?

1. Never participate in pools except you know the admin well enough.
2. If you don’t know the admin of any Private Sale Pools, then organize one with your close friends. It’s supposed to be for a closed group of friends anyway. Not meant for strangers.

11. OTC Trade Scams

OTC markets are where the big investors buy and sell large volumes of cryptocurrencies directly with one another.

There’re private OTC groups and some projects have OTC desks for large value buyers.

Even in this elite market, there’re scammers.

They will try to sell Bitcoin that they don’t own to you using fake videos of the coin in their wallet, fake and indigestible agreement letters, fake KYC documents, etc. all I a bid to convince and confuse the potential buyer to send money.

And will usually demand that you transfer the money first before they send the coins, and will use rather unnecessarily complicated processes to execute the deal in order to act irrationally.

More so, they offer very generous discounts of between 5% to 15% to make the deal very enticing to you.

How Not to Fall a Victim?

1. Conduct all OTC transactions face-to-face wherever possible.
2. Demand that you use escrow service or engage a tier 1 solicitor to broker the deal.
3. Demand that you both perform KYC and AML verification with an escrow.
4. Pull out of the deal at any sign of fraud.
5. Use the services of large OTC desks of major exchanges such as Binance to execute your trade.

12. Rug Pull Scams

Rug pull is a classic scam popularised by DeFi project founders in 2020.

Usually, when a new DeFi (crypto) project is launched via an ICO or presale, the founders and team’s allocation of the token are time-locked with third-party smart contracts.

This gives investors confidence that the team will not dump on them, crash the market, and walk away from the project.

What happens is that several projects do not lock their liquidity and when enough buyers purchase the token, they simply sell and crash the market on everyone.

Leaving the investors high and dry.

Creative scammers, despite locking liquidity also find a way to pull the rug on you by minting more tokens.

Liquidity will be locked quite alright but the team will generate more tokens and sell at the market price and walk away.

This is possible with tokens with the mint function turned on.

How Not to Fall Victim?

1. Verify that the project’s smart contracts are duly audited by a reputable auditing firm.
2. Verify that liquidity is locked for a reasonably long period of time. Between 6 months to 5 years is fine.
3. Verify that the token smart contracts code is open-source so that anyone can inspect the code.
4. Verify that the team cannot mint new coins and that there’re no backdoors left in the code.

13. Internal (Self-Hack) Scams

Recently there’s been increasing cases of several DeFi projects being hacked or exploited.

Causing the prices of their native token to crash, in most instances -70% to 99%.

While some of these cases may be legit and are the work of bad actors, I am of the opinion that just as many are internally engineered exploits or hacks.

It’s hard to prove but rest assured this is happening and it’s only possible in crypto.

Even though they sometimes try to compensate investors, what you will get cannot cover your losses from the fall of the token’s price.

How Not to Fall a Victim?

1. This scam is unpredictable but you can anticipate it and prepare yourself if it happens.
2. Invest only in very legitimate projects with a solid track record.
3. Walk away at the slightest sign of internal manipulations. Always trust your gut feelings. There’re over 7000 cryptocurrencies to make money from, so don’t get stuck.

14. Scam Crypto Exchanges

This works exactly as the name says.

Fake cryptocurrency exchanges that do everything to get you to register and deposit on their platform.

Once they gather enough deposit the team disappears with one flimsy excuse or the other.

Or they simply hack themselves and claim all funds have been stolen by hackers.

How Not to Fall a Victim?

1. First of all, avoid centralized exchanges (CEXs) as much as you can.
2. Register and trade only on the top cryptocurrency exchanges with track records.
3. Totally avoid new or unknown crypto exchanges.
4. Never use a crypto exchange with anonymous or unverifiable founders and teams. Even some with known teams will scam you and disappear.
5. Always trust your guts. Run at the first sign of fraud without waiting to verify.

15. Scam Crypto Wallets

This is similar to the scam exchanges discussed above.

Scammers have been known to create fake wallets with back doors.

Once enough users download the wallet and stores a reasonable amount of crypto they will make it impossible to withdraw and drain your account of all balances.

How Not to Fall a Victim?

• Never use a non-open source wallet. Their code should be publicly available and verifiable by anyone interested to take look.
• Use only established, trusted cryptocurrency wallets with track records.
• Totally avoid new or unknown cryptocurrency wallets.

16. Exchange Listing Scams

This one is usually targeted at cryptocurrency project teams who wants to get their token listed on centralized exchanges.

Scammers posing as “listing agents” of some centralized exchange will demand some form of payment to help negotiate and facilitate a fast listing.

I don’t know any project teams that have fallen for this but this is a popular scam they deal with regularly.

How Not to Fall a Victim?

1.  Verify by contacting the exchange directly via their website and official communication channels.
2. Verify that the message (email) you’re reading originated from the official website of the said exchange.
3. When in doubt, block the “agent”.

17. Partnership Scams

This scam is targeted at projects.

Every project or crypto startup is looking for that partnership that will give them greater exposure.

The way this scam works is that the scammers will pose as the CEO of a major, established project to their target.

Some have even gone to the extent of doing a fake video call using the face of the supposed video to prove their legitimacy.

Project teams that fall for this will be requested to make payments for the partnership to take effect and if you do, you know the money is gone for good.

How Not to Fall a Victim?

1.  Verify by contacting the project via their website and official communication channels.
2. Verify that the message (email) you’re reading originated from the official website of the said project.
3. When in doubt, block the “agent” or “CEO”.

18. Accomplice Scams

Recently I was contacted by a random Telegram user who happens to work in a betting company.

The deal was for me to play and he will guarantee that I win. It’s that simple.

He can influence the winning number but he needs someone to arrange this with and they share the returns.

He can’t do it because he’s a staff which is normal.

But then I asked who will provide the money for the bet? He said it’s me, and I told him to fuck off.

This is a classic accomplice scam.

How Not to Fall a Victim?

1. If you have to use your own money to execute whatever the plan is, it’s a scam. Don’t go with it.
2. Stop being greedy. The other guy could easily create an anonymous account and carry out his cheat.
3. Moreover, he has friends and family members who could easily pull this off with him, why you, a total stranger who could easily choose to walk away with the booty if successful? He’s not afraid of that because there’s not going to be any booty for you to run away with.

19. Referral (Affiliate) Scams

Referrals are a way to make money by promoting a particular project for a commission.

This scam works in several ways and sometimes the line between the scam and the business is blurred.

First is the referral scam where the project does not pay the promised commissions or manipulate the rewards.

For example, there was a new DeFi project that launched the other day and promised to give every member who performed certain tasks $360 worth of their token and more for every person they refer.

They didn’t pay, but rather requested you buy their token to be able to receive your reward. SCAM!

Secondly, some projects will abruptly change the referral system or halt it entirely without prior notice.

So the work you have already done promoting them is free. An example of this is what Atomic Wallet did.

Referrals are a form of business for the promoters and changing the rules or halting it without sufficient prior notice is a scam.

Take for example the Brave referral system.

When they wanted to wind down the program they gave about 2 months’ notice so that every marketer will have time to wrap up their promotional activities.

That is how a legit referral system should work. 

Never trust any company that changes the rules or calls off the game in the middle of the game for some lame and selfish reasons.

Whereas referral scams may not cost your cash directly they take your time and other resources and we all know that time is money.

Some marketers even use their money to promote the company with the hope of making a profit from commissions.

So closing it or changing the rule abruptly and refusing to pay accrued commissions is a SCAM!

Finally, as I stated earlier, it’s hard to tell when the Company actually planned to scam and when it is doing its normal business.

What is always wrong with that move regardless is when sufficient notice was not given so marketers promoting the project can adjust their activities accordingly.

It’s just unprofessional.

And for the ones that ask you to buy their native token to claim your referral, that’s an outright SCAM.

How Not to Fall a Victim?

1. Promote only established, trusted, and reliable, projects.
2. Stop all your marketing campaigns immediately and stop generating referrals for the scam project.
3. Just move on peacefully.

20. Begging Scams

This is simple and comes in different shapes and sizes. For example:

A member of a Telegram you belong to is publicly asking for small ETH to cover his transaction fee.

Someone on Twitter is claiming that his son is sick and needs just $100 for medication. He’s poor and can’t afford even $10 drugs. He needs help.

Another is in your DM claiming to have lost every he has to scammers and needs whatever you can help them with to survive.

The reasons are endless but the goal is the same. Appeal to your generosity and pity so that you can send them some money.

How the hell are you going to know who’s having a genuine need and who’s just trying to take advantage of your kindness?

You don’t have to.

Simply ignore all such begging from total strangers. They have friends they can easily ask for help, or if they’re established members of any community, someone knows them they can appeal to for help.

Or give if you really want to. But have it at the back of your that this person could easily be a scammer.

21. Love Scams

While the begging scammer appeal to your benevolence and pity, the love scammer appeals to your sexuality and need for love.

Have you ever seen that model beauty in your DM claiming to have seen you in her dream last night and instantly knew that you two are meant for each other?

Or that hot dude with 6 packs (yes, he actually sent you his half-naked picture) and pretty face?

Due to some reasons or the other, such as to come and visit you, to settle an emergency, they need you to send (borrow) them some money.

Most times, the reasons are (look) so genuine and the emotion so real that you feel compelled to comply with their demand.

How Not to Fall a Victim?

1. I’m sure you know where to get a hooker if you need one. Certainly not on social media or in your email.
2. If you have to send transport fare for them to visit you it’s a scam.
3. If the dude is actually rich but due to some circumstances, cannot access cash to settle an emergency and needs you to borrow them cash urgently it’s a scam.
4. If the relationship requires only your own money to take root it’s a scam love. Remember you didn’t initiate this love affair, so why solely fund it?

Knowing The Different Types of Cryptocurrency Scams Alone Is NOT Enough

Understanding the already known strategies scammers operate with is just a first step.

Scammers are creative geniuses that use very simple to extremely complex methods to part you from your money.

Once a particular format is well known and documented, they invent a new one.

Therefore, you need to develop a mental framework or system for identifying and avoiding any scam.

Successful scammers are good at taking advantage of your ignorance, greed, fear, and other emotions.

And will usually approach you at your most vulnerable time. That moment when you need what they claim to be able to give you.

But regardless of the new strategies, they employ to swindle you, there’re are few ways to eliminate or drastically reduce their chances of success with you.

1. Don’t trust. Verify. If you can’t verify then assume it’s a scam and move on. You will certainly miss a few opportunities but the chances of you being scammed are drastically reduced. Everything is a scam until proven otherwise.
2. Keep your greed in check at all times. Ask yourself, this action I am about to take, is it being motivated by greed or pure business logic. If it’s mostly by your greed stop!
3. Educate yourself. Know a little about almost everything. Join a community of like-minded crypto investors. When in doubt ask questions. Seek the opinion of trusted members of the community if you lack the knowledge and experience to make an informed decision on any matter. Feel free to join the CryptoSorted Telegram community.
4. Learn to do your own research (DYOR) and know what to look out for to validate the legitimacy of an offer. If it’s too good to be true, assume it’s a lie and move on.
5. Always trust your gut feelings. If you feel it’s a scam, assume it’s a scam.

This way, you’ll always be prepared and your chances of acting stupid and losing money will nearly be eliminated.

Conclusion

All cryptocurrency scams have some things in common.

• The offers are unusually generous and come with guarantees of success.
• They appeal mostly to your emotions of greed, fear, love, trust, regret, sympathy, pity, etc.
• They’re generally characterized by urgency.

The main ways to keep yourself above both old and new scams is to stay informed and keep your emotions in check.

And leave by a “don’t trust, verify” philosophy. Because crypto is still the wild west that you know.

The next time you spot a cryptocurrency, report it here.

Never walk alone! join me and other knowledgeable and passionate crypto investors in our Telegram Community.

What other strategies do you use to identify and avoid cryptocurrency scams? Share with us in the comments section below.