The promise of lucrative returns in crypto often blurs the harsh reality of pervasive scams. As an investor, understanding these deceptive practices is essential to safeguard your investments. This article offers a comprehensive overview of common cryptocurrency scams, provides noteworthy examples, and details strategies to avoid falling victim to these ploys.
Named after Charles Ponzi, these scams promise high returns with little risk. Early investors are paid using the funds of new entrants, leading to an unsustainable cycle. A high-profile case in the crypto realm was the infamous BitConnect scheme, which promised yearly returns of up to 120%. When the scam finally collapsed, investors lost hundreds of millions of dollars.
Protection Tip: Always question any scheme promising consistent high returns with low risk. Diversify your investments to mitigate the impact if you do get caught in such a scheme.
Pump and dump schemes involve a group of individuals artificially inflating a cryptocurrency’s price, luring unsuspecting investors, and then selling off their holdings, causing the price to crash. An example is the case of Big Pump Signal, which led to swift price fluctuations of various altcoins, causing many investors to lose their funds.
Protection Tip: Be wary of social media groups or platforms offering exclusive tips on “the next big coin.” Such hype is often a prelude to a pump and dump.
Scammers lure investors with groundbreaking projects, raising funds through ICOs, only to disappear without a trace once they’ve gathered enough money. One such instance was the Centra Tech ICO, promoted by big names like Floyd Mayweather and DJ Khaled, which turned out to be fraudulent, causing losses of over $25 million.
Protection Tip: Before investing in an ICO, research the team behind it, its feasibility, and demand. Check for transparent, realistic project plans and avoid those without clear information.
Phishing scams trick individuals into revealing sensitive information like private keys or passwords. A notable case was the 2017 EtherDelta hack, where users were directed to a fake site that mimicked EtherDelta’s interface, resulting in substantial losses. Here’s a resource to learn about the 9 types of Phishing scams.
Protection Tip: Always verify the URLs of the sites you visit. Be wary of suspicious emails or messages requesting personal information. Enable two-factor authentication for an added security layer.
Scammers create non-existent cryptocurrencies, promising exponential growth. One notorious case that shook the crypto industry was the OneCoin scam. Conceived by Ruja Ignatova, OneCoin was marketed as an investment opportunity promising high returns. However, instead of having a real blockchain, it was merely a ledger run by those behind the scam. The project amassed over $4 billion worldwide from investors before it was shut down. When authorities finally caught up with the operation, it unveiled the grim reality of a vast Ponzi scheme that had duped thousands of investors worldwide.
Protection Tip: Before investing in new cryptocurrencies, ensure they are listed on reputable exchanges and do thorough research on the technology and team behind it.
Malware is often disguised as a wallet or other crypto tool that steals information or directly siphons off cryptocurrencies once installed. CryptoShuffler, for instance, replaced users’ wallet addresses with its own, redirecting funds to the scammer’s wallet.
Protection Tip: Install reliable antivirus software and only download apps or tools from trusted sources.
On social media, scammers impersonate influential personalities, promising to double crypto sent to their wallets. A notable incident occurred in 2020 when high-profile Twitter accounts, including Barack Obama’s and Elon Musk’s, were hacked to promote a Bitcoin scam.
Protection Tip: Verify the legitimacy of such claims independently before sending any crypto. Remember that if something sounds too good to be true, it likely is.
Hackers encrypt user data, demanding a ransom in cryptocurrency to decrypt it. In 2017, the WannaCry ransomware attack affected thousands of computers worldwide, causing massive losses.
Protection Tip: Regularly back up your data, keep your systems updated, and install a reputable security solution.
Scammers offer to mine cryptocurrency for users for a fee but do no mining. Cryptomia, a company promising lucrative daily returns from cloud mining, ended up being a scam, resulting in considerable investor losses.
Protection Tip: Check the credibility of cloud mining services. Real mining requires substantial investment in hardware and electricity, so services promising high returns with little investment are likely scams.
Fake exchanges lure users with competitive market prices, but once you deposit your cryptocurrencies, they may become irretrievable. BitKRX, a supposed South Korean exchange, was exposed as a scam after defrauding users of their funds.
Protection Tip: Only use well-known, reputable exchanges. Look for user reviews and ensure the website uses secure HTTPS connections.
These clubs promise exclusive investment advice or signals for a subscription fee but often provide advice leading to losses. Such groups primarily exist on platforms like Telegram and have been associated with considerable investment losses.
Protection Tip: Be skeptical about paying for investment advice from unverified sources. Doing your own research and understanding market fundamentals is the best strategy.
Similar to pyramid schemes, these scams primarily benefit the person at the top of the chain. The notorious PlusToken scam, which attracted over $2 billion, operated on this principle.
Protection Tip: Avoid schemes that focus more on recruiting new participants rather than any product or service.
Giveaway scams trick users into sending a small amount of crypto to ‘verify’ their accounts for a larger giveaway. These scams are prevalent on social media platforms like YouTube, where scammers use live streams imitating companies like SpaceX to conduct ‘giveaways.’
Protection Tip: Be cautious about giveaways that require sending your crypto first. Legitimate giveaways will never require this.
Social media personalities artificially inflate a coin’s price through promotional content, then sell their holdings, causing a price crash. John McAfee was notorious for such tactics, leading to his indictment by the SEC.
Protection Tip: Do not rely solely on influencers for investment decisions. Verify information and be cautious about investing based on hype alone.
In a rug pull, crypto developers abandon a project and escape with investors’ funds. DeFi projects are particularly susceptible to rug pulls due to their unregulated nature. A high-profile case involved the DeFi token SUSHI, where the anonymous founder sold tokens worth $13 million, causing a severe price drop.
Protection Tip: Diversify your portfolio and invest only a small portion in high-risk projects. Research the credibility of the project developers and look for code audits for DeFi projects.
Our founder Max Zab experienced this one himself and wrote an extensive piece to warn the world on how to stay protected. Check the story behind the Ethereum History Attack.
Scams are an unfortunate reality in the crypto space. However, armed with knowledge and employing careful due diligence, investors can mitigate risks. Understanding common scams and maintaining skepticism towards ‘too good to be true’ offers is your first line of defense. Always remember: in the world of cryptocurrency, caution pays off in the long run.