How to Avoid Crypto Scams

True for every aspect of life, there are dishonest people in the world. The world of cryptocurrencies is no different. There are those who try to scam honest people with tricks. These scams are fueled by the “fast money” mentality of many investors and usually end in loss and tears. Therefore, it is essential to be aware of these scams and how to protect yourself from them.

The following are the most common cryptocurrency scams.

Phishing Scams

Phishing is one of the most common cryptocurrency scams, as it requires little technical knowledge and is easy to carry out. It is often done by email. Usually, phishing scams are done through fake websites (like cryptocurrency exchanges or wallets) which pretend to be a real one. People visiting these websites are not aware it is a fake and enter their private information like username, passwords, private keys, etc. Even if you search on Google, it can happen that an advertised website at the top of the search results is a phishing scam.

Another way phishing happens is the user is asked to provide personal information, for example, to solve an issue you might have. Then the scammer can use this information to take over the users accounts.

How to avoid phishing scams:

– Be suspicious of communication (text messages, social media posts) and emails asking for your personal information like private keys or passwords.

– Instead of clicking on links, type the website that you want to visit directly in your browser.

– Do not use public, unsecured WIFI to log into your account on an exchange, wallet, etc.

– Click on the “lock” icon on the left side of the address bar in your browser. The security certificate for the website will be displayed. If you get a warning message that the certificate does not match the address of the website or if the certificate is not displayed, do not continue.

Example of a phishing scam (Binance, Shapeshift)

Binance Phishing Scheme
Shapeshift Phishing Scam

Pump and Dump Group Scams

Pump and Dump Groups are usually operating on platforms like Telegram, Discord and Slack. The owners of these groups post a link to their group in other big groups, promising huge profits and trying to redirect users to their pump and dump channel. In these channels different coins or tokens are being promoted with the aim to generate hype and. Many people are falling for this hype and invest in the promoted coin, which causes a short, huge price increase. When the price is inflated, the group owners sell all of their coins, the price dumps again and the average investor suffers huge losses. This is highly illegal but still pretty common, as the crypto market is unregulated.

How to avoid pump and dump group scams:

– Ignore these pump and dump groups and do not join their channels

Example of a pump and dump group scam (on Telegram)

Ponzi and Pyramid Schemes

This scam is easy to spot, but there many people still fall for it. If you see a crypto project who actively encourages their users to recruit new investors with the aim to maximize the profits by awarding them with a referral bonus on different levels, there is a high possibility that it is a Ponzi scheme. Usually these projects run for a while before the exit scam. The most common Pyramid scheme was probably Bitconnect, which exited in early 2018, robbing millions of USD from then thousands of investors. Also, crypto projects promising absurdly high returns could be considered as a Ponzi scheme. Investors should be cautious anytime a project has guarantees or too good to be true promises.

How to avoid a Ponzi or Pyramid Scheme:

– Do not register/participate in crypto projects that give incentives for redirecting new users to their platform via referral rewards on multiple levels or crypto projects promising very high returns for an investment

Examples of Ponzi and Pyramid Scheme Scams (referral bonus and high returns)

The BitConnect Pyramid

Fake Wallet Scam

Especially in the Google Play Store, from time to time there are fake wallets around and it takes some time until these scam wallets are taken down. They promise you full control of your funds, an easy to use wallet or advanced security mechanisms, but they are actually fraudulent and may end in losing your assets once you deposit a cryptocurrency.

How to avoid Fake Wallet Scams

– Do not choose any wallet randomly from the Play Store. Do some research and go for the legit ones. Download numbers, reviews by other users and the release date of the wallet can help to determinate whether it is a legit wallet or not.

Example of a Fake Wallet (Google Play Store)

Malware/Spyware Scams

There are Malwares, Spywares, Viruses etc. all around in the Internet. The same applies to the Crypto Space. Downloading the wrong file can result in someone stealing your private information like usernames and passwords or even someone overtaking the control of your computer or cellphone.

These malicious files are often being distributed via communication (text messages, social media posts) on platforms like Telegram, Discord, Slack or via email. Currently in many groups of crypto projects on Telegram, fake accounts are sending “.scr” files. Files have enticing names like, “ICO projects”, “Promising coins”, “Price analysis”. Users downloading and opening these files have to deal with an infected computer.

You should also be very cautious with people promising that you can mine Bitcoin by downloading a program or with links to a supposed exchange that offers you free cryptocurrency to get you started.

How to avoid Malware/Spyware Scams:

– Never download a file from an untrusted source

– Run an anti-virus and/or anti-spyware software and a firewall on your computer

Example of a Malware/Spyware Scam (Telegram)

Malware Downloads in Telegram

Fake Social Media Account Scams

Especially on Twitter, there are many fake profiles around pretending to be another real person or project (usually celebrities or big crypto projects). These fake profiles promise, for example, free cryptocurrencies if you send a specific amount of your own cryptocurrencies to a wallet address. Or they redirect you to a malicious link. There also have been cases where a fake profile managed to be verified by Twitter with the “Verified” symbol at the right side of the name.

How to avoid Fake Social Media Account Scams:

– Like in everyday life, it is highly unlikely that someone will give you free money. If it’s too good to be true, it probably is.

– Check the unique username on Twitter. Imitation profiles will often have a similar name to the legitimate profile. Often there is only one different character, like “O” (the letter) is changed to “0” (zero).

Example of Fake Social Media Account Scams

Fake Social Media Account

ICO Scams

It is pretty easy to set up a website and to create a cryptocurrency (for example, ERC20 based). In the crypto space, many investors invest their money without doing enough research. Therefore, many dishonest people create a scam ICO, claiming to offer a nonexistent product/service or high returns, and look for people who are willing to invest. Once you’ve invested in such an ICO, you might get some worthless tokens in return or they simply take your money and you get nothing.

According to a recent study, more than 80% of ICOs created in 2017 were identified as a scam. The scam ICO with the most attention was probably Centra, which raised over 32 million USD in 2017 with celebrities like Floyd Mayweather and DJ Khaled promoting this project.

How to avoid ICO Scams:

– Do your homework. You plan to invest money and, therefore, you should be 100% sure the project you are investing in is legit.

– Review the team members. Are they real? Do they have social media profiles? Are their pictures real?

– Read the whitepaper. Do they actually solve a problem? Did they put time into writing it or is it just copied from somewhere else?

– Review the Roadmap. Are the given goals reasonable, also the time frame to reach the stated goals?

– Be aware of projects who look like a Pyramid Scheme

For additional information and detailed explanations, you can take our free “How to avoid ICO scams” course.

Example of an ICO Scam (Roadmap)

Unregulated Exchange Scams

There are hundreds of unregulated crypto exchanges around and every week more are popping up. Registering and depositing assets to these wallets can result in a total loss as they steal your funds, they make it very difficult to withdraw funds, or they charge very high withdrawal fees.

How to avoid Unregulated Exchange Scams:

– Before you decide to register on an exchange, do your homework. Research the exchange, search for online articles warning users about the exchange

– Be aware of promotions and promises which seem too good to be true, like “Deposit 1 BTC and get 1 BTC for free”


By Dave Waschkowski, Co-Founder of CoinYou.co

January 2, 2019

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