This article is about the 10 most common crypto scams and how you can tell if something is legit. Scams are everywhere. Letters and phone calls from “The IRS” or whichever government agency sounds the most official plague us all. Crypto scams are particularly dangerous.
Crypto transactions are one-way. If you send money to a scammer, you don’t get that money back. The only way to protect yourself is to be informed and inform others. Our community has a bad reputation for scammers and we have to help people identify scams.
Everyone can be scammed and actually, the smarter someone is (or thinks they are), the more vulnerable they are to some scams. Keep your wits about you and never think “it won’t happen to me.”
These are the most common scams we’ve identified:
- Pump and Dump
- Ponzi and Pyramid Schemes
- ICO Scams, Rug Pulls, and Exit Scams
- WhatsApp “Trading Professional”
- Fake Giveaway
- Fraudulent Exchange
- Blackmail Scam
- Cloud Mining
Think You’ve Been Scammed?
Crypto transactions are irreversible and you probably won’t get your money back. That doesn’t mean you won’t get retribution.
You must immediately start gathering information about what has happened. Think back to how this process started and document everything. Write out what happened and get screenshots or make transcripts of everything.
It is extremely important that you record all transactions that took place. The addresses can be used to track the scammer’s activity. Once you’ve gathered all your information, it’s time to find someone who can help.
Where to find help:
- Go to the Federal Trade Commission
- Look for Crypto Security Companies
- Or Crypto Recovery Firms
10 Common Crypto Scams
Scams have some recognizable patterns. Look out for the identifiers of each of the scams and you will avoid most of them. Use common sense and be skeptical to sniff out the rest.
Without further ado, here are the most common scams…
Pump and Dump
Pump and dumps are a coordinated market manipulation.
A group will encourage its members to buy a specific coin at a specific time. Coins with low liquidity will rapidly increase in price. The hope is that other people (not members of the group) will also buy the coin.
While people are pumping the coin, the leadership sells coins they already owned or purchased before the coordinated pump. They lie to everyone in the group, convincing them that as the price goes up, people from outside the group will start buying.
In practice, the pump dies almost immediately after the group has started because group members try to jump ship as soon as they’ve made a profit.
How to Identify a Pump and Dump
A private (or public) group is coordinating to get everyone buying a coin to pump it at the same time.
Avoiding Pump and Dump Scams
Don’t buy anything during a coordinated pump.
Phishing is one of the most popular and effective types of scam. Some are very sophisticated and will look and act exactly like the service you think you’re using, but are actually fake.
Email is the most popular method to deliver phishing hooks, but crypto scams are very popular through messaging services like Telegram and Discord. These scammers make a profile that looks identical to a community moderator.
Any unexpected message that looks like it came from a community leader is not legit. Here is a great article that covers this in more detail, written by Ledger.
How to Identify Phishing Scams
The email address or message you will be unexpected, not from the actual website or person (even if it looks real).
Avoiding Phishing Scams
Ignore, Block, and Report any emails or messages that look suspicious. Invitations to private trading groups, pre-sales, or anything should be immediately reported to community moderators.
How to Fight Back Against Phishing Scams
You can report emails using your email service provider’s security team. Here are some providers: Gmail, ProtonMail; just search “Report phishing emails <your_email_provider>” and you’ll get the answer. This can get the email domain blacklisted and then all their emails will be automatically flagged as spam worldwide.
Ponzi and Pyramid Schemes
Ponzi schemes or pyramid schemes use new members to pay for the profit guarantee of previous members. The exponential nature of these structures makes it mathematically impossible for anybody but the earliest members to make profits.
Don’t try and be an early member — don’t try and recruit people into a pyramid scheme.
These scams are not unique to crypto and are some of the most devastating scams that exist. People unwittingly give their entire life savings to scammers and recruit their family members into the same scam.
Investment scams drive people to commit suicide and worse.
How to Identify a Pyramid Scheme
Any promotional structure that guarantees profits and especially gives you percentage-based incentives on referrals and referrals’ referrals.
Avoiding a Pyramid Scheme
Do not join. Do not recruit.
Recruiters are often very convincing and have a well-practiced pitch. Always take some time to look into any organization and be skeptical of anything that sounds particularly generous.
How to Fight Back Against Phishing Scams
Report pyramid schemes to crypto news agencies, watchdog firms, or your local regulators. These scams work on social pressure and marketing. Bad publicity can do massive damage to Ponzi schemes.
ICO Scams, Rug Pulls, and Exit Scams
ICO Scams, Rug Pulls, and anything else in the category of Exit Scams is mostly unique to crypto. The free-market nature of crypto allows lots of great projects to get funding from all over the world and small investors to get in early on projects that would be impossible otherwise.
Editor’s Note:The same skills needed to sniff out scams can also be used to make you tons of money. Want to learn how to identify killer crypto projects before everyone else? I used these exact techniques to make a 40x return. Check out: Pumpamentals 101: What Makes a Crypto Moon.
The free-market also allows scammers to push their scam coins.
ICO scams are projects that will never be made but will be heavily marketed to draw in early investors. Once they’ve drawn in the victims, the owners will sell all their tokens (or sell until the price is extremely low). Since there are many new legitimate projects in crypto, identifying these can be tricky. Keep in mind that most crypto projects will fail and there will always be opportunities in the future.
We need to increase awareness and build trustworthy institutions in the crypto space to fight the exit scam problem. You will need to be extra careful when making investments in the crypto space.
How to Identify Exit Scams
Be very careful of the following traits: Anonymous teams; teams that are greatly unqualified; projects riding a recently hyped trend; projects with no whitepaper; projects with no working product; projects that haven’t even started development; projects that are advertising before anything else.
How to Avoid Exit Scams
Don’t buy completely unproven projects with no proof of development and avoid anonymous teams. Working products that are forked can still be scams. Always do your own research into the team, whitepaper, development, and project feasibility.
WhatsApp “Trading Professionals”
These are prolific on YouTube.
It took me 5 minutes to find this example screenshot because they’re everywhere. Don’t trust any random messenger numbers on the internet.
These usually work like this: Several bots will join the comments and have a fake conversation between several accounts. At some point, one of them will recommend “trading with Mr. Charles Baker” (insert any name here). Then, a few more will say that they’ve had great success and already made 0.5 BTC with Mr. Baker! They will include a WhatsApp number or other private messaging service.
Most of them are pretty clever and will ask questions and throw in possible downsides. Anything to seem legitimate. None are legitimate.
How to Identify WhatsApp “Professional Traders”
Anybody that is offering to help you invest or invest for you.
Trading is extremely difficult and anyone with the skills to do it for you, doesn’t need your money — but they will take your money. These people will try and convince you to do something that will compromise your account or otherwise gain access to your crypto wallets.
Avoiding WhatsApp “Professional Traders”
Ignore, Block, and Report anyone offering to help you trade or invest your crypto.
This is another scam that’s huge on YouTube. These are usually pre-roll video ads or live streams and they always feature a video of a prominent figure.
Scammers will use public figures to entice people to their scam. People in the crypto space never giveaway crypto. You never would need to “verify your address” by sending crypto. If you send crypto here, you will never get anything back.
These are always real videos displayed next to a fake giveaway.
How to Identify a Fake Giveaway
Any public figure giving away crypto — especially if there is a conference video accompanied by instructions on how to join the giveaway.
Avoiding Fake Giveaways
Don’t send anything to anybody claiming they will give you crypto.
Very few crypto exchanges have any volume to speak of.
Unless you have a very good reason, don’t use anything other than a top-10 exchange. There is almost no reason for anyone to experiment when it comes to exchanges. Use what’s popular. Avoid what’s not.
How to Identify a Fake Exchange
Any exchange that is not publicly recommended by many people. It’s not necessarily fake but it’s not worth the risk.
Avoiding Fake Exchanges
Stick to the most popular exchanges.
These are not the most popular, but they can be unsettling.
If you receive anything threatening, the first step is to calm down. These are usually spam messages that take advantage of some publicly available personal information to scare you into compliance. This could be your password!
They will use the private information to try and prove that they know who you are and have access to your accounts. Really, they’ve just found a bunch of data on the dark-web and sent out tons of spam emails.
How to Identify a Blackmail Scam
Random emails or messages threatening to expose you, attack you, etc. unless you give them crypto.
Avoiding Blackmail Scams
Take common-sense security measures, don’t give out any of your crypto addresses, don’t make it publicly known that you have crypto.
Malware is the most nefarious way that people can gain control of your crypto.
There are fake wallets, fake browser addons, even applications that mine crypto without your knowledge. The best solution is to prevent malware from ever getting on your device and only use crypto on a clean device.
How to Identify Malware
Generous free offers that require you to download software or a specific crypto wallet are probably malware.
If you’ve installed malware you may notice strange behaviors on your device or new “features.” Your device may also begin to suddenly run slower.
Don’t install things from unknown sources — look up the website yourself to download something, don’t use links, and always check the address bar. You should also use a virus scanner before using crypto services on a device (I recommend Malwarebytes and have used it for 10+ years).
Some cloud mining services are legit, but the entire industry is generally not worth your time. It is also fairly easy to fake these services. Due to these combined factors, you should probably avoid cloud miners.
How to Identify Cloud Mining
Rent-a-Miner services that promise crypto mining services for a subscription. This one’s pretty self-explanatory.
Avoiding Cloud Mining Scams
If you’re not deterred and you still want to try out cloud mining, use online shopping common sense.
Always check out the ratings (third-party rating services are preferred) and avoid anything promising huge returns. Crypto mining is extremely competitive and has razor-thin margins and cloud mining is even less profitable than traditional crypto mining.
General Tips to Stay Safe
- Use 2FA (non-SMS > SMS)
- Always triple check the address
- Never share your private keys
- Use a cold wallet
- Be skeptical of easy money and fast money
- Create a new wallet whenever you want to test out something new
- Never forget: High-profits are always high-risk
Editor’s Note: There’s more than scammers out for your crypto. If you’ve made any money in crypto, the IRS wants a piece of your earnings. We don’t give the IRS anything extra by using some simple tax strategies.
Don’t get caught with a huge tax bill and make sure you plan ahead. You can use the same techniques we do (for free): Check out our post about Crypto Capital Gains in the United States.