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Crypto Scams - How to Stay Safe?

12 Nov 2020 | Crypto Market


As the cryptocurrency market slowly penetrates the mainstream and attracts more investors, there are many hidden dangers awaiting the uninformed. Especially since cryptocurrencies and blockchain are still unexplored by new investors. We are witnessing various kinds of scam attempts fishing for those who are unable to recognize red flags. And, truth be told, the crypto market is ground and fertile for unethical actions. We have compiled this article as a form of guide for investors to stay safe in this uncertain environment.

Why is the Crypto-Ground so Fertile for Scammers?

The first thing that screams for explanation is why are investors so easily swayed into crypto scams. The reason is quite simple. The cryptocurrency market is still in its infancy phase. Early adopters, however, have a much better chance for big profits through clever investments. Such an opportunity increases the level of greed. Especially during the bullish market periods. 

Those are the times when new money comes into the market, invested by individuals who have a feeling that they are “late to the party”. This is why these type of investors are prepared for much greater risks than it is advisable. Analogically, they are often prone to obscure “investment” options without enough research. 

Since the crypto market is on the rise yet again, scam attempts are going to exponentially increaseIn this article, we are going to explain some of the unethical schemes that can be frequently encountered in the world of cryptocurrencies and how to avoid falling a victim to them. 

Classic Investment Company Scams 

Many social network users are approached by individuals claiming that they make 20% daily profit by investing with a crypto investment company. While there are some legitimate crypto-related funds that are known to produce good returns, none of them promise gains so huge that they are too good to be true. 

When an investor decides to invest his funds with such a scheme, usually, the only thing he gets in return is unanswered messages and support tickets. The “company”, on the other hand, receives as much cash as they can from as many investors possible before their clients start asking questions. Since the company can’t follow up on their high-returns promise, they literally close all their social media accounts and never refund their investors. 

The first thing to do when approached in such a way is to find out as much information about the “company” offering these kinds of services as possible. The name of the company, the ownership structure, legal documents, business address, and company registration number. Everything may prove useful in the research.  

The company’s website usually tells a story for itself. Scams rarely spend much time on web design and, as a result, their websites do not leave a professional impression. 

Furthermore, an internet search will also provide many answers. If a company’s name is “XY”, a simple “XY scam” Google search may lead to many answers. Chances are that an investor is not the first who the false investment company contacted and, therefore, there will be other people talking about their experiences.  

A great example of a good “investment” company web research is when Google maps revealed that the business address location is, in fact, a semi-detached one-story family home with a garage in a nice and peaceful Liverpool suburb. 

False Identity Scams 

Scammers on social media also tend to misrepresent themselves as important market players. During the 2017 market bull run, with the boom of Ethereum, many phishing profiles appear presenting themselves as the Ethereum Foundation or its founder, Vitalik Buterin.  

 Usually, these individuals promoted false crypto giveaways where an investor should make a small transaction to their ERC20 address to receive a larger amount afterwords. Blockchain development organizations defended themselves from such misconduct by warning investors that they would never ask for such payments and would never ask for user’s personal wallet private keys, which is a logic all crypto market newcomers should follow. 

Scammers have also been known to go that far to attempt various schemes inside organizations. Such individuals lurk in, for example, the project’s Telegram group to recognize important roles like CEOs, CTOs, etc. Once they understand the structure of the organization, they make a false executive profile and approach the lower rank employee asking for quick crypto transactions, validating the request by claiming that there was something wrong with their wallet. Naturally, contacting the real organization executive exposes the scammer. 

Crypto Pump and Dump Group Scams 

The expression “pump and dump” describes the behavior in the market when investors pump the value of an asset just to dump it for profit on late-arriving individuals. Once the first movers start dumping their coins, there isn’t enough new money in the market to sustain the artificial growth and the asset starts rapidly devaluating, leaving those who invested late with losses. 

Ever since there was the first market, pump and dump schemes were present. However, with the internet revolution, such scams evolved and became more sophisticated than ever. Especially because of the highly volatile nature of cryptocurrencies and the high level of anonymity they provide.  

Nowadays, on various social media platforms, individuals launch pump and dump groups allowing free access for everybody. When the group has enough members to move the price of an asset (mostly some of the coins with lower market capitalization), the group leaders decide on the coin, and the exact date and time when the pump is going to take place, publishing the information to all other members. However, what regular group members don’t know is that there is an inner circle inside the group which acts on their own agenda. Group’s inner circle acquires the cryptocurrency before publishing the info and waits for regular members to pump up the price. 

This way, the group founders have the upper hand in the scheme and are able to dump the coin on their own group members, who are, in turn, left with potentially devastating losses. Naturally, those who suffer leave the group never to return. However, since such a social media channel is opened for anyone to join, leaving members are just replaced with the new ones, allowing the scheme to continue. 

Token Cloning Scams 

The decentralized nature of cryptocurrencies is equally good and bad, depending on the way users are looking to benefit from it. For example, if a tech-savvy individual wants to replicate Bitcoin (BTC) and name it exactly the same with the same ticker, he’s free to do so. Once a cloner has exactly the same asset, he can, theoretically, start trading it for cryptocurrencies with the actual intrinsic value on cryptocurrency exchanges. Despite the fact that his crypto asset won’t be listed on centralized exchanges, he can always offer it on their decentralized counterparts and, basically, offer a worthless coin in exchange for an asset with substance.  

To clone Bitcoin and name it exactly the same, a scammer needs considerable coding skills and has to be willing to spend a lot of time to make the fork of original open-source code. Nevertheless, with the rise of smart contract platforms such as Ethereum or Tron, the token creating process became more seamless than ever. Therefore, the unethical individual can create his own ERC20 token in minutes and name it as he wishes.  

There were known examples when such individuals misused that option in combination with the lack of internal regulation mechanisms of decentralized exchanges to trade cloned tokens for e.g. Ether (ETH). Although such cloned tokens are real cryptocurrencies, there isn’t a real project providing value to the asset. Therefore, the token is destined to devaluate into oblivion, leaving those who acquired it in a loss, while the original seller received a highly prominent asset for his clone. 

This can be easily prevented by investors who are looking to acquire the asset. By simply visiting the real organization’s website, potential buyers can find out if the offered token is the real one. Additionally, by comparing the smart contract address of the cloned token with the company’s (which should always be disclosed by the organization), investors can reveal the true nature of a crypto asset. 

Crypto Ponzi and Pyramid Scams 

Ponzi and pyramid scams are much older than the cryptocurrency market. Yet, the internet and crypto anonymity helped these classic schemes evolve and become more dangerous than ever. 

Crypto-related projects tend to lean on social sharing to attract investors and finance their ventures. Thus, they implement various kinds of referral programs, rewarding newcomers as well as referrers who grow their community. Still, investors have to do their due diligence to determine if the project offering such perks has a well-devised and sustainable financial construction. 

Just like it is the case with all pyramid and Ponzi schemes, crypto-related ones offer high returns. However, that’s the case only for first movers who reap the most profits. Eventually, the unsustainable reward system is what brings the scheme down, along with the lack of substance behind the asset tied to the “project”. Those who join the system late (the majority), usually, suffer substantial losses, while the founders are hard to locate because of the mentioned level of anonymity in the crypto business. 

One of the most infamous crypto pyramid/Ponzi scheme was Bitconnect, whose token was even in the top 10 cryptocurrencies by market capitalization back in 2017. Naturally, the unsustainable system came crashing down not long after its all-time high as the anonymous founders dumped millions of coins on their investors, closed the website, and disappeared. The coin devalued so rapidly that the majority of investors didn’t even have time to sell their Bitconnect and were left with severe losses. Some of the most visible “evangelists” of the false crypto lending service are, nowadays, facing serious litigations. 

Crypto Mining Scams 

While there are legitimate hash power-renting services, a notable percentage of companies offering such a “product” are straightforward deceptions. For a hash power-renting service to be legitimate, it takes such an enormous amount of funds for the equipment that it is, in fact, more probable that the marketed company is false than a real one. 

During the crypto mining craze from 2015 to 2018, when there was a lack of GPUs in the market, such scam attempts simply collected investors’ hash-rent and never really provided anything in return. Usually, after a certain amount of time, their whole online presence disappeared along with investors’ funds. 

To prevent something like that from happening, it is always advisable for investors to buy or build their own mining rigs rather than place their funds and trust in the third party which may or may not have the marketed equipment. 


While not a scam in the full sense of the expression, cryptojacking, if not disclosed in accordance with regulations, is a problem most internet users are facing completely unaware. When using such an obscure tactic, a web domain owner uses visitors’ CPUs to mine cryptocurrencies for himself while they browse pages on his website without disclosure.  

While some website owners claim that, by doing so, they offer an ad-free browsing experience, the fact remains that the CPU power is getting used without the user’s agreement. Allowing websites to mine cryptocurrencies with users’ CPUs is mostly harmless. However, simply disabling JavaScript on suspicious websites or installing an anti-miner app will prevent such occurrences. 


The truth of the matter is that it is impossible to single out all the scam attempts in the cryptocurrency market. Even more so because the young crypto business is still ever-changing, providing new opportunities for unethical actors almost on daily basis. 

However, an individual can practice a high level of caution when approaching still unestablished projects and services. Taking into account that, in the crypto universe, assets are one’s own responsibility is a great start. Taking good care of those assets in a manner described in this article is a build-up. In the end, the level of risk an investor is willing to take is entirely up to him. However, we strongly advise not to take any action without doing the necessary research (no matter how long it takes).