How to spot crypto scams

Scams are omnipresent. The cryptocurrency world is no exception. Crypto scams can come in many forms. They can be individuals claiming to be able to trade for you, ICOs (Initial Coin Offerings), or the cryptocurrencies themselves. Investors should perform due diligence before investing in any cryptocurrency, failing which they can lose a fortune.

Some of the most common cryptocurrency scams are:

1. Phishing scams

Phishing is one of the most common forms of scam. Scammers trick the victims into giving away their personal information. The scammers disguise themselves as legitimate entity & ask the user to enter private information. The user is somehow convinced to click on a malicious email or exchange passwords on a fake website which seemingly appears to be a wallet or exchange. The scammer then uses this information to transfer the victim’s cryptocurrency to their wallet.

2. Pump & Dump scam/ fake ICOs

Here, the creator of the cryptocurrency hypes up a new token by owning a large portion of it & then looks to attract more people to get involved. Typically after an ICO (Initial Coin Offering), when a cryptocurrency is released, its price surges as more & more people start buying it. That is when the creator decides to do a disappearing act & takes off with the money.

3. DeFi Rug Pulls/ Exit scams

Another common scam in the crypto world is the “Rug Pull” or the Exit Scam. This is a classic get-rich-quick scam where creators of the cryptocurrency take investors’ money & then abandon the project immediately. Investors are left with a worthless asset. The biggest cryptocurrency scam on record is OneCoin, which swindled investors in more than 170 countries. Investors lost over $4 billion before Ruja Ignatova, the Onecoin founder disappeared. Historically, there have been many exit scams where cryptocurrency exchanges stop operating & fail to return funds to investors.

One of the most famous crypto rug pulls of all times is Squid, a fake cryptocurrency created, based on the Netflix series Squid Game. It reached over $2 million in market cap. The investors thought that they were investing in a new cryptocurrency. However, they lost all their money to the creators & could not sell the asset also. The Squid perpetrators cashed out their coins for real currency immediately after that.

4. Ponzi Schemes

Ponzi schemes or pyramid schemes use new members to pay for the profit returns generated from the previous members. The new members are then promised a huge profit with little or no risk. The exponential promotional structure of this fraudulent investing scam leads people to unwittingly give their hard-earned money to the scammers & also recruit their family members into the same scam.

5.Giveaway Scams

Giveaways are another form of a cryptocurrency scam. The cybercriminals impersonate a celebrity or a famous entrepreneur. Then they claim to be doing a cryptocurrency giveaway. It is usually advertised in the form of a “Free BTC giveaway, double your crypto”. Users easily fall prey to this & send money. The perpetrators can go to great lengths to appear authentic & sometimes also orchestrate a confidential information request to the user to access the ‘giveaway’.

According to the FTC (Federal Trade Commission), investors lost more than $2 billion in six months from Elon Musk impersonators. The Elon musk scam rolled out social media posts claiming that the Tesla founder was giving away cryptocurrency. The only catch is the participants first had to send Bitcoin to Musk, who would then supposedly double their investment.

6. Mining Scams

Regular computers are no longer a worthwhile investment to mine cryptocurrencies. Specialized mining computers, ASICs, which are highly expensive & worth more than a thousand dollars, are being used to mine cryptocurrencies like Bitcoin. Typically many ASICs are used to mine more at once. Some scammers take this advantage & offer “cloud mining” services, where they claim to host ASICs which can be rented. Customers of cloud mining services blindly trust these fraudulent companies to run the mining computers & spend money on them. However, there is no way to know if these companies are operating any ASICs at all. Even if they were, it’s impossible to know whether you are being paid your full profits, or if the companies are keeping some for themselves.

7. Fake websites & Mobile Apps

The scammers create a malicious website by duplicating content (images, copy, etc) from a legitimate & original cryptocurrency website. Much like phishing, their next goal is to place harmful malware on their device to harvest confidential data of the unsuspecting user.

Even major platforms like Google play store & Apple App store let you download the most dubious apps. Hence one should be alert of those. The logos & the images might seem a little off along with typo errors. Never engage with unsolicited contact. Always review & scrutinize language, copy, & hyperlinks for hidden URL redirects, along with sender addresses & attachments. Ignore, block, & report any emails or messages that look suspicious. Invitations to private trading groups, pre-sales, or anything should be immediately reported to community moderators.

Here are 15 different techniques of spotting crypto scams

Watch out for these red flags-

1. No Blockchain existence
2. Guaranteed high returns with low risks
3. Legitimate team in the company
4. No publicly available source code
5. Check their whitepaper
6. Excessive advertisement or promotion
7. Inviting/persuading friends or family members
8. Unable to chart the progress of the token sale
9. The platform only enables users to buy, not sell, cryptocurrencies.
10. The website or the messages have many spelling or grammatical errors.
11. Unregulated exchanges
12. Demanding crypto-only payments.
13. They are unlicensed or unregistered sellers.
14. There are fake testimonials.
15. If it sounds too good to be true, then it probably is.
16. No Blockchain Existence

Crypto tokens can’t exist without a blockchain. So when the scammers claim that their blockchain is in “progress” or “about to be released, then it is a major red flag. The OneCoin scam is an apt example. They claimed that they stored their blockchain on their computers. However, the reality was they only used a centralized database to facilitate transactions & never had a blockchain. Cryptocurrencies operate on blockchain networks. Hence not only is it a fake cryptocurrency, but it also does not have a transparent publicly distributed ledger. All genuine cryptocurrency projects operate on a publicly accessible blockchain. Some have their own, like Bitcoin (CRYPTO: BTC), while others operate on established blockchain networks. For example, ERC-20 coins operate on Ethereum (CRYPTO: ETH).

Any legitimate blockchain will have an accompanying website that enables you to scan transactions to verify their existence.

How to find out

• Type the name of the token & “blockchain explorer” or “blockchain scan” into a search engine
• If the token has its blockchain network or is operating on Ethereum, you should be able to see plenty of recent activity indicating its legitimacy.

2. Guaranteed high returns with low risks

Promises of high or guaranteed investment returns with little or no risk are a classic warning sign of a scam. The cryptocurrencies follow economic indices & fluctuate based on several factors. It cannot be entirely predicted & hence cannot be guaranteed. Scammers usually try to lure people by posting fabricated historical returns on their websites showing high investment returns. They claim to have developed high-tech solutions that can guarantee results & make unrealistic promises of making almost 100% returns. The crypto world is highly unpredictable. No supercomputer or AI tool can guarantee results or remove the element of risk of investment. Such is a case in Japan where four fraudsters are currently on trial for allegedly operating an AI-backed scam. They promised investors 2.5 fold returns in just four months. The unsuspecting investors fell into their trap after they claimed the AI bots could spot winning trades in real-time.

Things to do

• Never trust reports of sky-high returns in the first place
• Do your research before investing in any cryptocurrency
• Use search tools like investor.gov & other reputable resources to learn about relevant cryptocurrency news, especially the ones related to a specific coin you’re considering
• Verify whether the individual or the firms are licensed/registered

3. Legitimate team in the company

The developers & the administrative team behind any cryptocurrency project play an important role in its success. Ethereum founder Vitalik Buterin makes his mark in the crypto world & is a reputable name to be listed on the development team. The scammers take this opportunity to create fake founders & biographies on their websites. It’s vital to check the authenticity of those profiles. Before investing, every individual team member of the company or a project should be thoroughly researched. It’s a red flag if you’re unable to trace a founder or a particular member of the development team on LinkedIn or perhaps on other social media platforms. Even if they do exist, keep your guard up. Dig deeper to check if their activity aligns with the number of likes & followers they seem to have generated. Profiles with no engagement with their followers & yet thousands of fan following are usually the fake ones. It’s a common fraudulent tactic by the scammers to use paid likes & followers, some posing as themselves multiple times. They forge the qualifications & work experience too. Hence, it’s important to make an effort to investigate the legitimacy of the team’s candidature.

What to do

• Do your due diligence & research. Perform a background check.
• Watch out for stock images of the team/staff members when researching a new coin
• Perform a reverse image search. Look for its source using images.google.com

4. No publicly available source code

Almost all reputable cryptocurrency firms make their source code publicly available. They use an open-source platform. In layman’s terms, it’s open to everyone at any time. Anyone can view, read, edit, & verify what it is the founders claim it is. Deciphering a cryptocurrency code base is not everyone’s cup of tea & it’s not a prerequisite. Hence anyone who thinks they can’t see anything because they can’t interpret the code or are qualified enough to read the code is mistaken. It’s a fraud alert if a cryptocurrency team attempts to mask its code.

5. Check their whitepaper

Whitepapers are the foundational document for a crypto project. They are an effective way to scan any genuine project. The cryptocurrency whitepapers papers will elucidate the objectives, growth strategy, market analysis, & timelines of blockchain projects. It will explain how the project has been designed, the roadmap for implementation & how the offering is going to work going forward to make money. It is important to read the prospective whitepapers carefully before making any investment decisions. If the whitepaper is dodgy or if the company doesn’t provide a whitepaper, it’s a warning sign not to invest in it.

Things to do

• Review the whitepaper thoroughly
• Check if the whitepaper has complementary resources, such as financial models, legal concerns, SWOT analysis, etc.
• The whitepaper should be able to provide answers to all questions the potential investors might have

6. Excessive advertisement or promotion

Another way cryptocurrency scammers attract people is by heavy marketing advertisements. Full-page flashy spreads in newspapers, extensive banner advertisements on websites, a horde of sponsored bloggers–all are a strategy to hunt as many people as possible in the shortest amount of time to churn money quickly. The reputable cryptocurrency companies need not have to be promoted or expanded as quickly as they will grow & develop spontaneously.

Things to do

• Beware of the fake celebrity figures on the promotion
• Do not fall for the message replies on social media. Most of the time it’s from fake accounts & chatbots.
• Promotional messages convey a product’s benefits to users. However, beware of advertisements with false hopes.
• Beware of the promotional emails offering fake ICOs, claiming it to be a new coin.

7. Inviting/persuading friends or family members

Scammers typically use MLM (Multi-level marketing) techniques to encourage people to bring their crypto-curious friends. Much like a Ponzi-pyramid scheme, the scammers would promise them bonus payments for recruiting more members. But crypto-projects do not work like that.

Things to do

• Avoid receiving crypto tips or advice from a cousin, a family member, or a former workmate.
• Check out price-tracking websites such as CoinMarketCap, CoinGecko, or CoinPaprika & look for large-cap coins. You can also look for promising small-cap or mid-cap cryptocurrencies, depending on your preferences. These websites provide real-time & historical data on coin prices & trading volumes.
• If the token, suggested by your friend, family, neighbor, or colleague isn’t listed on any of these tracking platforms, it’s a scam.

8. Unable to chart the progress of the token sale

Any reputable Initial Coin Offering company will make the token or currency system easily accessible for its potential investors to facilitate the crowdfunding process. Investors should be able to view the progress of the token sale. The fraudulent companies will make it difficult for the viewers to chart the progress of its ICO. They will hide their token sale progress under the pretext of individual contribution addresses. This prevents potential investors from tracking the real-time progress, for instance, they won’t be able to see how much has been raised & how much time remains in the sale.

9. The platform only enables users to buy, not sell, the cryptocurrencies

A cryptocurrency trading platform lets you buy & sell currencies. So if you’re able to only buy but not sell, it’s a scam.

10. The website or the messages have many spelling or grammatical errors

The reputable professional crypto companies would not publish rushed, poorly produced dodgy content. You’re most likely to be dealing with imposters if you have come across websites, messages, or emails containing disturbing amounts of spelling mistakes, grammatical errors, & poor sentence constructions.

11.Unregulated exchanges

Another way to avoid a crypto scam is to invest only in a reputable cryptocurrency exchange. It’s best to avoid such platforms where a coin is difficult to buy or is only available on its creator platform.

Things to do

• Ignore high rewards & enticing deals or introductory offers
• Thoroughly research coins, brokers, & exchanges
• Look for learning materials on their websites. Legitimate crypto platforms typically offer that to investors.

12. Demanding crypto-only payments

It is likely to be a scam if a crypto platform insists they can only accept payments in Bitcoins. Unlike banks or any financial institutions, blockchain does not follow KYC (know-your-customer) protocols. People can open wallets without having to provide valid identification such as a social security number, & address, or personal contact information. Because of that, people can transact on the blockchain more or less anonymously. It makes it easy for the imposters to trick investors & take their money. Anyone demanding you pay them in Bitcoin might be trying to hoard it & capitalize on its skyrocketing account value. The scammers showcase these rapidly increasing investment accounts to the investors, promising them high returns.

13.They are unlicensed or unregistered sellers

Background checks of these imposter companies can give you an edge before investing your hard-earned cash. Using the search tool on Investor.gov, check out the license & registration status of anyone offering you an investment in securities.

Things to do

• Before buying a new token, do an online search for the token’s name+ “scam” to find out if any warnings have been issued.
• Check for any current or past investigations of fraudulent activity. If the creator’s information is difficult to find, that’s a red flag.

14. There are fake testimonials

Scammers create fake cryptocurrency trading platforms to lure & exploit victims. It’s a common practice for scammers to use fake testimonials or trading records to make the websites appear credible. They also try to project on the website that your investment is growing. But when you try to withdraw supposed profits, you’d be asked to send more crypto, eventually get nothing back. The perpetrators often pay social media influencers or others to pose as ordinary people turned millionaires.

15. If it sounds too good to be true, then it probably is

Cryptocurrency investment scams usually promise big payouts, quick money, or guaranteed returns. Scammers prey on victims who believe cryptocurrencies are a get-rich-quick scheme. Always be suspicious of any investment opportunities that promise a guaranteed high return with little or no risk. Since the cryptocurrency market is still relatively new & less regulated, it can lead to scams, fraud, & financial ruins. Scammers feed off of human greed & vulnerability. Millions of profit-seeking investors are led to misleading websites offering guaranteed returns for which they must invest large sums of money for even higher returns. But if it sounds too good to be true, then it probably is.

Conclusion

The key to avoiding any crypto scam is to educate yourself as much as possible. Learn more & more about crypto, make skepticism your ally, and ask questions. Remain vigilant and curious & always do your due diligence before investing. Use a web safety tool like Total WebShield that protects the users from online threats and strengthens privacy & overall security. Participate in the crypto blockchain communities. If you encounter a scam, you can report it to the FTC (Federal Trade Commission) at reportfraud.ftc.gov.