Cryptocurrency Scammers: How To Identify And Avoid Them

24 Min Read

The growth of blockchain and the cryptocurrency space is fascinating. Technical innovations and the rapidly evolving new trading paradigm continue to attract large crowds, but this also includes several scammers.

Various cryptocurrencies have created millionaires over the years. They have established themselves as a profitable enterprise for all those who want to invest in the future.

However, this growth in value and the adoption of core business has had some consequences. While people with good intentions seek to invest and possibly make a profit and be a part of shaping future money, some criminal elements tend to deceive their investments.

Potential investors often refrain from investing in this growing industry because of the steady increase in the number of cases where people lose their cryptocurrencies due to fraudsters and thieves. Older investors are also avoiding these investments.

We have brought together six common cryptocurrency scams and how to avoid them.

At the end of this review, you should be able to quickly identify common fraud tactics and methods used by most scammers. You will also have a better idea of the technology that can help you avoid falling victim to them. For example, you will realize the benefits of using a bitcoin AI to improve the security of your cryptocurrency transactions.

Types Of Scams

Fake ICOs

The easiest way to conduct a scam is to build and market a fraudulent Primary Coin Offer project. ICO has become an essential way for legal businesses to find the necessary funding through crowdfunding.

Many fraudulent ICOs write a white paper, develop a marketing campaign on social networks, post token information on stock exchanges, and conduct a fake sale of tokens.

Thus, many new investors are deceived by the promise of earning 1000% of the profit from these ICOs and end up buying useless tokens.

In a study conducted in 2017, 80% of ICOs were identified as fraud. A popular one was Confido.

In November 2017, they raised $375,000, and soon after that disappeared. As soon as the news spread, the price of the coin fell from $0.60 to $0.10 in less than 2 hours. It then changed to a fraction of a percent after a few hours.

Even larger scam ICO was Centra, which raised $32 million and was supported by celebrities DJ Khaled and Floyd Maver. In April 2018, the two founders were arrested, and, like Confido, the coin lost almost all its value after the news release.

How it works:

  • The user becomes part of the ICO telegram group.
  • The user will receive messages from what looks like an administrator from the ICO command, but they are not.
  • They offer users a private bonus for sale. For example, if an ICO bid is 1 ETH = 10,000 tokens, they offer 1 ETH = 30,000 tokens.
  • Then scammers ask interested users to transfer the ETH to another address, a “special address.”
  • Once the user transfers funds, the scammers disappear.

How to avoid it:

  • Check Whitepaper Quality – Are the promised returns too good to be true? Is it full of mistakes?
  • Is there a legal roadmap for the token and proof of concept?
  • Ask challenging questions about the project – Does the team ignore or answer your questions?
  • Check the exchange on which the coin is indicated – Does it have a significant trading volume?
  • Share and discuss it with friends or community – Ask them if they think it’s a fraud.

Cloned Fishing Websites

It’s important. The above scammers can be avoided with little vigilance. However, phishing attacks are challenging to detect.

These users share sites that look exactly like the original site or a brand new site that captures your confidential information and then uses it to hack into other accounts.

Accurate clones of legitimate projects, typically exchanges or ICO sites, are used to steal funds and personal information.

Always double-check the URL and bookmark the websites you visit frequently. Cloned sites will use similar letters in the URL to make it look like the real URL at first sight, for example, using “m” instead of “n,” “0” instead of “o,” and so on.

How it works:

  • The fraudster sends you a link to the site, depending on the context of the conversation. Example: He says that if you have a problem with Binance, log in using this link. This site looks exactly like Binance but has nothing to do with it.
  • The cheater will ask the user to try this new exchange.

In both cases, you enter your user registration or login details. These credentials are then used to access other user accounts, where security is minimal. The user account has been compromised.

How to avoid it:

Everything may look normal on the surface. No one’s fooling you to send crypto. Someone’s telling you to try a new exchange or give feedback on the site. You don’t see anything wrong, but in the end, you get cheated. This scam is a little more complicated than that.

Follow these steps to avoid getting cheated:

  • Do not click on unrecognized links.
  • On all sites you visit, check the link in the address bar and make sure it is correct. Keep an eye on the special characters.

Fake Support Teams

Another type of phishing campaign is when these groups pretend to be a project support team and request personal information, deposits, or personal passwords.

When you have a problem with the stock exchange, you try to get answers to your questions from their telecommunication groups or their administrators. These scammers are hunting such users.

How it works:

  • The user is faced with a problem associated with such exchanges as Binance, Bitbns, Koinex, WazirX, Coindelta, and others.
  • Fraudsters use similar usernames, the same image, and display name as the administrator of the group telegram exchanger or use the logo of the exchanger itself.
  • Users confuse them with the exchanger and trust them.
  • Fraudsters ask users to send BTC or ETH to “fix the problem.”
  • Users send the amount in the hope of solving the problem.
  • Scammers run away with this amount and will never be seen again.

How to avoid it:

When it comes to exchanging, keep to Binance, Kraken, Bitfinex, Kucoin, Huobi, Bibox, Coinbase, and Gemini.

At the time of writing, CoinMarketCap lists 204 exchanges, and there is a strong possibility that among them is another BitKRX.

Also, keep track of the legitimacy of applications that you download to your phone or browser.

Fake Exchanges And Apps

The cryptocurrency world is filled with shadow exchanges that appear and disappear overnight. You have to be very careful with these exchanges because they can go with your coins or money. Or, once you deposit money, some of these exchanges charge you an outrageous commission or make it very difficult to withdraw.

Some of these exchanges make it attractive for new traders to use their platform, charging absolutely nothing for transaction fees and trading commissions. Instead, they earn their income by charging a fee to place any token (including fraudulent ICOs) on their platform, without providing adequate trading liquidity for traders to buy or sell tokens freely.

Some of these tokens end up being frozen on these exchanges, and traders get stuck with their “bad coins” without being able to liquidate them.

Some of these ICO tokens may also introduce security loopholes in the exchange that could jeopardize the security of the entire database.

How to avoid it:

  • Verification of the existence of a legal address of the company, as well as confirmation of the authenticity of the regulatory authorities
  • Check for unrealistic spikes in trading volumes, especially if the exchange has just started to operate
  • Check if there are any exchange articles on the Internet.
  • Is the team working on the exchange anonymous or transparent about their identity?
  • Examine the markers listed on the exchange to make sure it is secure.

Cloud Mining Scams

The growing popularity of cloud mining, due to the higher cost of mining equipment and electricity for individuals, has given scammers another easy way to cheat.

A well-known case is MiningMax, a cloud mining service that, for two years, offered people to invest $3,200 for a daily return on investment, as well as a $200 referral fee for each personally hired investor, making the scheme attractive and understandable. The site deceived investors of up to 250 million dollars.

Anyone who is remotely interested in cryptocurrency has probably heard about mining. Most likely, if you are new to cryptography, you don’t quite understand how mining works. Therefore, these scammers try to sell your mining plans as generous earning opportunities.

How does it work?

  • Scammers ask the users if they know about mining.
  • Regardless of what users will say, scammers will say that there is a mining opportunity that will allow you to earn a lot of Bitcoin.
  • They will gain your trust by saying that you will be registered on the site and get your wallet. Scammers will also report such things as “a big investment in cloud mining,” “coin flipping,” etc.
  • However, these wallets are generated by a company that has access to personal passwords, so the moment the user transfers the fund, he moves it from there, and the cheater disappears.

How to Identify and avoid such Scammers:

Let’s start by not receiving unwanted messages. However, even if you respond to someone who sends such messages, it is best never to send any cryptographic correspondence to anyone. You should never send it to a wallet that you have no control over.

Ponzi, Pyramid, And Multi-Level

Ponzi schemes are investment frauds that involve the payment of anticipated returns to existing investors from funds contributed by new investors.

The most notorious Ponzi scheme in cryptography was Bitconnect. It was surprisingly able to remain active for a year until the biggest exit scam to date.

At the time of its collapse, the market cap of Bitconnect was about $2 billion, and the price of a coin was about $320. In less than 24 hours, it fell to $6, and the marginal market price was lowered to $40 million.

Bitconnect was extremely popular, and marketing was very well organized, as is often the case in successful pyramid schemes.

In the end, always think with your head, and if something sounds too good to be true, it probably is.

The founders of multi-level marketing had great intentions. They used this marketing method to get their products and services in front of large numbers of customers, thereby increasing sales and growth of their businesses.

However, seeing the success of this marketing technique, the scammers also used it in their criminal activities.

How it works:

Unlike legitimate companies that hire affiliates to help sell their products and pay them commissions from successful sales, fraudulent platforms hire affiliates to sell fake claims and lies to unsuspecting parties.

Most of these people fall in love with lies, invest their money, and boom! They’re gone. The scammers take most of the money for themselves and give a low percentage to their accomplices (affiliates).

Such platforms are easy to spot, they hunt naive people, offering them a quick return on their investment, and when they become victims, they face reality – turn to earn or wait forever for your money.

How to avoid it:

  • Always look for platform property information before making any investments. Ask yourself questions such as – is the CEO trustworthy? Was he involved in any previous fraudulent platform? Is his identity doubtful?
  • Most Ponzi schemes do not disclose information about their owners. They keep the information out of reach from investors. People often come in and invest blindly, and when things fall apart, no one is held accountable.
  • It is necessary to define the property/ background information about the platform. Ask questions like – Who runs the platform? Where is it based (its operational headquarters), and when was it launched?
  • Check the legal status of the platform. Are they properly registered with the relevant authorities to manage the financial platform? Can you sue them if something goes wrong?
  • Check past user feedback on forums and blogs. What do previous investors in this platform say?

Fake Pools And OTC Scams

Off-exchange transactions are distributed in the correct cryptocurrency. You do not have an intermediary. The transaction is at a fixed price. Fraudsters can cheat trustworthy users again by providing incredible prices to buy or sell cryptocurrency.

Fake pools are usually organized with the help of a telegram or group chats “Discord.” These groups offer allocations for upcoming ICOs and ask you to send funds, usually Ethereum, to contribute to the pool to receive ICO tokens later on.

Although some of these groups are legal and are generally tough to get into, they may even require a steep monthly fee, KYC, and a certain skill set, most of them are just scams.

Also, due to the anonymous nature of cryptography, once you send money to a fake pool, there is no way of getting a “refund.”

How it works:

  • The fraudster addresses users with a Bitcoin trading offer.
  • They usually offer a 5-10% surcharge on current prices to attract users.
  • From there, they go in two ways – first, they ask to send crypto, or they send a fake NEFT receipt to show the payment and ask to send crypto first.
  • Once the user sends the cryptographic data, these users delete the account and disappear.

There are many more options for these scams. Once, to check the conman’s stability, I asked him to send me his ID. He shared his passport (read: fake).

Later he sent me his bank account details as well as his NEFT receipt to show that he had made the payment. Since the NEFT transfer takes half an hour, it becomes a common decoy to lure people into cryptography. I didn’t transfer Bitcoin, and in the end, he realized that I didn’t fall into his trap.

How to avoid it:

Do not exchange OTC messages by telegram or anywhere else unless you know who the person is. There are several peer to peer exchanges, some without KYC, so trade there. Don’t be greedy and go for over-the-counter transactions when someone offers a premium rate.

Pump And Dumps

Groups of pumps and dumps manipulate the price and volume of a coin – usually less known coins. Initially, they pump the price in a short period, coordinating the purchase of large volumes, and then sell it by dumping.

The catch is that these groups have different levels, and the higher levels tell which coin only swings to lower levels when they have already bought it.

These groups manipulate the prices of coins with low market limits. It creates a “fake agiotage” for a digital token. It is done by unrealistically increasing its value and trading volume before you can make a good profit out of it.

Traders who act first take profits and people who are a little late suffer from the sharp drop in prices in just a few minutes.

They often work in “Telegram” or “Slack” groups. Although it seems to be an opportunity to make quick money, in most cases, regular traders are slower than these groups, which illegally manipulate the market.

How to avoid it:

  • Do not participate in these groups (even if they contact you on social networking sites).
  • Be careful with tokens that have a sudden and immediate surge in trading volume.

Typical Red Flags

Promise Astronomical Gains

In many cases, if it sounds too good to be true, it’s probably not true. Simply put, always suspect any project that offers a high return on your investment.

You Have To Invite More Users

Doubt and suspicion: When asked to invite other users, this is a clear sign that this is a Ponzi scheme. Keep in mind, though, that affiliate programs are different and always voluntary.

They Ask For Your Private Passwords

Never share your passwords, private keys, or security phrases. Any person, project, or ICO that asks for your passwords, private keys, or security phrases is fraudulent.

Previous Scam

A scam will always be a scam. If a project, startup, or individual has been accused of fraud in the past, be careful, as they may become fraudsters again.

Project Team

Do not trust the articles or the project site. It’s critical to check that the team has LinkedIn profiles and possibly go beyond that, as well as do a full background check using Google and Twitter or Facebook. If the information about the team is not public, there is a strong possibility that it could be a fraud.

How To Evaluate The Legitimacy Of ICOs


  • Are there full names and persons associated with the project?
  • Do they have active LinkedIn or other social media profiles?
  • Is the white paper the original or a copy of another white book?
  • Are there verified partnerships with other companies?
  • Does the organization have a roadmap, a working product, or is it just an idea?
  • Are they a registered and merged company?
  • Read honest broker reviews on the website That Sucks.


If the project is abandoned, it is not worth your time and money.

  • What do people say about this organization on various social networks?
  • Does the team connect with the community, and what is their attitude?


Not everyone needs a blockchain.

  • Do you need a blockchain, or can the problem be solved with a classic database?
  • Does the technology behind this project solve the problem?
  • Is there another organization that is trying to solve the same problem?


  • Does the organization have a clear goal?
  • Has the team met the deadlines in the past and achieved the goals set out in the road map?
  • Did the team have any problems during the development, and how did they deal with them?
  • Has the coin gone through the pump and dump before?
  • Have there been recent changes in the team structure?

To Sum Up

After all, despite the numerous scams, schemes, and performers of various fraudulent activities throughout the cryptographic space, the best approach is a reasonable degree of skepticism and caution.

Despite the number of fraudulent projects, there are countless respectable and well-managed organizations and groups that make investments in cryptographic currency at cost.

So, there you are, now you’re smarter regarding scammers. A warning is better than a cure. If you have been cheated, there may not be any cure for returning your money, so be careful.

As a general rule, never transfer money or cryptocurrency to anyone, and you will never be deceived.

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