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Crypto Scams And How To Avoid Them

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When you start investing or trading in the crypto sector you will need to also learn how best to protect yourself from crypto scams.

Every asset class and major investment sector has scams and con artists and crypto is no different. In fact, as the bitcoin and cryptocurrency market is still in its infancy and mostly unregulated it is far easy to be scammed.

Before you get too downhearted about crypto – once this industry is fully regulated worldwide and crypto exchange and wallet companies become insured and monitored we should see a reduction in crypto cybercrime.

Scammers are becoming more and more sophisticated and so we in turn need to become more vigilant and knowledgeable.

The crypto space can be rather complex at times and it is not taught in schools (yet) which means that new investors struggle to understand the crypto sector and scammers take advantage of this.

This is one of the main reasons we decided to make spendingcrypto.com more than simply a crypto spending directory. There is an urgent need for crypto resource centres, educational websites, and more.

Governments should stop saying that the crypto space is dangerous and advocate to avoid investing in this sector and instead start educating the population on how to safely use a digital wallet and crypto exchange.

If they were to do this then they will see fewer people scammed and more taxable profits!

We can not recommend this document enough. It explains the crypto crime space and statistics (February 2021)

This chart highlights that it is fraud and scams that top the crypto space criminal activity, not hacks.

Ok, we spent a lot of time on this section as we want to help new crypto investors avoid the scams many have sadly fallen for in the past.

Go get a coffee and biscuit, find a comfortable place to sit as this is a MUST read section. This 15-minute read could save you a lot of heartache and money.

Crypto Scams Explained

1. Fake imposter websites
2. Fake mobile apps
3. Fake crypto and scam exchanges
4. Phishing and scam emails
5. Free crypto giveaways
6. Meet in person
7. Money transfer fraud
8. Ponzi and pyramid schemes
9. Pump and dumps
10. ICO and IDO scams
11. Telegram crypto scams
12. Fake tokens on DEX exchanges
13. Rug pulls and exit scams
14. NFT scams

1. Fake Imposter Websites

This is probably the most common and easiest scam to fall for and with good reason. Even people that have been in the crypto space for years occasionally fall for this.

A lot of crypto websites use the domain extension .io as opposed to .com and it is not uncommon for a crypto business to have 2 websites for different uses.

How This Scam Works

A scammer creates a near mirror image copy of the original crypto website and changes either the domain extension .io, .net, .co. or subtlety changes the domain name by adding a zero instead of the letter O.

It is not unheard of in the past for these websites to pay Google ads to be positioned above the official crypto website as more people click on the first listing of the exchange they see without really looking at the domain name to double-check it is the official website. This actually happens in other business sectors, not just crypto.

The website is designed to steal your information and cryptocurrency by taking your login details or tricking you into sending crypto into a scammers digital wallet.

How To Avoid This?

1. You should go to urlvoid.com and type (copy and paste) in any website you wish to visit or use and check if it has been reported as fake or malicious. It is free to use!

2. You may also wish to check the age of a website here. If it is a new site (a few days old) be very careful.

https://www.duplichecker.com/domain-age-checker.php

3. Search for the businesses social media accounts and then use their official website link from there. Twitter is good for this.

An example

You can enter their legitimate website from the link on their twitter account. Just be sure it is their official account.

2. Fake Mobile Apps

According to bitcoin.com over 10,000 people have downloaded fake cryptocurrency apps directly from the google and apple app store! There are more fake apps on android app stores than the Apple app store.

The most famous crypto fake app that hoodwinked a lot of crypto people was Poloniex. Poloniex is a well-known and trusted crypto exchange, but the app was fake and had nothing to do with the exchange’s business.

Thankfully many people wrote bad reviews warning people until the app was removed. Not before some sadly lost their crypto.

Source – bitcoin.com

This will probably not be the last fake crypto app we hear about, so, how do you stay safe when downloading and using crypto apps?

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Instead of downloading any crypto app directly from a store we suggest first going to the (official) website of the crypto company and seeing if there is a link directly on their website to download or at least send you to the legitimate section of the app store.

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You should do a quick search on google to see if there is anything warning you about this app.

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If there are no reviews or bad reviews STOP and conduct more research.
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Are there any misspellings in the apps name or description in store app? This is a red flag.

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Check the apps Logo is correct and matches the official companies logo.
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Test the app before you put any funds into it. Never put all your funds into one wallet or exchange unless you are absolutely sure it is legitimate and regulated such as the regulated and insured Coinbase wallet app.

3. Fake Crypto Exchanges And Scam Exchanges

It is not unheard of for a fake cryptocurrency exchange to pop up offering lower trading fees, high monthly savings rates, and other enticing goodies if you sign up and deposit your crypto or fiat with them. Once you send any crypto or money over to them it is stolen.

It is also possible for a mirror website to be created using a very similar exchange name and the homepage looks identical to the legitimate official exchange. You signup or log in and this information is used to scam you.

Precautions we recommend …..

Always check the exchange website has a padlock in the browser and starts with https.

If you are using a new lesser-known exchange for the first time to sign up we recommend looking through our crypto exchange listings and seeing if the exchange is shown there, or visiting coinmarketcap website and clicking the link directly from the price listing.

How To Recognise A Fake Cryptocurrency Exchange

This is a MUST read if you are using crypto exchanges or buying bitcoin/cryptocurrencies.

Our Crypto Exchange Checklist

Before signing up, using, or depositing funds onto a cryptocurrency exchange you may wish to follow some basic rules (checklist) to minimise the chances of being duped.
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Any cryptocurrency exchange you use MUST be well-known and respected (avoid ANY unknown exchanges)
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Insured. If hackers were to breach (this has happened to even the biggest exchanges) the defences of a crypto exchange and steal peoples crypto all customers would be fully compensated by the exchange.
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All cryptocurrency exchanges you use must be transparent and fully audited for proof of reserves.
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If a crypto exchange is uninsured (many still are) it MUST have a cold wallet storage service that only you control. See our DEX or Hybrid exchanges for a list of exchanges offering this.

Uninsured, unregulated and no cold storage does not necessarily mean it is a fake or fraudulent crypto exchange, but you should ask yourself “why would you use this exchange when you have so many better options?”
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Does the crypto exchange have an extensive social media presence? Are their followers actively messaging the exchange? Does the exchange reply back to questions quickly? Spend 5 minutes looking through their social media accounts and reading the comments section. Are their customers happy?
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If you really want to you can verify the crypto exchanges employees and CEO by using linkedin and google. You can also look at the age and reputation of their website.

Crypto Exchange Major Red Flags

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No social media presence.
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Exchange is very new and unknown.
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Anonymous ownership.
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Typo’s on their website.
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If the exchange is a CEX and it is not insured, audited, or legally compliant.
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Low quality website and Logo.
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If a crypto exchange offers ridiculously low trading fees.
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The exchange charges very high withdrawal fees.
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A crypto exchange promises a rate of return on an investment that seems too good to be true.
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The exchange deploys tactics to try to get investors to deposit large sums.
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Offshore jurisdiction without offices or a presence in at least one major first world country.
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An exchange has a lot of very unhappy customers in their social media comments section.
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If you receive a cold call (email, text, phone call) from an exchange trying to convince you to signup and deposit with them. Legitimate exchanges do not cold call you!

4. Phishing And Scam Emails

This scam is one of the most notorious and effective methods to steal someones cryptocurrency.

How This Scam Works

You receive an unsolicited email that looks official from a well-known crypto wallet provider or crypto exchange. The email contains a link that will take you to a website that is literally identical to the official crypto exchange or wallet website you think you are entering.

Scam Emails often try to panic you into action (so you don’t have time to think logically) and clicking their link.

For example – There has been a security breach to your account please click this link urgently to re-secure your account with us.

You now enter your account details (username and password) and the fake website uses this information to log in to your official crypto wallet or exchange and steal everything inside.

Some crypto scam emails will simply get you to open them and click a link that downloads a key logger secretly onto your computer (device) which gives a hacker access to every word you type including usernames and passwords.

Ransomware

This is usually delivered through emails. Once they gain access to your computer they encrypt your data and demand a fee to unencrypted it.

How To Avoid This?

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Don’t open emails that you don’t recognise who they are from.
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If you do open an email that asks for you to log in to your crypto account do not click the link.
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Try to ring/email the exchange first to see if this is legitimate. Failing this, go to their twitter or telegram group and publicly message them. They usually respond quickly.
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Always check the website (link) has the legitimate URL, padlock symbol, and starts with https.
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Scan your email account and filter it with antivirus software.

5. Free Crypto Giveaways

This scam happens a lot in crypto.

How This Scam Works

The scam is simple. The scammers impersonate a known celebrity, social media influencer, or crypto company/token and announce they are giving away (free) a lot of cryptocurrency to help spread the word and get people into crypto. The catch is you have to send some cryptocurrency to them first.

Some scammers will promise back double or triple the amount of crypto you send to them. The scam relies on speed by having this offer for a limited amount of participants or time-period to rush you into sending them your crypto.

On twitter or YouTube for example these scam sites can have thousands of followers, blue “verified” mark, and lots of comments from people saying how much crypto they have made from doing this already.

How To Avoid This?

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Double check the user name of the account give-away to ensure it is the real celebrities social media account.
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If you would like free crypto go to our earn crypto section and learn more. Stay safe and follow the rules above.
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Assume any (free) give-away is a scam.
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Check the crypto wallet address that the give-away makes public (send crypto into) and see how many people have sent crypto and if anyone has sent any crypto back out to participants. Usually it will be a one direction wallet. I.e Inbound only.

6. Meet In Person

This is rarer and localbitcoins (crypto exchange) have actually disabled ‘meet in person’ buy/sell services because of this scam.

How This Scam Works

You agree to meet someone in person to buy/sell your cryptocurrency. When you meet up you are forced to hand over your cash or give them your crypto or they will hurt you.

How To Avoid This?

Never meet anyone in person to buy or sell crypto. Use an exchange or other method.

7. Money Transfer Fraud

This is not a common scam but it happens – Think Nigerian Prince scam.

How This Scam Works

You receive an email from someone asking for help moving some crypto and in return for helping them (often with an upfront fee) you will receive a percentage of the funds moved. Once they have your upfront (crypto fee) help they disappear.

How To Avoid This?

Do not send upfront fees to anyone.

8. Ponzi And Pyramid Schemes

These were famous in 2017, but are still around.

How This Scam Works

The scam works by promising investors a high rate of return (interest) if they buy the scammers crypto token and lock up their token for a specified period-of-time.

Either this turns out to be a scam from the beginning and you never see your crypto again, or if the crypto market is in a bull period they pay out the promised returns to the early investors until they have enticed enough new investors into their scheme and they close it all down and disappear.

Bitconnect in 2017 was the most well known multi-billion dollar scam that did this. One coin is another Ponzi crypto scam that took billions of investors dollars.

How To Avoid This?

If returns are too good to be true they probably are. Also, be careful locking up your cryptocurrency for too long a period. Finally, look at the economics of their system and see how it can be sustainable and how they can afford to payout such high returns.

This should not be confused with liquidity platforms that can be legit.

9. Pump And Dumps

Pump and dumps have been around for a long time and are here to stay. They happen in the stock market and also the crypto market.

How This Scam Works

A group of insiders get together and buy a particular cryptocurrency. They usually choose an ill-liquid, low market cap new cryptocurrency. Over the space of a few weeks, they buy as many of the coins as possible and when they have enough they try to create FOMO.

This happens a lot with Meme coins. A few insiders buy the token early and then create a buzz around the token. They go into crypto groups and encourage new investors to buy into this coin. The coin may pump hundreds, if not thousands of percent in a few days and the insiders sell into the new investors who when the dump comes are left holding a worthless cryptocurrency.

How To Avoid This?

If an unknown cryptocurrency suddenly pumps (increases in price) overnight for no reason and for example is pushed as the next dogecoin across twitter and in crypto chatrooms, you should be careful.

If a cryptocurrency has already moved 500% in a short space of time it may be a pump and dump.

Check the token’s main wallet and see how many people hold the token and what percentages. If only a few wallets hold the majority of that token and then start selling (large amounts) you may be in a pump and dump.

You can put the tokens address into a crypto scanner (like etherscan) and see the entire wallets activities.

You can also check the charts on the crypto you think might be a pump and dump. There is usually a lot of large buying only a few days before the pump.

10. ICO And IDO Scams

ICO’s and IDO’s allow anyone to invest early into a crypto project before it goes live onto an exchange. This is the crypto equivalent to Wall Streets IPOs.

Some people made fortunes investing in ICOs in 2017 and onwards. However, 80% of ICOs in 2017 turned out to be scams.

In fact, this is probably the most dangerous sector for new investors as it is very easy (and cheap) to create an ICO scam.

How This Scam Works

Scammers create a website and then promise the world on how they will be the next big thing in crypto. Investors send money to them and the ICO vanishes a few weeks later.

It is quite common in crypto for ICOs to not list who is behind the ICO (team) which makes this even easier for scammers to do the same.

Some very legitimate ICOs and IDOs have hidden their identity till after their public launch, so not all are scams.

How To Avoid This?

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Check the Github for the ICO.
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Look at the quality of their website.
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Read the white paper in depth.
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See if the team are public and then research their expertise to see if they are capable of pulling off what they promise.
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If the ICOs have advisors, VCs, or famous crypto personalities listed as part of their team check to see if they really are involved.
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Go to all the ICOs social media accounts and see if they are active and what people are saying.
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See if there are any spelling errors on their website and if they are throwing around crypto buzz words with no real substance.
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Check if the ICO has a working product or is it all dreams. If so, look at their roadmap.
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Look for any red flags and go with your gut instinct. Remember, if you miss out on one ICO/IDO there is always another one to invest in later on.

11. Telegram Crypto Scams

Telegram crypto scams.

Read Investorplace’s article on a recent (2021) telegram scam.

How This Scam Works

A very common telegram scam is the scammer joins a popular crypto group, especially a recent IDO token.

They then look through the members of this group and private message them offering to help them sort out their digital wallet or tokens as there is an issue. It is a scam.

Telegram scammer’s also post fake wallet addresses for IDOs that are live so investors send their crypto to the scammers wallet as opposed to the IDOs official wallet.

Some scammers post free giveaways, airdrops, or even after an IDO has completed they post a second round of the IDO with an address to participate in it. This is a scam.

How To Avoid This?

Set your telegram to private so no one can add or message you unless they know you.

Be very careful and always contact the official admin in the telegram group and don’t be afraid to post a screenshot of the message you have received and ask others if this is legitimate.

On this note, be aware that some scammers will impersonate the legitimate telegram administration and convince investors to send them crypto.

12. Fake Tokens On DEX Exchanges

This is very hard to spot and even a seasoned crypto investor can fall for this one.

How This Scam Works

The scammers create an identical token (yes, anyone can create a token on some decentralised exchanges) that looks identical to a legitimate token. For example – You use Uniswap to buy a crypto token and then you can’t sell it as it is a fake token.

How To Avoid This?

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Some investors use https://www.dextools.io/ which helps cut down on fake token buying.

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You can also use https://etherscan.io/ if it a ethereum token to check the wallet address and see how many transactions there are in the wallet and if they are all incoming and no out-going transactions.

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Go to the official website or social media account of the token company and look for a post on there that links to the legitimate exchange to buy their token.

13. Rug Pulls And Exit Scams

This scam is very difficult to spot and happens way too often, especially in the DeFi space.

A rug pull is a type of exit scam. It is where an insider of the company robs the funds of a legitimate project and runs leaving a real mess for the legitimate remaining team to clean up.

An example of this was Chef Nomi who rug pulled $1 billion worth of funds from SushiSwap exchange.

Exit scams

An exit scam is hard to spot and is the practice of promotors (owners and team members) vanishing during or shortly after their ICO or token goes live.

The ICO raises money from investors and then the team disappears before the ICO is even complete. Some wait a few weeks after the ICO goes live on an exchange in order to steal even more investor’s money. This way they get both the early investor’s money (ICO) and people’s money who buy their token when it hits the crypto exchanges.

As regulations in crypto progress we will see less of this happening and nowadays their are many ICO and IDO investment platforms that promote only vetted projects.

Exit scams have occurred where the team has neither the knowledge nor the intention of actually fulfilling any of their promises on their roadmap.

They simply promise the world, get investors money and then do absolutely nothing to enhance the project.

The team will make all sorts of excuses over time and then when the bear market hits they simply blame the conditions of the market for their failures and make up fictitious expenses to explain why there is no money to return to the duped investors.

How To Avoid This?

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Avoid projects with no visible team members, or, if visible with no credibility in the crypto space.
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Invest in projects that have been audited by a trusted third party. This is not 100%, but reduces the risk.
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Wait for a project to mature and prove itself first before investing into it.
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Avoid projects where the private key is held by only one member of the team.

14. NFT Scams

This is a new scam that has appeared as the crypto NFT market has grown.

How This Scam Works

Investors are offered NFTs for sale by scammers and once the buyer has sent their crypto to purchase the NFT the seller vanishes.

How To Avoid This?

Only buy NFTs directly from a legitimate NFT marketplace.

Crypto Scam Resources

Bitcoin who’s who

Check a bitcoin address using the lookup form above to see if there have been scam alerts connected to it. Or report a scam if you have details on one.
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Etherscan

Check an Ethereum based tokens wallet activities.
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VPNs

Visit our VPN section and learn how to protect your computer.
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Antivirus Software

Visit our Antivirus software section and learn how to protect your computer.
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