Unfortunately, the crypto world has been a fertile ground for all kinds of scams as there is a significant lack of education in this space and the possibility of profiting at the expense of users is still large. This reached the point where many people came to consider (and still consider) Bitcoin as a scam without actually knowing what it’s all about.
Although cryptocurrencies are mostly used legally, they have also become attractive targets for criminals who are quite creative in setting all kinds of traps for unsuspecting investors.
This is why it is absolutely essential to educate yourself if you are involved in cryptocurrencies: there are numerous ways a scammer can try to get at your precious assets. With that in mind, we are going to outline the most common cryptocurrency scams for you today.
ICOs or ‘Initial Coin Offerings’ quickly became the preferred method of financing for crypto startups. With them, a project can raise funds by creating a completely new token which is ready to be sold at the market price, the value of which will be determined by the value of the project in question when it’s actually launched.
The problem is however that anyone can launch an ICO because it’s very easy to create your own cryptocurrency token with Ethereum. This gives virtually everyone the opportunity to scam investors by creating a token, hyping it up with false advertising and promises of a successful project and then when the price is at its peak - sell the majority of the coins on the market and ditch the project. The price tanks and everyone who invested in the token is left with an unsellable asset.
Some common things to watch out for if you think you’re dealing with an ICO scam are a vaguely-described project, advertisements that seems way too good to be true, unreal influencers (they often pay famous people to promote their scam or simply lie and say that it is endorsed by XX person).
A beautiful and tragic example of a perfectly-executed ICO scam is the Confido affair in which investors lost upwards of 370,000 dollars. Another prominent case was with Centra Tech in which Floyd Mayweather himself promoted the product and investors lost 32 million dollars.
In what is perhaps the largest scam of all time though, investors lost a jaw-dropping 600 million dollars in the Modern Tech ICO scam. In this instance, they executed multiple ICOs under one company name and had thousands and thousands of people lining up to get in on the investment.
During the Bitcoin bullrun of 2017, more and more retailer investors were turning to cryptocurrencies and new blood meant new opportunities for scams. Bad actors were working left, right and center to steal the money of less-experienced speculators and a study by Statis Group showed that almost 80% of ICOs executed in this period were fraudulent and that even of the legitimate ones - approximately 90% failed to launch in the year after.
It is worth noting, in addition to scams and failures, there are also parody ICOs, such as Useless Token where the creators themselves warn that no return should be expected and all investment will be lost. In this case, it cannot be considered a scam as parodic ICOs do not usually hide their nature.
At its core, this is just the simple sending and receiving of cryptocurrencies directly without the use of an intermediary such as an exchange platform like Binance or Coinbase. While this is inherently not nefarious, this is often how crypto investors get scammed.
There are social networks, forums and chats abound with folk offering to sell you discounted cryptos or saying ‘send 0.05 Bitcoin and get 0.1 back) but you have to be very extremely cautious with these entities. When purchasing cryptocurrencies, just ensure it’s a trusted source and you will not be caught out. Always turn to a trusted source such as a friend or credible, popular online exchange. If you are looking for an exchange, we recently created a guide for the best exchanges this year!
Never do online what you would not do on the street. If you are approached by someone on the street who promises to give you $10 if you give them $5 then you wouldn’t believe it - it’s the same online!
Phishing consists of the impersonation of an authority, company or even someone in order to trick the victim into revealing their confidential information. In this way, the attacker can access your accounts or wallets and steal your funds.
We’re going to describe some of the different ways that scammers like to try and phish for your info.
This is the most common type of phishing scam where the scammers prepare a website identical to a legitimate one such as Coinbase. They spread the page throughout the internet and hope that anyone who lands on it will sign up through their website. Once the unsuspecting victim has entered all their personal info which can include passports or credit cards - they are at the mercy of the scammers who will simply steal their funds.
The most effective way to avoid this scam is to look very closely at the URL of each page where you have funds before entering any credentials. In phishing, the URL always changes in some character, since the domain (name) of the company or project is already taken and it is not possible that there are two exactly alike. In this sense, once we identify the real page, we should save it in Favorites and enter there instead of using the search results. It seems extreme but when it comes to money, it’s better to be safe than sorry.
Fake support teams
Sometimes scammers save themselves the trouble of creating the fake site by simply posing as the support team of some legitimate platform including exchanges and wallet providers. When they do this, the only things they imitate are the logos and the email address of the company within the message they send to their victims to announce any alleged inconvenience and request their private information with the false purpose of helping them.
It is important to remember in these cases, both traditional financial companies and newer fintech or cryptocurrency platforms will never ask for your credentials, under any circumstances. The reason for this is that they already have them.
Voice scams or vishing
In this category of phishing, the scammers do not contact you directly but rather your phone company. After finding out your phone number and even your identification number and address thanks to a stolen invoice or because you simply published that information at some point, the attacker contacts the company to transfer your line to a new SIM card under their control.
Since the security of telephone companies is notoriously quite weak, the operator will ask the attacker very little information to confirm their identity. If successful, the criminal will then be able to reset all the passwords of the legitimate user using two-step authentication, that is, the code that reaches the phone and that usually serves as an extra layer of security. This way, online wallets could be emptied in a matter of minutes, long before the rightful owner can do anything.
This happened to Cody Brown, who had to see his 8 thousand dollar cryptocurrency investment disappear in just fifteen minutes. A similar case was that of Jered Kenna, who lost up to $ 40,000 each day that he failed to resolve the problem.
Social media ‘gifts’
This is a form of phishing and could also fit in the P2P section but it deserves its own section because of how simply audacious the scammers are and what they have gotten away with in the past.
What happens is, a scammer will get their hands on a verified Twitter account and change the name to be someone extremely famous and credible like Elon Musk. The account will then post something along the lines of:
“It is my birthday and I am giving away 1 Bitcoin to anyone who sends 0.001 Bitcoin to this wallet address.”
An army of bots will share this post to get maximum reach and by the time it has been seen by thousands of people, usually a couple of hundreds have already been scammed. A good way to avoid this is by looking at the Twitter handle itself. Anyone can change the Twitter name but usually if it’s a scam, the @ will be something else. See the screenshot below for an example.
Notice we wrote the word ‘usually’ and we did that because in very rare instances, the Twitter account belonging to the actual celebrity has been hacked. Recently, the accounts of Elon Musk, Bill Gates and a load of other prominent tech heads were hacked by cryptocurrency scammers who made off with hundreds of thousands of dollars worth of Bitcoin. See the screenshot below of how that looked:
We will reiterate at this point that in crypto, if it seems too good to be true then it definitely is. Even if the source is one of your favorite celebrities, just know that nothing comes for free and exercise caution online.
Pump and dump schemes
This illicit tactic is a classic, tried-and-tested scam straight from the world of stock trading and seeks to artificially inflate the price of an asset through coordinated bulk buying and overly-hyped promotion through false advertising.
Once the price reaches a certain point, there is a sell off to collect the profits which crashes the price again and leaves those who were not involved profitless. This is of course highly illegal.
Due to the existence of such practices, if you intend to put any money at all into a cryptocurrency token or project then do your own research instead of just looking at the price and being pressured to buy. Looking for things like roadmaps, who the team behind the project is, have they received investments. Likewise, any news found on social media should be thoroughly researched and verified.
We won’t dive too deep into pump and dump schemes right now as we created a dedicated article about it which you can find right here.
Don’t be a victim to cryptocurrency scams
It’s 2020 and we are surrounded by those who want to take our money online. Be that legitimately thorough shops and services or illegitimately through scams and fraud - they exist and you must cautious ready when operating online.
Always start at the beginning. If you’re entering the world of cryptocurrencies then that is great! This technology has the potential to really revolutionize the way we do finance and more but it is not easy. That is, there’s loads to learn and you should be learning it before you invest. What is Bitcoin? How do I spend it? How do I store it? The internet is free and knowledge is truly power in this wild industry.
It does not matter what the project is: if you are going to invest in it, you must know every tiny detail from its operation to its founders and developers. If you have a Whitepaper, don't skip reading it. If a Whitepaper is just a copy of any other, it is most likely that the project is a scam.
Now if it's a service, look into that too. Look for reviews, complaints or recommendations. Also, stay up-to-date with the news: some exchanges are on the verge of bankruptcy or have a reputation of holding users' funds.
Don’t believe everything you read
Even if it looks legitimate, leave room for doubt and pay attention to details. In the case of phishing, the spelling is often wrong, apart from the URL. If they guarantee you astronomical profits in no time, rest assured that they are lying. The crypto market is volatile and nothing is guaranteed.
If you read very positive news, do not believe it until you find the original source and check if it is reliable or not - social networks are not. Check the official pages of the companies or organizations involved. Do it the Bitcoin way: trust, then verify.
Most importantly, however, is choosing which exchange platform that will use while you are investing in cryptocurrencies. Take a look at our guide to the best exchanges out there to find out which one is for you.
Automate your trades and forget about being scammed
The best way to avoid being scammed is by not trading at all.
Of course we don't mean you should not invest in cryptocurrencies. We simply mean that you yourself should not be trading when there is a much more sensible way to trade - automated trading bots.
With Trality, anyone can build a trading bot that trades for them 24 hours a day.
The best part being that trading bots don't trade on emotions, they don't read Twitter and they can not be scammed. On top of that, when you consider that 80% of private investors are losing money - clever algorithmic trading bots become a very tempting option. This technology is the same technology that big Wall Street brokers are employing and now you can get in on the action.
Our flexible Code Editor allows Python developers to make money from their coding skills by writing intricate, creative strategies quickly and securely. The Code Editor comes equipped with a debugger and a number of the most popular libraries including Tulip, Pandas, NumPy. We recently updated the trading engine to include even more great features too so make sure to read those updates here and you can get started even quicker with our helpful bot template!Try the Code Editor for free!
This is our very unique-to-us tool designed for those who don’t want to code. The minimalistic drag-and-drop UI will give you all the benefits of algorithmic cryptocurrency trading with zero coding knowledge necessary. Using Boolean Logic, all you need to do is choose which indicators and strategies you want to use and place them in the desired order. Then, just like with the Python Code Editor, run a series of powerful backtests to test your bot's mettle.Try the Rule Builder for free!
Trality currently supports deployment on some of the best cryptocurrency exchanges out there including: Binance, Coinbase Pro, Kraken and Bitpanda. If you’re feeling ready then get started and benefit from having a bot do your hard work for you!