The crypto world is no short of scammers. With the popularity of Bitcoin and cryptocurrency, there came a new wave of cryptocurrency scammers. These scammers come up with inventive ways to scam people. Their scamming techniques have gotten sophisticated over the years. If you are new to cryptocurrency, it can be quite difficult to spot a scam. We will try our best to list out all types of Bitcoin/cryptocurrency scams, so you can avoid it when you see one.
Crypto Ponzi Schemes
A lot of newcomers into the crypto world, fall for this type of scam. If you see a website that guarantees a huge return on investment, it is likely a scam site. These sites usually offer subscriptions or packages. Each package/subscription guarantees a daily/monthly, guaranteed income. As you should know by now, if a company can guarantee income, they wouldn’t offer packages to anyone; instead, they will use their method to earn money for themselves.
Ponzi schemes operate in a way that money invested by new members is used to pay existing members. Eventually, there comes a point where they’re no longer able to pay the existing members. At that point, the company stops paying the investors and runaway with what is left.
How to Spot a Ponzi Scheme?
- There is no clear explanation of the method they are using to earn income for customers. They use technological jargon like Artificial intelligence, machine learning, special trading strategies.
- Guarantees a positive return on investment. This is perhaps the biggest and the most obvious sign. No one can guarantee a profit.
- Almost every Ponzi scheme has an affiliate program to lure new customers.
- No information about the company.
Crypto pyramid schemes are very similar to Ponzi schemes. They are similar in the sense that they both fool the customer into investing in their scheme, in return for an extraordinary return.
In a pyramid scheme, the initial investor recruits other investors and they recruit other investors and these investors continue to recruit additional investors, and so on. When a new investor joins, the recruiter gets paid. The recruiter must share the payout with those at the higher stages of the pyramid.
Ponzi schemes are far more common than pyramid schemes, in the world of cryptocurrency. But, a scam is still a scam, so watch out.
Cloud Mining Scams
There are legit cloud mining companies like Genesis-Mining and Hashing24, but, the majority are scams. They operate similar to a Ponzi scheme. The only difference is that they are in disguise as a legit cloud mining service.
If you want to cloud mine, please read user reviews and look up information on who owns the company.
Scammers on Peer-to-peer Exchanges
Peer-to-peer exchanges are services where you can buy and sell cryptocurrency directly from other users. Some of the most popular peer-to-peer exchanges include:
- LocalBitCoins – Bitcoin
- Local.Bitcoins – Bitcoin Cash
- LocalCryptos – Ethereum
- LocalMonero – Monero
- Paxful – Bitcoin
If you see a buyer on one of these exchanges, willing to buy cryptocurrency above the market price, it is likely a scam. There is an ever-growing number of criminals that buy cryptocurrency with stolen debit/credit cards. They list their advertisements at premium rates to quickly lure in sellers.
Another favorite method of these scammers is PayPal charge-backs. They buy cryptocurrency with PayPal and charge-back the payment. PayPal is one of the riskiest ways to sell bitcoin as a seller. If you are selling cryptocurrency for PayPal, please ask the buyer’s identity document prior to the trade.
Scammers that sell Bitcoin
If you join a cryptocurrency group or a forum, you will find so many people willing to buy and sell cryptocurrency. The way this scam works is very simple. The scammer asks the victim to send cryptocurrency to his wallet in exchange for fiat money. After the victim sends cryptocurrency to the scammer’s wallet, in hopes of receiving fiat, the scammer blocks the victim and never sends any money. Since cryptocurrency transactions cannot be charged back, there is absolutely nothing the victim can do.
You can also get scammed by a buyer of bitcoin. Scammer asks the victim to deposit money to his bank, in exchange for bitcoin. After deposit, scammer stops communicating with the seller and never send any bitcoin.
This type of scam is very easy to identify, and if you’ve been trading cryptocurrency for some time, you can easily identify this type of scam. However, a lot of newcomers into the crypto world, fall for this type of scam. You are essentially relying on buyers/sellers word to get your money. You should never take such risks. That is why peer-to-peer exchange like LocalBitCoins are made for. Peer-to-peer exchanges have escrow services to temporarily hold sellers’ bitcoin.
Cryptocurrency Giveaway Scams
To start off, just look at the screenshot below:
Scammers create fake YouTube accounts; have a lot of bots/fake accounts subscribe to the channel and go live with a video ripped off from someone else. They promote their fake giveaway during the fake live stream. Sometimes these scammers use bots to comment on the live stream.
You should never fall for this type of scam. If something seems too good to be true, it probably is too good to be true.
Sometimes scammers create fake Twitter/Facebook accounts and impersonate official accounts. They comment on posts of official accounts to lure in victims. These impersonators ask users to send cryptocurrency to a specific address to receive more than the amount they sent. Look at the screenshot below:
Rogue Cryptocurrency Exchanges
The majority of cryptocurrency exchanges do not give access to your private keys. This means you are not the one who is in control of funds deposited to your exchange wallet. But, this does not mean cryptocurrency exchanges of that sort are scams.
However, if a cryptocurrency exchange doesn’t allow you to withdraw coins without a valid reason, it is likely a scam. These types of cryptocurrency exchanges tend to come and go quickly.
Sometimes, cryptocurrency exchanges start off good, but go rogue when they fail to innovate to stay relevant in the cryptocurrency market.
Now, if you are wondering what are the best cryptocurrency exchanges, check here.
This is another type of scam, even experienced cryptonauts fall for. In this method, scammers create clones of real cryptocurrency services and entice users to sign in with their username and password.
When you sign in, the username and password are immediately stolen by the scammer.
This type of scam is very easy to identify. You can easily identify a phishing site by looking at the URL. If you get an email from someone claiming to be from a cryptocurrency company, check the sender’s email address.
Fake Cryptocurrency Wallets
Just like rouge cryptocurrency exchanges, a scam wallet will not allow you to withdraw cryptocurrency.
There are so many unofficial cryptocurrency software wallets available for a multitude of cryptocurrency. Not every wallet is genuine. You must avoid any cryptocurrency wallet that doesn’t give access to your private keys.
The motive behind these scam wallets doesn’t necessarily have to be of financial gain. Their motive may be to steal your sensitive information. Sometimes these software wallets come bundled with malicious software. They steal your sensitive information, such as passwords.
Cryptocurrencies get a lot of negative press because of fake ICOs. ICOs are a legit way a cryptocurrency project can get funding. In short, an ICO offers tokens for investing in their project.
However, this is misused by scammers. Ethereum is the preferred platform for most of these fraudulent ICOs. These are the telltale signs of a fraudulent ICO:
- No roadmap.
- Plagiarized white paper.
- Anonymous team/stock photos.
- Unclear model.
Look at the examples of the biggest ICO scams below:
A shitcoin is a coin that essentially has no value or utility. They are usually duplicates of other cryptocurrencies. Although a shitcoin is not essentially a scam, it is still a way to lose money. Thousands of cryptocurrency belong to this category. A shitcoin usually has very low volume, and popular cryptocurrency exchanges do not list such coins.
Before you invest in any cryptocurrency, check if that cryptocurrency actually has any utility. Look at the team behind the project, read the white paper; in other words, do your research.
You can check out the list of shitcoins here.
Ponzi schemes and various scams involving cryptocurrency, stole at least $4.3 billion in the year 2019, according to Chainalysis. Scams in any industry, not just cryptocurrency, will always exist. Above are some of the most popular methods used by scammers. The way you get around these scams is by doing your research and trusting reliable sources of information.