Scam-radar: What crypto scams are out there and how to avoid them

    09 Dec 2021

    One side effect of the blockchain industry’s explosive growth is an outburst of different scams, frauds, and other economic crimes “tied” to cryptocurrencies. The risk of running into shady characters in this area is now higher than in any other. It is why we decided to launch a series of articles on cryptocurrency scams and how to avoid those pitfalls.

    Unfortunately, this is nothing new. All the main schemes were created long ago, and today’s scammers simply adapt them to the crypto world. People unaware of the basic “red flags” can be tricked by stories of incredible market prospects and magical technologies, allegedly forming the basis of the next big token.

    We have studied various fraudulent schemes used in the cryptocurrency world and have compiled our list of the most common deception methods.

    “Classic” pyramid scheme. Ponzi schemes seem to be timeless. And they got another life thanks to cryptocurrencies – the area where no one is particularly surprised at the utterly insane profitability figures “out of thin air”. It means the main indicator of the financial pyramid – extremely high income totals with a dubious or completely absent business model – is gone. As a result, new investors pay interest for the earlier ones and provide a nice life for the makers of the pyramid… right until everything collapses.

    Exit scam. Here, scammers launch a project – a crypto exchange or crypto exchanger, a blockchain company ICO, a DeFi service, a meme token, an artificial intelligence trading platform, etc. They collect money from investors and clients and then quietly ride off into the sunset.

    “Fiduciary management”

    The client (who is really the victim) is offered a fund-managed cryptocurrency portfolio or possibly some special token to invest in. In exchange for their investment, a person gets an “investment account” and online access to the “investor’s room” to monitor their asset’s value growing in real-time. The victim doesn’t realize they are looking at a special program-generated image, and the asset they put money into doesn’t actually exist.

    This story ends with the client trying to withdraw money by selling their token or cryptocurrency portfolio. They then get told that it is impossible (due to various far-fetched reasons). Such fraudulent schemes can run for years on end, getting rid of old customers and attracting new ones.


    Lately very common in the DeFi sector. Quite a presentable project gets created; nothing indicates a danger. It raises funds from investors and clients and works as intended – steady, but without fantastic profits. And then suddenly – a hacker attack and withdrawal of funds, the project creators tear out their hair and wring their hands, promising to compensate for the losses. Someday. Somehow.

    In most cases, no one will ever know (and if they do, they cannot prove it) that the vulnerability in the code was deliberate and well disguised, and the hackers were directly affiliated with the creators.

    “Sorry, we couldn’t make it!”

    I would call this one of the most insidious tricks. The authors of such schemes don’t vanish with millions of dollars, but they may well secure a comfortable life for themselves. They usually don’t even hide. Instead, a press conference gets called, the scammers throw up their hands and say something like: “Alas, the market was not what we expected! The project failed to take off; we regret it deeply! Thank you for being with us!”

    Nothing to be done here: there is always a risk of failure in a market. So the project creators misjudged the market potential, it happens. And investors’ money has already been spent on marketing, advertising, promotion, technological development, coding, etc. Not every auditor can figure out how much of this money went in a roundabout way into the founders’ pockets.

    Learning to protect yourself

    There is really only one thing to do: turn off greed, turn on thinking.

    It is not always as easy as it sounds – when news sites show us how many Xs a particular project has already reached, and the famous people invested in it, the mind simply becomes powerless in the face of greed.

    The only way out in this situation is to try and identify the fraud on your own. Fortunately, scam projects have some common features:

    – Shady team. It is either anonymous or features people with pleasant faces and bios that cannot be verified. If you cannot find project managers on LinkedIn and/or they have never appeared at blockchain and crypto conferences – it is a major red flag.

    – Critical articles in specialized media. You have to search and read up on the project yourself; there is no way around it. And delve deep. It’s one thing if the project creators are criticized, for example, for their chosen token format, and another thing if expert journalists write about the risk of a pyramid or exit scam.

    – Guaranteed profits for investors that increase in case of attracting new investors (the MLM model). Well, that’s a dead giveaway.

    – Inadequate guaranteed profit rates: from 10% to 100% monthly, and the percentage gets higher, the longer the investor keeps money in the project. Definitely an alarming sign. However, it does not work well in a growing market. While money is being “pumped” into crypto, even mediocre business models can show good Xs – for the time being.

    – The business model is not clear from the project description. Everything is shrouded in confidentiality and trade secrets; there is talk of almost mystical opportunities to manage markets and make a profit. I just wouldn’t get involved with something I don’t understand.

    Lack of mining/staking capabilities or open-source code for new developments. This one is pretty clear.

    Still, blockchain and cryptocurrencies are too dynamic, plastic, and rapidly developing to be limited to fraud schemes and precautions mentioned above. So the golden rule remains the same: turn off greed, turn on thinking.

    We are launching an extensive series of articles talking about real stories of crypto scams, fraudulent projects, inflated expectations, and attempts to deceive people under the guise of the most advanced blockchain technologies.

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