Crypto Investing
29 Dec 2020

7 Most Common Types Of Cryptocurrency Scams & Tips To Avoid Them

Farheen Shaikh

Labelling cryptocurrencies as a scam has become the most convenient escape for people who lack the knowledge of the industry.

There are loopholes in every system, and cryptocurrency is no different.

The crypto market keeps privacy and decentralisation at its core, making it challenging to trace a transaction and thus giving an edge to the scammers.

But, so is the case with loopholes of every other industry.

And hence co-relating the entire industry with these scams should not be the case, because if we look close, scams and frauds are happening in every industry. 

Common Types Of Cryptocurrency Scams & Tips To Avoid Them

However, you should be cautious enough to identify the red flags and not fall for scams in general. Let me help you by sharing a list of the most common cryptocurrency scams and how you can avoid them.

1. Cloned Websites, Exchanges and Wallets

This is the most common practice of scammers, where they clone websites, exchange apps and wallets of reputable companies.

Cloned websites often redirect you to a payment gateway outside of it and often use similar letters in the URL to make it look like the original one, like O and 0.

Hence you should always double-check the URL before going ahead. Their app colours are also a bit off and are not exactly the same as the original brand’s colour.

One more point that I would like to add here is;

Just because making an app or wallet has become so easy, every now and then a new one pops up. So make sure you use a trusted platform and not just download anything from play store.

How to Avoid This:

  • Have an eye on their trading volumes; they often have some unrealistic spikes
  • Bookmark and keep the exchange that you use and trust
  • Don’t download or access any website from any link shared by anybody on the internet.

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2. Fake ICO’s

Initial Coin Offerings is the most popular way for companies to raise funding, and some scammers take advantage of this by conducting fake ICO’s.

These ICO’s are heavily marketed without laying any strong foundation about the coin or the leadership.

And many naive investors are at its target as they successfully glorify ‘get rich quick’ by promising 1000X returns. In fact, Fake ICO’s are more frequent than the real ones. In a study conducted in 2017, 78% of ICOs were identified as fraud. 

How to Avoid This:

  • They mostly have a fabricated whitepaper or a whitepaper full of mistakes.
  • Check the roadmap for token and proof of concept.
  • Ask hard questions like the problem they are trying to solve, how is the coin different from other cryptocurrencies etc.

3. Fake Pools and OTC scams

Fake pools are groups that offer allotment for upcoming ICO’s through telegram, discord and slack groups. These groups usually offer you 5-10% surcharge on current prices and require you to send funds in the name of ‘ contributing to the pool.’

They promise you the ICO tokens in return but once you transfer the funds, boom! They disappear.

OTC or Over the counter scams are scams where the transaction takes place off-exchanges without any intermediary. Here, fraudsters offer incredible prices for buying and selling cryptocurrencies at a fixed trading charge.

Some pools are genuine, but those are very lucrative and follow a proper procedure to ensure the authenticity of the members in the group.

How to Avoid This:

  • Perform OTC transactions with people you know and trust
  • Use P2P exchanges for OTC transactions.
  • Don’t be greedy

4. Ponzi and Pyramid schemes

Cryptocurrency Ponzi schemes are just like any other pyramid scheme. It involves paying returns to existing investors from the money invested by new investors and focus more on recruitment than the product itself.

The most famous cryptocurrency Ponzi scheme was OneCoin; they encourage people to buy a membership for entering the pyramid.

The membership fee is termed as an investment in the OneCoin token which can be only traded on the company’s exchange and nowhere else. They even control the trading volumes coins by putting restrictions on an individual’s buy and sell.

It clearly isn’t a cryptocurrency business but a multi-level marketing scheme.

They made a bunch of empty promises to the people that were invested in the scheme. And have also been dragged to the court multiple times and were accused of defrauding people.

How to Avoid This:

  • Do a background check on the founders of the company.
  • Go through all the past feedbacks of the company.
  • Confirm the legal status of the company

5. Cloud Mining Scams

Cloud mining has become very famous these days with the increasing cost of mining equipment and electricity. These scams encourage people to participate in cloud mining which isn’t real and promises them miner rewards in exchange.

New entrants are generally the target of these scams of the space as they generally don’t know much about the functionality and of the space.

The scammers even get you registered and give you a wallet that a third party has full control over and as soon as you transfer funds into it, your funds will be moved away.

How to Avoid This:

  • Never accept any unwanted invitation or messages of this kind.
  • Do not share your private keys or seed words with anyone.
  • Never transfer your funds to a wallet that you have no control over.

6. Cloned Support Teams

Exchanges and Wallet companies often have a telegram channel where their support team help their customers on various run-time issues.

These groups are a place where support teams actively chat with the users and try to get a solution to their problems.

Some individuals with vicious mind clone specific individuals from the support team by creating a fake account by their name and using their profile picture.

These people try to cheat individuals in the group by asking them to transfer cryptocurrencies or to participate in some sort of trade with them.

How to Avoid This:

  • Only reach out to admins in the group for your problems.
  • Even if the profile looks similar, crosscheck the number and their identity.
  • Never transfer cryptocurrencies to unknown group members.

7. Phishing 

Phishing is where individuals are contacted via email, phone or text message by an impostor imitating a legitimate company. They try to get your private information like username, passwords and seed keys.

And make sugar-coated promises like a guaranteed profit or may ask you to pay for some membership etc. It can also happen that these emails and messages may contain some viruses that can steal your information.

How to Avoid This:

  • Never open such scammy emails.
  • Always cross-check the authenticity of the messages received
  • Never share your sensitive information to unknown people.

It Isn’t All Scammy!

Scams in any industry aren’t new, many of the above scams like phishing, pyramid schemes happen outside the crypto industry as well.

But we don’t label the entire industry as a hoax, but in case of cryptocurrencies, people do so because of their negligence, which is absolutely wrong.

These scams mentioned here play on peoples carelessness and greediness, only if you remain alert and cautious, all of it could be avoided.

So my suggestion to you would be – have an open mind about the topic and educate yourself without having any preconceived notions and trust the information only from a legitimate source.

And lastly, if something looks too good to be true, it probably is. 

[su_note] KuberVerse is an educational initiative. Anything expressed here directly or indirectly is not investment advice. And we ask you to do your own research before investing. [/su_note]

Disclaimer : Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. The information provided in this post is not to be considered as investment/financial advice from CoinSwitch. Any action taken upon the information shall be at user's own risk.


Farheen Shaikh

Content Writer

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