10 Cryptocurrency Scams and How to Avoid Them

Last Updated on April 1, 2023 by Ben Oakley

Crypto is still in its infancy, with the world scrambling to catch up, which means cryptocurrency scams are common. Whether relating to Bitcoin, Ethereum, Algorand, or others, there are lots of scammers out there intent on defrauding you of your hard-earned money.

Here we look at 10 cryptocurrency scams and how you can avoid them.

1. Rug Pulls

Also known as exit scams, a rug pull happens when the developer of a smart contract empties the funds from their own project, usually after hundreds or thousands of people have invested.

When a large enough amount of funds has been sent to the contract, the developer steals everything using either the contract’s private keys or a built-in backdoor to the code.

• Avoid projects where the private keys to the contract are held by one person.
• Avoid projects where the developer has no digital footprint.

2. Fake Exchanges

There are thousands of websites out there claiming to be a bitcoin or other crypto coin exchange. Those websites are built professionally and resemble a real exchange but are one of the biggest cryptocurrency scams out there.

Many fake exchanges offer new users promotional bonuses and sign-up extras but once you connect your wallet and deposit money, you’ll likely never see it again. They steal money either by not letting you withdraw or charging fees that would wipe out your investment.

• Use the big known exchanges (though this isn’t always fool proof).
• Avoid falling for ‘too good to be true’ promotional sign-up offers.

3. Fake Crypto Wallets

As with the fake exchanges, many fraudulent developers have set up wallet apps that again entice the new user with promotional offers and sign-up deals.

Fake crypto wallets can be used to steal account details, block the withdrawal of funds (thereby locking it forever), or withdraw the user’s funds to their own accounts.

• Use official wallets for your choice of crypto such as the Pera Wallet for Algorand.
• Research which wallet is best and has the honest reviews to back it up.

4. Twitter Comment Scam

Due to the nature of Twitter, it has become a breeding ground for cryptocurrency scams. One of the more common ones involves people commenting on threads started by official exchanges.

For example, when a genuine person asks for help on a Coinbase thread, a fraudster may comment beneath it with an email address and claim they got the problem fixed after sending their details to that address. It’s surprising how effective this method is at defrauding people.

• Use official support emails only with the company’s domain name in the address.
• Be careful when an unknown entity responds to your Twitter comment.

5. Social Media Giveaways

New accounts are popping up every day that look genuine and offer free cryptocurrency as part of a new giveaway deal. Many of the scams involve fake celebrity accounts used to promote them.

When you click on the giveaway links, you will find yourself on a fraudulent site that asks for verification. The process involves you linking your wallet or making a payment as proof you own the account. You’ll never see that payment again and may have exposed your account details to scammers.

• Avoid falling into the trap of ‘too good to be true’ giveaways.
• Avoid sending crypto to ‘win’ something.

6. Investment Scams

Since Bitcoin is often referred to as a store of wealth, it is seen by some as a solid investment – which brings out the scammers. Investment scams are similar across the board, whether in the crypto world or traditional financial one.

You could receive an official-looking email from someone posing as a crypto investment manager, who has made millions for their clients. For them to help you, they may require an upfront fee to activate the investment. You will never see that fee again and they may have stolen your account details at the same time.

• Be aware that legitimate investment companies do not cold-email.
• Never send personal information or make payment without proper due diligence.

7. Phishing Scams

This form of scam has been around forever, more so with the advent of email where the scammers can mostly remain anonymous. Phishing also affects the crypto world in a big way.

Scammers may send legitimate-looking emails with malicious links or viruses to gather personal information including wallet addresses and passwords.

• Never enter private information after clicking an email link.
• Avoid responding to phishing emails. Send them straight to spam.

8. Mining Scams

Cryptocurrency mining is often seen as a money-making project, but the truth is you need to invest a large amount to see any decent returns. Mining fraud is one of those cryptocurrency scams that seems to fly under the radar.

Fraudulent cloud mining companies offer astronomical returns for minimal investment and are often fronts for Ponzi schemes. Chances are your account details will be exposed or they will hit you with ‘hidden fees’ that wipe out the investment.

• Avoid investing in any cloud mining company, legitimate or otherwise.
• Avoid all cloud mining rental schemes.

9. Ponzi or Pyramid Schemes

This age-old scam has become more effective in the crypto age and lures in new unwitting investors with the promise of high returns. When you put your money into a Ponzi scheme, the developers of the project use your money to pay off previous investors, who believe they are getting a return.

When an investor begins to get a return, they put more money in thinking it to be legitimate investment, until the owner of the scheme pulls the plug and makes off with all the funds.

• Avoid crypto projects that require you to recruit new investors.
• Don’t invest in a scheme that requires you to invest larger sums each time.

10. Pump and Dump

Probably not a term our grandparents associate with cryptocurrency scams! A pump and dump happens when a connected group of crypto ‘investors’ start buying up an altcoin in large numbers.

Due to the massive rise in the altcoin’s market cap, unsuspecting investors are lured in to buying the altcoin, believing it’s about to take off and make them rich. Once the coin rises in value, the original ‘investors’ sell their stake at a large profit and the coin drops in value. This is known as market manipulation.

• Avoid cryptos with a sudden jump in market cap.
• Don’t let FOMO (Fear of Missing Out) make investment decisions for you.