7 Types Crypto & Bitcoin Scams: How to Spot & Avoid Them

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7 Types Crypto & Bitcoin Scams: How to Spot & Avoid Them

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types of crypto bitcoin scams

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Cryptocurrency scams are becoming more and more common.

To protect yourself, it is important to learn how to spot them.

In this blog post, we will discuss the different types of cryptocurrency scams and how you can avoid them.

We will also provide some tips on what to do if you fall victim to a crypto scam. Stay safe out there!

CNBC reported that from 2020 to 2021, cryptocurrency theft had increased 516% to $3.2 billion in crypto assets.

Of the entire amount, 72% was stolen from DeFi systems. The number of cryptocurrency scams increased by 82% to $7.8 billion in value.

This dramatic rise in scams does not even take into account the incidents that do not get reported. It’s a cause for concern for any cryptocurrency user or investor.

Now that you understand how much of a problem cryptocurrency scams can be, it’s important to know the different types that are out there.

By knowing the different types of crypto scams, you can be more vigilant in spotting them and keeping your money safe.

Let’s learn more about the most common crypto scams.

What are the types of crypto & bitcoin scams?

There are many types of cryptocurrency and bitcoin scams ranging from Ponzi schemes, fake ICOs, and mining scams, to phishing attacks and more.

It’s important to be aware of these scams so that you can avoid them. Let’s go into more detail about each.

Once we understand what they are, we can discuss how to spot them and how to avoid them.

Type of Cryptocurrency Scam #1 – Ponzi Scheme

A Ponzi scheme is a fraudulent investment operation where the operator generates returns for older investors by using funds from new investors.

Ponzi schemes are not sustainable because they require an ever-increasing flow of money to keep the scheme going.

The way a Ponzi scheme works in cryptocurrency is that investors are promised very high returns (often daily or weekly) if they deposit their cryptocurrency into a wallet controlled by the scammer.

The scammer then uses new investments to pay off old investors, giving the appearance of profitability.

Eventually, the scheme will collapse when there is not enough new money coming in to keep up with the payments. When this happens, the scammer will often disappear with all of the investors’ money.

New investors can often be lured in by aggressive marketing tactics and promises of high returns.

It is important to be aware of these types of scams and to do your research before investing in any cryptocurrency.

Type of Cryptocurrency Scam #2 – Pump and Dump

A pump and dump is a type of market manipulation where a group of investors “pump” up the price of a cryptocurrency by buying it in large quantities, then “dump” it at a higher price by selling it all at once.

Pump and dumps are often orchestrated by groups of people on social media or Telegram groups.

These groups will coordinate to buy cryptocurrency at the same time to drive up the price, and then sell it all when the price is at its peak.

Pumps and dumps are illegal in many markets, but they still occur in the cryptocurrency market due to their unregulated nature.

Pump and dumps can often be spotted by large spikes in the price of a cryptocurrency followed by a sudden drop.

This scam can happen in stock markets but is easier to do in cryptocurrencies because there are often only a few people involved and the price is more volatile.

Cryptocurrencies can also be fractionalised, making it easy to buy large quantities without having to spend a lot of money.

Pump and dumps are often harmful to innocent investors who buy the cryptocurrency because they think it is going to continue to go up in value.

These investors will often be left holding the bag when the price crashes back down.

If you see a pump and dump happening, it is best to avoid buying the cryptocurrency that is being manipulated.

Type of Cryptocurrency Scam #3 – Exit Scams

An exit scam is when a cryptocurrency project or ICO suddenly shuts down and disappears with all of the investors’ money.

This is also called a rug pull.

This can happen if the team behind the project runs off with the money, or if they simply close up shop and disappear.

An ICO stands for (initial coin offering). The purpose of an ICO is to raise funds for a cryptocurrency project by selling tokens to investors.

These tokens give the investor a right to use the project’s platform or product when it is launched.

ICO scams often offer lucrative discounts for the cryptocurrency, drawing in investors who are looking for a good deal.

The team behind the ICO will then disappear with all of the money, leaving the investors with nothing.

The main reason why people become victims of this scam is that they do not due their research on the project before investing.

It is important to research a project thoroughly before sending any money to them.

Type of Cryptocurrency Scam #4 – False Advertising

Another type of cryptocurrency scam is when a project promises to deliver a product or service but never does.

This can happen with ICOs, as well as with other types of cryptocurrency projects.

Some red flags that a project may be a scam include unrealistic promises, lack of transparency, no team information available, and grammatical errors in their website or whitepaper.

If a project is promising unrealistic returns or guaranteeing profits, it is likely a scam.

It is important to remember that there are no guaranteed investments in the world of cryptocurrency.

Before investing in any project, make sure to do your research and only invest what you can afford to lose.

Type of Cryptocurrency Scam #5 – Hacking

Hacking is a major problem in the cryptocurrency world. Hackers will often target exchanges, wallets, and individual users to steal their cryptocurrency.

One of the most common ways that hackers will steal your cryptocurrency is by phishing.

This is when a hacker will send you an email or message that looks like it is from a legitimate website or service, but is actually a fake.

The fake website or message will often ask you to input your login information or seed phrase.

Once you input this information, the hacker will then have access to your account and can steal your cryptocurrency.

Hackers can also target exchanges and wallets. If an exchange is hacked, the hackers can often make off with a large amount of cryptocurrency.

This is why it is important to choose a reliable crypto exchange and only store your cryptocurrency in a secure wallet that you control – i.e. a hardware wallet.

Type of Cryptocurrency Scam #6 – Mining Scams

Mining is how new Bitcoins are created. Miners are rewarded with cryptocurrencies for verifying and adding transactions to the blockchain.

Some scammers will set up websites or online services that claim to offer mining services.

They will then take the money of investors and use it to pay for their own mining operations.

The investors will never see any returns and the scammer will make off with all of the money.

Type of Cryptocurrency Scam #7 – Third-Party Scams

Another common type of crypto scam is third-party individuals who claim that they can invest your money for you.

They will take your fiat currency (with a minimum stipulated amount) and claim to invest them in cryptocurrencies such as Bitcoin.

After a certain period, you will receive either a minimum sum or a percentage of the profits.

For example, you put in $10,000 in capital and every month you’d either receive a minimum of $500 or 50% of the profits, whichever is higher.

If you do the calculation, it’s 60% p.a. returns or higher!

You must be thinking, how can this even be real?

Well, they prey on your greed to make more money before running off with your capital!

For the first few months, they will give you the minimum sum promised to make you believe it’s real.

You then begin to trust them and refer your friends in – similar to how a Ponzi scheme might work.

After reaching their desired amount, they simply run off with your money.

They are many variations of this happening, but if you hear someone promising to invest your money in crypto and earn extravagant returns, it’s probably a scam.

Furthermore, there are no regulations in place in the industry as compared to the traditional markets, therefore, these scammers will not have any proper licences to help you invest in crypto.

We’ve personally heard these stories here in Singapore, so keep a lookout!

How to spot a crypto & bitcoin scam?

Being able to spot a crypto scam is the first step to avoiding one. By knowing this information, you are already ahead of most scammers.

How to spot a Ponzi scheme

Ponzi schemes can often be hard to spot because they can masquerade as legitimate investment opportunities.

Some common red flags of a Ponzi scheme include guaranteed returns, referral bonuses, and a lack of transparency. It is also important to be wary of any project that is promising unrealistic returns. If a project sounds too good to be true, it probably is.

Many Ponzi schemes will also use psychological tricks such as social proof to lure in victims. They will often show fake testimonials from supposed investors who have made a lot of money.

Another trick they will use is to show fake news articles to make it seem like the project is legitimate.

The best way to avoid being scammed is to do your research. Make sure to read the whitepaper, research the team, and look for red flags before investing in any cryptocurrency project.

How to spot pump and dump scams

Pump and dump scams are often hard to spot because they can appear to be legitimate trading opportunities.

Some common red flags of a pump and dump scam include sudden price spikes, social media hype, and unsolicited emails or messages.

If you see a project that is suddenly getting a lot of attention on social media or in the news, be wary.

This could be a sign that the project is being pumped. You should also be careful of any emails or messages you receive that promote a certain cryptocurrency.

If there is a lot of attention from influencers around projects that don’t have fundamental value, a pump and dump is likely happening.

Be sure to do your own research to avoid being scammed.

How to spot ICO scams

Exit scams are often hard to spot because they can happen suddenly and without warning. However, there are some red flags that you can look out for.

Some common red flags include a lack of transparency from the team, unusual behaviour from team members, and a sudden change in the project’s roadmap.

It is also important to be wary of projects that are offering unrealistic returns or guarantees. If a project sounds too good to be true, it probably is.

The best way to avoid being scammed is to do your research. Make sure to read the whitepaper, research the team, and look for red flags before investing in any cryptocurrency project.

How to spot false advertising claims

False advertising claims are often made by scammers to lure in victims.

Some common red flags include false promises, exaggerated claims, and unverified information.

It is important to be sceptical of any project that is claiming to offer guaranteed returns or is promising unrealistic gains.

If you see a project that is making false claims, be sure to do your own research to avoid being scammed.

How to spot a hacking attempt

Hacking attempts are often hard to spot because they can happen suddenly and without warning. However, there are some red flags that you can look out for.

Some common red flags include unusual activity on your account, unexpected requests for personal information, and strange emails or messages.

Another way to spot a hacking attempt is if you see a sudden drop in the number of cryptocurrencies in your holdings. This could be a sign that someone has hacked into your account and stolen your funds.

You can also identify a phishing attempt by looking at the URL of the website you are on.

If the URL is spelt incorrectly or has a strange extension, it could be a sign that you are on a fake website.

The same should be done for email phishing attempts.

Check the email of the sender and see if it is the official email of the company or person they claim to be.

How to spot false crypto mining scams

Cryptocurrency mining scams are usually Ponzi schemes. This means that they promise high returns to early investors and then use the money from new investors to pay off the old investors.

These schemes are often advertised as cloud mining services and often have fake reviews to make them seem legitimate.

It’s also important to keep in mind that although the mining may be legitimate, the coins themselves may be worthless.

So even if you’re not being scammed, you could still end up losing money.

How do I avoid crypto scams?

Now that we learned how to identify the most common types of cryptocurrency scams, let’s take a look at how you can avoid them.

How to avoid a Ponzi scheme

The best way to avoid being scammed by a Ponzi scheme is to be aware of the warning signs. Some common warning signs include:

  • Promises of guaranteed or very high returns with little to no risk
  • Investment opportunities that are only open for a short period of time
  • Referral programs where you can earn commissions for recruiting other investors
  • Investment managers who are not registered with the SEC or financial regulators

 

If you spot any of these warning signs, it is important to do your research and make sure that the investment is legitimate before investing.

How to avoid pump and dump scams

The best way to avoid being scammed by a pump and dump is to be aware of the warning signs. Some common warning signs include:

  • An anonymous or unproven team
  • A project with no working product
  • An unrealistic roadmap
  • Promises of guaranteed or very high returns
  • A sudden sharp increase in price followed by a sudden drop
  • Celebrities that aren’t knowledgeable about crypto begin to shill the project

 

If you spot any of these warning signs, it is important to do your research and make sure that the investment is legitimate before investing.

As a cryptocurrency investor, make sure you are investing in coins with good fundamentals. It’s also important to have a sound trading psychology and not get caught up in the FOMO of a pump.

How to avoid ICO exit scams

The best way to avoid being scammed by an ICO exit scam is to not invest in ICOs. There are a few reasons for this:

  • ICOs are unregulated and there is no guarantee that you will get your money back if the project is a scam
  • The team behind an ICO can easily disappear with your money
  • You have no legal recourse if you are scammed in an ICO

 

If you do decide to invest in an ICO, make sure you do your research and only invest in projects that you believe in.

Also, make sure to diversify your portfolio so that you are not putting all of your eggs in one basket.

How to avoid becoming a victim of false advertising

The best way to avoid being scammed by false advertising is to do your research and have realistic expectations.

  • Ads that claim you will make a lot of money with little to no effort are often too good to be true.
  • Ads that claim a project is fully developed and ready to use when it is not, are also often false.
  • Ads that do not disclose the risks of investing in a project are also often false.
  • Bold and optimistic claims with no roadmap or timeline are also often false.

 

Promises of amazing returns can get the best of us to invest without reasonable judgment. Be cautious of bold claims and make sure there is some evidence to back them up.

Some projects will claim to be the next big thing without having a working product. Unless the team has a proven track record, it is often best to avoid these projects. If an ad or website looks too good to be true, it probably is.

Do your research and if something seems off, it is best to avoid the investment.

How to avoid being hacked

The best way to avoid being hacked is to hold your own private keys and not share them with anyone.

It’s also essential to be vigilant and never input your login information or seed phrase into a website or message that you are not 100% sure is legitimate.

You should also enable two-factor authentication whenever possible. This is because if someone gets access to your account, they will need both your password and a code from your phone to log in.

If you are using an online wallet, make sure that the website is encrypted and that you have a strong password.

Do not write your password on any documentation on your device. This is because if someone hacks into your device, they can find your password.

You should also never click on links in emails or messages from people you don’t know.

If there is an exchange that you use, see if they have an anti-phishing phrase. This phrase is a safety word that you can use to make sure that the link you are clicking on is the real link.

If you are unsure about a website, you can always check to see if it has a green padlock in the URL bar. This means that the site is encrypted and is less likely to be hacked.

Some people prefer holding their cryptocurrencies with custodians such as Coinbase or Crypto.com. This is because these companies hold your private keys for you and have insurance in case of hacks.

While this is a more secure option, it is important to remember that you are not in control of your private keys and if Coinbase goes out of business, you could lose your investment.

The best way to avoid being scammed is to memorise your private keys and use a hardware device.

This is because if you lose your device, you can always buy a new one and if it is stolen, you can cancel the transaction.

Although you must never forget your private key phrase as this is the only way to access your account.

If you aren’t confident in your ability to memorise the seed phrase or want to lessen the risk of your entire holdings being stolen in the event of a hack, you can diversify.

By diversifying your risks, you can hold a percentage of your total in a custodial service like Coinbase and the rest in a hardware device.

You can also keep your private keys on a paper wallet or USB drive if you are forgetful. However, it’s important to keep these in a secure and hidden place because if stolen, they could be used to access your account.

Finally, privacy is the best way to avoid being scammed by hackers. By keeping your identity and personal information private, you can avoid being targeted by scammers.

This is because if they do not have your information, they cannot steal your money. Privacy also means not showing off your wealth as this could make you a target for thieves.

How to avoid cryptocurrency mining scams

To avoid these scams, you should only invest in companies that have a good reputation and are transparent about their fees.

You should also be careful of promises of high returns and be sure to do your own research before investing.

What to do if I got scammed?

If you think you may have been a victim of a cryptocurrency scam, there are a few things you can do:

  • First, try to contact the person or company you sent the money to and see if they will refund your transaction.
  • Next, file a complaint with the Federal Trade Commission (FTC), and/or your local consumer protection agency.
  • Finally, you can also contact your state Attorney General’s office or the Better Business Bureau (BBB) to file a complaint.

 

You should also report the scam to the FBI’s Internet Crime Complaint Center and/or the SEC’s Office of Investor Education and Advocacy.

For our Singaporean readers, the Monetary Authority of Singapore (MAS) is the equivalent option here.

By taking these steps, you can help law enforcement officials track down and stop these scammers.

Unfortunately, there are many situations where you can’t do anything to get your money back after you’ve been scammed.

For example, if someone gained access to your private keys, it can be very difficult to get your money back.

The above authorities might not be able to track due to the nature of DeFi or might not even conduct an investigation.

In these cases, your best bet is to try to learn from the experience and avoid getting scammed again in the future.

Conclusion

It can be disheartening to see all of the scams that are out there.

However, by being aware of them and doing your research, you can avoid becoming a victim.

Remember to only invest what you can afford to lose and to never give your login information or seed phrase to anyone.

If a project seems too good to be true, it probably is. Do not let yourself get scammed out of your hard-earned money.

By following these tips, you can avoid becoming a victim of cryptocurrency scams.

Stay safe and informed, and you will be able to navigate the world of cryptocurrency with ease.

Disclaimer: Each article written obtained its information from reliable sources and should be purely used for informational purposes only. The information provided by Dollar Bureau and its affiliated parties is not meant to be construed as financial advice. Dollar Bureau shall not be held liable for any inaccuracies, mistakes, omissions, and losses incurred should you act upon any information listed on this website. We recommend readers to seek financial planning advice from qualified financial advisors. 

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