In this post, we will explore the top 5 crypto scams you need to know. But first, our disclosure:
Crypto Scams: An Old Play On A New Technology
For new investors, it might seem like crypto scams are as cutting-edge as the digital currency itself, but they are not. Crypto may be new, but the scams surrounding it are as old as time. The big difference between then and now is that it is now easier than ever for scammers to operate.
When notorious con artist Victor Lustig “sold” the Eiffel Tower, he had to fly to Paris, set up shop in a fancy hotel, and convince his victims he was a government employee. Pulling off his biggest scam involved a lot of time, money, and risk.
Nowadays, the barrier for scammers is so low that it is nonexistent. All any inspiring crypto scammer needs is an internet connection and a few hundred dollars to get started. It’s as easy as pie. They can do it all from their parents’ basement!
Anyone can create a new crypto coin or token using a freelancer platform like Fiverr for around $100. Then, they can use the same platform to pay someone to promote it on a YouTube channel or social media for a few hundred dollars more.
Scammers looking to save money can avoid creating a worthless digital coin or token altogether and instead choose from existing ones. They can then use messaging platforms like Discourse or Reddit to promote a worthless cryptocurrency before selling it for a profit, and profit they do!
Crypto scams are a big, nasty business, with billions of dollars stolen each year. By now, we all know of Sam Bankman-Fried and FTX and the billions he embezzled.
Therefore, if you invest in cryptocurrencies, it is more important than ever to be aware of the top crypto scams and their characteristics to avoid falling victim to them.
The Top 5 Crypto Scams
Here are the top 5 crypto scams to know:
#3. Ponzi Schemes
#4. Phishing Scams
Let’s take a closer look at these top crypto scams, starting with what they have in common.
Learn More
If you read any of my previous posts, you know I strongly advocate for reading as much as you can on a subject. Books provide a deeper understanding than podcasts and short videos. Below are some books I recommend on the biggest scams of our time.
General Characteristics Of The Top Crypto Scams
Sense of Urgency
Greed and fear are the muses of scammers.
The top crypto scams use a sense of urgency to get people to act. They play off people’s fear of missing out (FOMO) to get them to invest in something they otherwise wouldn’t.
Shitcoins
Most of these scams involve worthless cryptocurrencies known as “Shitcoins.” A shitcoin is a cryptocurrency with little value and no inherent purpose.
They are a favorite of scammers because their price is easy to manipulate, and there are thousands to choose from. Look at it this way: if you can get a token trading at 1 cent to increase to 2 cents, that is a 100% gain. So, if a scammer can pump up the price of a low-value cryptocurrency to $1 USD before dumping it, they have just made a 10,000% return.
For the remainder of this post, I will refer to these as “sh*tcoins” to avoid cursing more than I need to.
Anonymity
Cryptocurrencies are a scammer’s best friend. Why? Because they provide anonymity.
The main aim of cryptocurrency is to provide a decentralized way of carrying out transactions independent of central governments. This decentralization enables scammers to conduct transactions outside of traditional banks, allowing them to stay anonymous and making it extremely difficult to trace them.
Mixing and Matching
Many of these top crypto scams share similarities, making it difficult to tell them apart. To complicate things further, any of these scams can include elements of the others.
For example, a Ponzi scheme might pump the price of a crypto to attract investors and then pull the rug out, leaving investors with nothing. On the other hand, Pig-butchering scams use elements of phishing scams to hook their victims.
“Pump and Dump” and “Rug Pull” crypto scams are similar and, in many cases, the same. They use social media, messaging platforms, and influencers to lure in new investors before dumping and running. Therefore, people often use either term to describe the same scam. This post will treat them as distinct scams and classify them based on who created the cryptocurrency.
We will consider a crypto scam a rug-pull scam if it involves fraudsters creating a worthless token or hyping a fake project and then running away with the proceeds. On the other hand, we will consider a crypto scam a pump-and-dump scam if it involves fraudsters exploiting an existing cryptocurrency to hype and then dump it.
Keep this in mind as we delve into the top crypto scams.
#1. Rug Pull Scams
Rug pull crypto scams occur when scammers create a new cryptocurrency, hype it to get people to invest, and then sell off their holdings, leaving investors with a worthless token.
Scammers create worthless tokens on a blockchain like Ethereum, which people can purchase using legitimate cryptocurrencies like Ether. They often create websites and official-looking white papers to give the cryptocurrency the appearance of legitimacy. Then, they promote the worthless crypto on social media platforms and may even pay unknowing celebrities to endorse it.
As the hype attracts more investors, the “shi*tcoins,” as these worthless cryptocurrencies are called, increase in value. Sometimes, these sh*tcoins can increase by thousands of percent, but when investors try to sell them, they can’t. Why? Because the scammers often add code to their crypto that prevents investors from selling. Their code only allows the scammers to sell.
After enough investors have bought into the scam, the scammer pulls the rug from under their victims’ feet by selling it. The mass selloff of these sh*t coins causes their value to crash, and people who bought into the scam are left with a worthless cryptocurrency selling for less than a penny.
Good luck finding the scammers, as cryptocurrencies make it easy for them to remain anonymous. They disappear with the money, leaving the investors with a worthless sh*tcoin.
Sometimes, the rug-pull fraudsters never get to the crypto creation stage. Instead, they hype a crypto project with no intention of creating anything. Investors buy in early, hoping for big returns, only to have the rug and their money pulled out from underneath them.
Squid Game Rug Pull Crypto Scam
The Squid Game token is among the most notorious rug pull scams ever created. It was marketed as a play-to-earn cryptocurrency and named after the popular Netflix series, but it had no affiliation with it. Instead, the scammers exploited the TV show’s popularity to scam people out of millions of dollars.
Within weeks of its launch in 2021, the price of the Squid Game token skyrocketed from 1 cent to nearly $3,000. But when those who held the Squid Game tokens attempted to sell and profit from the surge, they couldn’t, driving up its price further. It turns out that the underlying smart contract of the Squid tokens allowed only the creators to sell, and that is precisely what they did.
The creators of the scam cashed out on top, and within seconds, the price of the Squid Game token imploded, going from almost $3,000 to a fraction of a penny. The scammers walked away with millions, while investors in the Squid Game token were left with a worthless sh*tcoin that they couldn’t sell.
How to Protect Yourself from Rug Pull Crypto Scams
Do your due diligence before investing in any crypto.
Does the crypto you are interested in have a white paper? If not, that is a huge warning sign that you might be dealing with a sh*tcoin, many of which are scams.
If the cryptocurrency has a white paper, review it before investing to understand its purpose and technology. Does the information make sense? Is it vague? Does the valuation seem off? Are there misspellings and grammatical errors? Does it sound too good to be true? The same goes for cryptocurrency, which has a website.
Look at who is behind the crypto project you are interested in. What credentials and experience do they have? Is it difficult to determine who is running the project?
Take your time to research a crypto opportunity, and don’t let FOMO (fear of missing out) push you into making a rash decision when investing in cryptocurrencies. Don’t let the allure of quick riches cloud your judgment. Remember, “sh*tcoins” are called that for a reason!
The bottom line is that research and education are crucial for avoiding crypto scams. Be careful of flashy headlines from reputable news organizations; they are there to sell headlines, not protect you from scams.
I like watching Coffeezilla on YouTube. His mission is to uncover scams, especially those involving influencers. If anything, it will make people much more skeptical of what they see and hear online.
#2. Pump and Dump Scams
According to Chainalysis, 24% of new tokens in 2022 had characteristics of pump-and-dump schemes.
The “Pump and Dump” crypto scam involves pumping up the price of a cryptocurrency through messaging platforms, influencers, and social media. Once the crypto price rises, the scammers sell off or dump their crypto, causing the price to plummet and leaving unsuspecting investors with significant losses.
Pump-and-dump scams are nothing new. Fraudsters have been using them in the stock market for a long time, often using cheap, unknown penny stocks to perpetuate their scam. Pump-and-dump crypto scams work the same way, except they often use cheap, unknown cryptocurrencies, a.k.a. sh*tcoins, instead of penny stocks.
It is now easier than ever for pump-and-dump crypto schemes to unfold. Any wannabe scammer can access numerous social media platforms to hype a cryptocurrency. Countless influencers are willing to promote anything for the right price, and entire groups on messaging platforms such as Telegram, Discourse, and Reddit exist to pump and dump cryptocurrencies.
How to Protect Yourself from Pump and Dump Crypto Scams
“Pump and Dump” crypto scams are just another in a long line of get-rich-quick schemes. Anyone looking to get rich quickly is likely to get burned. Pump and dump schemes happen so fast that you can be left with nothing if you are only seconds late in selling. In the end, the only people making money off these scams are the scammers themselves.
Crypto is highly volatile and risky. Trying to strike it rich with ultra-risky, worthless sh*tcoins is a fool’s errand. Instead, try to mitigate the risk of cryptocurrencies by choosing substance over flash. There are no shortcuts.
Don’t buy into the pump and dump messaging groups on Telegram or any other platform. They might seem like a sure thing, but they are far from it. The people who own these groups have all the control, and everything happens in seconds. If you are a second too late, all that remains is a worthless sh*tcoin.
#3. Ponzi Schemes
Ponzi schemes are investment fraud in which the scammer guarantees high returns to investors. The scammer pays these returns using the money from new investors rather than legitimate profits from actual investments. The scheme leads investors to believe that their investment is generating money when, in fact, it is being funded by new investors.
Ponzi schemes are unsustainable, as they depend on a continuous flow of new investors to pay returns to earlier ones. They eventually collapse when the influx of new investors dwindles, or the scammer shuts down the scheme, resulting in substantial losses to investors.
OneCoin Ponzi Crypto Scam
One of the biggest crypto Ponzi schemes involves the worthless cryptocurrency OneCoin. The scammers marketed OneCoin like other cryptocurrencies, claiming it could be mined and used for payments. They even duped investors into believing there was a OneCoin Exchange. However, there was no OneCoin blockchain; it was all a scam.
Instead, the scammers used multi-level marketing (MLM) to sell courses on cryptocurrencies. Buyers of the courses would receive tokens they could use to mine OneCoin. Then, existing buyers would get paid to sell courses to new buyers. In the end, OneCoin defrauded investors out of billions of dollars.
How to Protect Yourself from Ponzi Crypto Scams
The best way to protect yourself from Ponzi crypto scams is to remember the saying: “If it sounds too good to be true, it probably is.”
Be wary of any investment, including crypto, that guarantees enormous returns or requires you to recruit more investors to reap those returns. Be careful of crypto investments that insist you purchase an “opportunity,” similar to how OneCoin made people buy courses to get tokens for mining OneCoin. These are warning signs you might be dealing with a Ponzi scheme.
#4. Phishing Scams
Crypto phishing scams work like any other phishing scam. Scammers pretend to be legitimate cryptocurrency services to trick people into giving away sensitive information like login credentials or private keys. Scammers often use fake websites, emails, or messages that look similar to trusted sources to deceive victims into handing over their details. Once scammers get this information, they can use it to steal someone’s digital assets.
The scammers often create a sense of urgency to get people to click on links embedded in their communications. They may claim that your account has been compromised or entice you with promises of free cryptocurrency to lure their victims into clicking on the links.
Often, when someone clicks on a fake link, they are directed to a login screen that looks real but is fake. From there, the victim of the crypto scam may enter their login details or security keys, providing the scammers with everything they need to steal their cryptocurrency.
How to Protect Yourself from Phishing Crypto Scams
First, check the sender’s email address. Is it from a personal email or an unknown domain? If so, that is a big red flag that it’s a phishing scam.
Next, check the scammer’s emails for misspellings, such as “Coinbose” for Coinbase and “Binince” for Binance. After that, study the URL.
Scammers often disguise the URL to make it appear legitimate. You can verify its authenticity by hovering your cursor over the link. If the displayed URL doesn’t match the one visible, it’s likely a scam. For example, a URL that looks like coinbase.com/login might display as wearescammingyou.com/give_us_your_crypto when hovered over.
Ultimately, the best way to protect yourself from crypto phishing scams is never to click on any links sent by email or text. If the message lists a number to call, don’t call it. Instead, visit the website directly to confirm the information or to contact support.
#5. Pig Butchering Crypto Scams
Pig butchering crypto scams are named after the practice of farmers fattening pigs before turning them into dinner.
They utilize dating apps, social media, and text messages to lure in victims. Fraudsters create fake online profiles to deceive people into thinking they are genuine people. The goal is to build trust and increase the size of the “investment” before pulling the rug out from under the victim.
They start as phishing scams, often using dating apps because users of these platforms are looking for relationships and are receptive to receiving messages from strangers. The scammers may also send messages through social media or “accidental” text messages to begin the communication.
The scammers take their time cultivating relationships and building their victims’ trust. It will start innocently enough with friendly messages and conversations. Once the scammers hook their victims and win their trust, they subtly mention an investment “opportunity” using cryptocurrency.
The scammers gradually manipulate their victims into making small investments in fake crypto schemes. They might even allow the victims to withdraw some money to make the scam seem legitimate. Over time, the small investments grow into larger ones until the scammers cut and run with their victims’ money.
The Sad Truth Behind Pig Butchering Crypto Scams
With billions of dollars already stolen and billions more for the taking, pig butchering scams are a big business. As such, an entire underground economy has sprung up in Southeast Asia to take advantage of this billion-dollar scam opportunity. Sadly, this underground economy functions on the backs of human trafficking. That is the ultimate tragedy of pig butchering scams.
Often, the people sending the messages are lured to compounds with offers of high-paying jobs. Once there, they are trapped and forced to scam people for money. They can be held by armed guards and beaten and tortured if they try to escape or do not meet their quota.
Therefore, it is more important than ever to avoid these scams. The fewer people who fall for them, the less money there is to support this dark and cruel industry.
How to Protect Yourself from Pig Butchering Crypto Scams
To avoid pig butchering scams, it’s best to never respond to a “wrong number” or “accidental” text message. If you do respond and the person on the other end seems overly eager to keep chatting, there’s a good chance it’s a scam.
Be cautious if someone contacts you on social media, claiming to know you or be your friend, and then discuss an investment opportunity. In the age of social media, it is easy for scammers to gather information about their targets. They might know more about you than you know yourself!
If the person on a dating app steers the conversation to an investment “opportunity,” they are more likely a scammer than your soulmate. They are not looking for love. Instead, they are looking for your money.
Remember, pig butchering takes time, so you may not know you are being slow-walked into a scam. So, don’t be afraid to cut off communication if things turn to money and investment opportunities.
Ultimately, the best defense for pig butchering scams is to stop before you begin. Don’t respond to a random text message from an unknown number. Don’t let curiosity get the better of you. If you do, curiosity can do to your bank account what it did to the cat.
Conclusion: Top 5 Crypto Scams
Crypto’s greatest benefit as a decentralized currency outside the control of governments and traditional banks is also its greatest curse. Investing in cryptocurrencies is not only ultra-risky and volatile but also rife with scams. The ease with which anyone can create worthless cryptocurrencies, combined with the anonymity they provide, is a scammer’s dream come true. Therefore, the best way to protect yourself from crypto scams is to become familiar with their warning signs.
Watch out for any crypto opportunity that promises quick riches, as they will likely leave you with nothing. Remember, if a crypto investment sounds too good to be true, it probably is. If someone guarantees high returns year over year, you can almost guarantee it’s a scam.
Before you invest, do your due diligence. Take your time and research any crypto opportunity. Does it have a white paper? Does it make sense?
Don’t let the scammers’ false sense of urgency get you to act. Slow down and take your time to research and investigate any claim. Never click on a link or call a number in an email claiming to be from a crypto exchange or service. Instead, go directly to the site that holds your account to verify the email’s authenticity.
Above all, staying informed is the best way to protect yourself from crypto scams. Keeping up-to-date on crypto and its scams will require time, but it is time well spent.
There is no substitute for knowledge, as knowledge is power and the greatest weapon against crypto scams.
