Crypto For Beginners: Cryptocurrency scams explained

Cryptocurrency scams are not the result of the technology, but the people using the technology.

Crypto For Beginners: Cryptocurrency scams explained

When people hear the word cryptocurrency, the first thing that they usually say is that it is a scam.


It couldn’t be helped that this is what people would think of cryptocurrencies considering the number of news highlighting people losing their money using the technology.


While it is true that there are scams in cryptocurrency, this is not due to the technology itself, which actually provides a more direct and secure payment option for its users.


All cryptocurrency scams are actually due to the human side of the technology, meaning the people using the technology to scam other people, or people not familiar with the technology or scams falling into cryptocurrency scams.


Also, what people fail to realize is that the cryptocurrency scams that will be listed in this article is no different to scams involving fiat currency or digital banking. Cryptocurrency scams are basically your usual scams, but on a different platform.


So, what are the usual cryptocurrency scams, and how can we detect and avoid them?


Fraudulent ICOs


The idea of cryptocurrency being a scam usually comes from ICOs or initial coin offerings.


Initial coin offerings are ways for cryptocurrency projects to raise funds by having investors by their cryptocurrency, in exchange for being able to use their services once developed.


Scammers usually exploit ICOs to get funds from investors without ever developing a finished product or service.


Scammers would also attract investors new to cryptocurrency by promising high returns for their investment.


The most effective way to check if an ICO is a fraud is through their whitepaper (assuming that they have one since the lack of one is already a red flag).


A whitepaper includes the details about a cryptocurrency project, such as who is the development team behind the project, what product or service a project is trying to develop, how the product or service would work, and how the team would develop the project.


If a whitepaper fails to provide a detailed explanation on what the project does or how it will be developed or fails to credibly disclose who the development team is, high chances that the project is fraudulent.


Ponzi schemes


There are also cryptocurrency projects that aside from promising high returns for one’s investment, it also encourages investors to recruit new investors in exchange for more profits.


This is called a Ponzi scheme, and the reason for its emphasis on recruitment is because the scheme’s funds comes from the new investors.


Ponzi schemes are easy to detect since this kind of scam only involves the project focusing more on promising high returns for its investors and on the need to recruit more people.


Despite being easy to detect, Ponzi schemes still remain as one of the usual scams that cryptocurrency investors fall for.




Phishing involves scammers trying to get someone’s private details. In the cryptocurrency world, scammers target a user’s public key, private key and passphrase.


Scammers usually get a user’s private details by creating fake websites that copy login or sign-up pages of legitimate cryptocurrency service websites and tricks users into entering their personal details.


Scammers could also pretend to be famous personalities who would message users asking for their personal details in exchange for a cryptocurrency reward.


Phishing can be avoided by double checking the authenticity of the login or sign-up pages being displayed or by verifying the legitimate social media accounts used by famous personalities.


Fake cryptocurrency wallets and exchanges


With the rise of cryptocurrency use, cryptocurrency wallets have also become widely available.


Fake cryptocurrency wallets are similar to phishing schemes as scammers could use the platform to get a user’s private keys as well as their funds.


The same is the case with fake cryptocurrency exchanges where scammers could run away with the funds entrusted by the user to the exchange.


As with other cryptocurrency scams, the way for a user to avoid fake wallets and exchanges is to check if their developers are credible and reputable.


Pump and dump


Pump and dump is usually associated with securities fraud where the price of a cheaply purchased stock is inflated through misleading statements then sells the stock once its price reaches its peak, which results to its price falling. People who invested on the overvalued stocks would lose their money as the stock’s price comes crashing down.


In cryptocurrencies, this involves a random cheap altcoin having its price inflated by hyping about what it can do then selling the altcoins once it reaches its peak price.


One way to avoid being tricked into investing in pump and dump schemes is to not give in to the fear of missing out and to check details about the altcoin such as its trading volume.


If the coin recorded a sudden spike in trading volume despite having a history of extremely low trading volumes, it is likely that a pump and dump is taking place.

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