5 Cryptocurrency Scams and How to Avoid Them

Last Updated: 11 July 2022

One of the biggest benefactors about the cryptocurrency and blockchain atmosphere is that everything is digital; from your fund deposit process to withdrawing, sending, and settling transactions, the entire process is digitized. It’s one of the many efficiencies that blockchain technology and cryptocurrency bring to the forefront, however, it also in many other cases poses as a subliminal problem in the way that it is in fact new technology, and therefore there is a steep learning curve. As such, it is very easy to fall susceptible to cryptocurrency and blockchain related scams.


How to avoid cryptocurrency scams

While the digital asset ecosystem has presented a lot of opportunities and caused a migration of financial institutions and retail users, scammers, hackers, and fraudsters have also found their way in shifting towards the environment. There a few primary reasons for this, and it’s important to keep note of them; on one angle, cryptocurrencies are entirely digital and in many cases offer either pseudonymity or absolute anonymity. In these cases, sending and receiving transactions either have only an address-linked trail or have no trail at all.
While scammers traditionally in the past have used legacy systems that are easy to trace like bank accounts and what not, cryptocurrencies offer a brand new advantage for them; as such, it’s important to know provisions and safeguards beforehand that will enable you to be safe in terms of dealing with cryptocurrency and be careful in terms of staying away from scams.
This guide will assist in understanding how exactly to avoid cryptocurrency-related scams by identifying them and knowing where your exact investments are going.

1.) Phishing Sites: Identifying and Avoiding Them

Phishing is a form of scam or fraud online that involves tricking users into thinking they are one website when in actuality they are on another. In this case, a scammer will usually create a duplicate of a real or legitimate website that typically looks like the exact same site, however, instead of actually serving the purpose it originally intended, the new site is just a fake to steal credentials or funds.

Source: Rayne Tech

To view the concept through a more basic lens, the following example can help: A scammer creates a phishing site for the Binance exchange (Top 5 largest cryptocurrency exchanges) which is an exact replica of the Binance website. However, the scammer makes a small change to the website code, in that on the “Deposit” section of the website, the deposit address is replaced with a fake deposit cryptocurrency address that really links to their own website.
They’ll typically replace the text to say “Deposit Here to Fund Your Binance Account” when in actuality, the wallet address is just their own personal wallet. Once the funds are sent, the scammer sees they’ve tricked someone, and will shut down the site eliminating any previous trace. Additionally, some phishing sites will try to replicate website structure to steal login credentials; if the user is tricked into submitting the information that holds their either private keys, or password, the scammer will then shut down the phishing site, log in using the scammed users credentials, and steal all funds directly from the account.
To avoid phishing sites, there’s one common denominator to take note of; a phishing site will never be a verified legitimate site. As such, one of the biggest indicators you can use is to find the domain name and ensure it’s legit. The following demonstrates two domains; a legitimate domain, and a phishing domain that is edited to try to confuse users who visit it.
Real Domain: www.binance.com
Phishing Domain: www.b1nanc3.com
Avoiding phishing sites can be easily done as long as you follow one simple step: verify and check the validity of the domain you’re currently on. Additionally, click on the “Site Certificate” option to ensure the site you’re on is secure and the company identity has been validated.

2.) Spotting Hidden Ponzi Schemes and HYIP

One of the most prominent scams within cryptocurrency is the HYIP scheme, a contribution product that stands for “High Yield Investment Program”. If you’re unaware, one of the most famous examples of a HYIP/Ponzi Scheme within cryptocurrency was Bitconnect, the platform for which users would contribute funds and were guaranteed to receive 1% return daily. Fast forward a year of the project continuing to garner investments from unsuspecting users, and the project shut down, and investors lost millions, if not billions, worth of cryptocurrency.

Ponzi Schemes and HYIP work and are only continued depending on the amount of investment they receive. They are never sustainable and will always end in catastrophe; so why do people invest in these scams? It’s because they usually don’t know, or don’t want to believe, that it is a scam until it is too late. In the case of Bitconnect, there were clear warning signs that if adhered to could have avoided engaging in the scam. These warning signs are prevalent even in today’s conditions and can be recognized to protect from future investment loss. The SEC even released an announcement warning of the potential dangers in Ponzi schemes that were arising in crypto.

Stay Away From Anything Promising a Guaranteed Return
There are projects that can be optimistic; there are projects that can have a 90% success rate at obtaining a minimum of 10%; however, there are absolutely zero projects that can promise 100% success rate. If any sort of project is guaranteeing large returns such as this at 100% confirmation level, further diligence is required. Especially in cryptocurrency, there has unfortunately to this date, never been a singular project that has promised 1% per day ROI on your investment and been sustainable. Can this change? Absolutely, however, it’s very unlikely.
In order to avoid scams like these, do your due diligence; check the team members, verify their existence. If a team is completely anonymous and doesn’t have a single real testimonial, it can be said with a pretty high level of certainty that the project should most likely be avoided.

3.) Fake Accounts and Influencers – Avoiding Impersonating Scammers

People such as Elon Musk and John McAfee have paramount influence over the presiding cryptocurrency community. Those who are accustomed to the cryptocurrency and blockchain atmosphere know how influential a mention of Bitcoin or any other subsequent cryptocurrency would be. Additionally, if Elon Musk, or any other larger tech entrepreneur for that matter were to legitimately endorse a blockchain platform, would their co-sign not have a monumental impact? However, the likelihood of something like that happening is rather small, however, scammers have taken to duplicating influential accounts and social media platforms in attempts at tricking the general public into garnering investments.
Examples of these attempted scams happen on quite a wide range of entities. For example, Telegram and Twitter are the two major places that scammers will flock to in attempts to steal funds. The process behind it traditionally works by creating a duplicate account of some sort and then trying to lure in unsuspecting users. The most common of these duplicated members has been Vitalik Buterin, the founder of Ethereum. Additionally, “CZ”, the founder of Binance (Changpeng Zhao) is another figure that is commonly imitated in attempts at finding funds. Let’s look at how these attempts are made and subsequently how to avoid them.

The above example is a fake account that photoshopped a picture of Vitalik Buterin holding up a piece of paper and said that if ETH was sent to the address above, more would be sent back. This is one of the most common scams and an important one to identify where x amount of funds back are promised in exchange for sending y amount initially. These are always scams and are attempts at impersonating famous influencers, developers, or figure. Because of the irreversibility of cryptocurrencies, by the time you figure out it is a scam, it will be too late. From this, the best way to avoid these fake influencer-account type scams is to first before anything identify the legitimate account or representative of a topic.
For example, Twitter has an efficient way of making these checks by placing a blue verification check next to the usernames and handles of any Twitter accounts that are verified as legitimate. Another side note; seek a general basic consensus on a topic prior to making any investment. Although this shouldn’t be the entirety of your investment, trying to decipher the actuality behind a situation is essential.

4.) Avoiding the Deceiving “Infinite Profit” Cryptocurrency Robots

Cryptocurrency robots or algorithmic trading bots are incredible tools that run off of programmatic foundations designed to enable trading at all times, even while you sleep. However, their underlying framework can be deceiving to new users sometimes, especially those who haven’t worked with algorithmic bots before. As a result of the influx of new users, there are plenty of cryptocurrency robot scams that claim sky-high returns however are actually just scams, and will never actually put your actual money in the markets through an algorithmic process, rather just steal your funds.

A legitimately running FX bot

Resultingly, it’s important to take note of a few factors in choosing an accurate and functional cryptocurrency robot. Above all, seek out legitimate and top-tier and unbiased reviews. Scamming cryptocurrency robots many times have fake reviews and testimonials that carry no weight. Check multiple sources and get to the centermost aspect of the platform. Additionally, look for the founders of the project as well as the core developers. If there is absolutely no sign of personability, then most likely something isn’t as it seems.
Additionally, at InsideBitcoins, a thorough review of some of the best cryptocurrency robots was done, and in-depth testing was completed to ensure the platform was everything it said it was.
Avoiding fraudulent cryptocurrency robots may seem difficult at first, but always be sure you know where and how to seek out the answers to any uncertainties. Seeking out answers inclusively on the fraudulent site is not helpful, as it is bombarded with mainly fake testimonials and reviews tailored to try and convince an irrational investment.

Top Bitcoin Robot 2019 – Legit and Accurate


5.) Fraudulent and Fake ICOs – Spotting and Avoiding Them

Differentiating between fake and legitimate ICOs is a skill that needs to be developed. At first glance, the promise of exorbitant returns on your investment from simply contributing to a blockchain-related startup is extremely enticing, however, many times this euphoric hope can blind actuality and due diligence that is needed to spot absolute scams from real, revolutionary projects. However, the skill of separating the real from the fake isn’t as easy as it sounds and has multiple layers to it, which if followed, can mean the difference between a losing and winning investment.
Prior to anything, thorough due diligence on the project itself is needed. Start with the team members; ensure they are real, human people, instead of fake credentials fabricated for the sole purpose of tricking investors. Talk to the team, speak with others in the community, and try to form an overall aura or hypothesis of not only the project but the team behind the project as well. The most famous example of an instance like this going awfully wrong was the “Miroskii” ICO, a fake fraudulent ICO that even taunted Ryan Gosling as a team member.

Of course, the scammers did not realize the random image they had ripped from the internet was a famous celebrity that people would notice. Nonetheless, though, the project garnered over $800,000 in fraudulent investment. Once the ICO completed, the project disappeared; to this day, no one is aware who was behind the project. The lesson here is to always complete due diligence. Don’t fall into hype immediately, and don’t fall for large investment capitals and what not as they can just as easily be faked.
The learning curve for understanding cryptocurrency technology and its usage is unfortunately very steep, however, if you’re looking to get involved in the potential that it can produce, it’s important to complete a thorough check for legitimacy. Avoiding these sorts of scams and fraudulent activity is essential for the long term growth of your capital, and even small movements of research or googling as demonstrated above can mean the absolute difference between a massive gain on your investment, or an absolutely draining loss.


  • Luke Handt

    Luke Handt is a seasoned cryptocurrency investor and advisor with over 7 years of experience in the blockchain and digital asset space. His passion for crypto began while studying computer science and economics at Stanford University in the early 2010s.

    Since 2016, Luke has been an active cryptocurrency trader, strategically investing in major coins as well as up-and-coming altcoins. He is knowledgeable about advanced crypto trading strategies, market analysis, and the nuances of blockchain protocols.

    In addition to managing his own crypto portfolio, Luke shares his expertise with others as a crypto writer and analyst for leading finance publications. He enjoys educating retail traders about digital assets and is a sought-after voice at fintech conferences worldwide.

    When he's not glued to price charts or researching promising new projects, Luke enjoys surfing, travel, and fine wine. He currently resides in Newport Beach, California where he continues to follow crypto markets closely and connect with other industry leaders.

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