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Types of Crypto Scams and How to Avoid Them

Crypto Scams

Different types of crypto scams present themselves in different ways. Thus, it’s best to scrutinize all transactions before proceeding. 

Most Popular Crypto Scams to Watch for

Since Bitcoin’s launch in 2009, it has made financial transactions more accessible, but it has also drawn con artists. Here are the common scams used to steal money.

1. Initial Coin Offerings (ICO) Scams

ICOs are virtual fundraising methods used by companies to entice investors to buy their tokens in exchange for access to their services, products, or the opportunity to mine more coins in that company’s blockchain.

But in ICO scams, there is no real company and no real blockchain.

A study conducted by Satis Group LLC in 2017 discovered that 80% of ICOs are scams. Satis Group analysts identified that 4% of ICOs failed while 3% were considered “dead”. 

2. Pump and Dump Scheme

One common scam in the cryptocurrency world is the pump and dump scheme. This scam involves building excitement around a new coin or token to trigger a price increase.

Crypto scammers use fraudulent recommendations to make people believe in an up-and-coming crypto coin that will produce incredible profits for them. The frenzy among investors drives up the prices, but then, scam artists sell their shares at an excessive price, causing the stock price to plummet and investors to suffer losses.

3. Rug Pull Scams: Crypto Scams That Use NFTs

This kind of crypto scam originates from the expression “pulling the rug out”. Rug pulls happen when deceitful developers endorse their tokens. They engage their potential investors by putting up a new crypto project.

When they’ve accumulated substantial funds, the developers will drop the project, disappear with their money and leave their investors with a useless token. 

4. Romance Scams

Romance scams are related to dating sites. Scammers use online dating platforms where they pose using a crafted identity to steal victims’ crypto savings.

Based on 2022 data from the Federal Trade Commission (FTC), romance scams stole around $139 million worth of cryptocurrency in 2021.

Scammers use platforms such as Tinder and Bumble and are experts at psychological manipulation which allows them to extort cryptocurrencies from their victims.

5. Ponzi Scheme

As defined by the Securities and Exchange Commission (SEC), a Ponzi scheme “is an investment scam that involves the payment of purported returns to existing investors from funds contributed by new investors”.

This type of scam presents itself as a promising opportunity for investors that can yield superb profits for them.

However, the money pooled from new investors doesn’t go to any investment. It is used to pay back the earlier batches of investors who were promised the same thing.

This leads to zero investments for the new group of investors. Sadly, they realize it too late. Only when they no can no longer contact the con artists and they haven’t received any of the funds promised to them. 

The“get rich quick” promise mainly characterizes these Ponzi schemes.

6. Phishing Scam: Crypto Scams that Impersonate

Phishing scams target personal information like private keys and crypto wallets, often disguised as legitimate authorities or figures.

Victims receive emails with links to fake websites that resemble the original site. Once the victim inputs their account details, scammers steal money from their accounts.

7. OneCoin: One of the Largest Crypto Scams in History

First on the list is OneCoin, a $4 billion Ponzi scheme founded in 2014 by Ruja Ignatova, nicknamed the “missing CryptoQueen.” OneCoin’s main business was selling educational materials, including courses on cryptocurrency, trading, and investing.

Interested parties had to buy instructional materials ranging from 100 to 118,000 euros, which also had corresponding membership levels. The more modules purchased, the higher the level and wider access to mine more coins.

In 2019, law enforcement authorities shut down OneCoin and arrested its organizers, but Ignatova remains at large and is part of the FBI’s most wanted fugitives.

8. Plex Coin Crypto Scam

Third is Plex Coin, a crypto scam that raised $15 million from investors, promising them a return on investment of up to 1,354% within 29 days. The SEC’s Cyber Unit shut down its operations in December 2017.

According to the U.S. Attorney’s Office in the Northern District of Ohio, a portion of the $8 million was used for “daily living expenses and home renovation products.” 

In July 2020, both owners together with their previous employee, Yan Ouellet were charged with securities fraud, wire fraud, and conspiracy to commit money laundering. Dominic Lacroix and Sabrina Paradis-Royer were fined $7 million. 

9. Mt. Gox

Next, we have Mt. Gox, a Tokyo-based crypto exchange, that handled 70% of crypto transactions from 2010 to 2014. Created by Jed McCaleb as a site for trading Magic: The Gathering game cards, he later sold it to developer Mark Karpeles who turned it into a Bitcoin exchange.

In February 2014, hackers breached Mt. Gox and stole 740,000 bitcoin, causing the company to file for bankruptcy.

The 2014 hack revealed that Mt. Gox did not encrypt the personal information of its clients.

As of this year, Mt. Gox is working on a compensation project to pay back the victims who lost their funds, facilitated by their rehabilitation trustee, Nobuaki Kobayashi.

Other Crypto Scams to Be Aware of

Upgrade scams trick clients into giving up their private keys under the guise of needing them for a software upgrade.

In addition, giveaway crypto scams impersonate celebrities on social media, offering Bitcoin giveaways in exchange for sending money to a fake address.

Scammers also use games and digital collectibles to create initial coin offerings, driving up demand before selling all of their shares and disappearing.

Recognizing Red Flags in Cryptocurrency Scams

Biggest Cryptocurrency Scams List: Top 5 in Crypto History

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Cryptocurrency can indeed change the world and help a lot of people. However, it is a reality that there are people around us who are always looking for an opportunity to con others.

Many red flags will help investors protect themselves when dealing with their crypto assets. The Federal Trade Commission 2022 report revealed that since the beginning of 2021, more than 46,000 investors lost their funds to cryptocurrency scams. According to FTC, the estimated amount of scammed money is around $1 billion.

Scams happen in various forms such as in the form of sending money to unknown people or companies, giving away credit card details, and believing advertisements on social media that promise them a lot of money if they invest in cryptocurrency.

So, how can you possibly identify if a crypto deal is legit or dangerous?

First, you must search for their whitepaper. Read their published proposal carefully and learn how they intend to use their token. If there don’t have a whitepaper, count that as an immediate warning.

Next, if they have a website but it seems confusing and there is no clear organizational chart, that is another red flag.

Lastly, the most obvious sign that they are most likely a scam is exaggerated returns over months only. 

It always pays to be cautious and distrustful about people who offer to turn your money into a gold mine after a few weeks. Always research and reflect before making a financial decision.

Final World about Biggest Crypto Scam List

Biggest Cryptocurrency Scams List: Top 5 in Crypto History

Therefore, do not take cryptocurrency transactions lightly. Exercising caution is a basic rule in investments. As shown by the 5 biggest crypto scams presented above, scam artists can be very creative in their deception.

The various investment schemes are – rug pulls, Ponzi schemes, phishing scams, and pump and dump. Always be vigilant of anything that sounds too good to be true. Also, celebrity endorsements are not guarantees of a legitimate financial transaction. 

In our next blog post, we will give you the rundown on how to spot cryptocurrency scams and most importantly, how to avoid them. Until then, CryptoCoin Believers!

Jess is a feature writer and a Psychometrist by profession, exploring emerging mental health and wellness trends. She came across the fantastic world of medicinal mushrooms through the Curative Mushrooms online community. Since then, she has taken an interest in growing medicinal mushrooms, exploring their medicinal and therapeutic potential and the current ethical and legal issues surrounding them.

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