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The Rise of Crypto Scams (and How to Spot Them)

Yellow caution tape on a dark background

The potential returns in crypto can be both high - and devastating.

Many scams have - and continue to - take advantage of people's desire to get into crypto. Some offers are too good to be true. Other scams are such realistic copies of real sites and real people that it can be hard to know what is a scam, and what isn't. 

Why are new crypto scams on the rise?

Sadly, there are all too many reasons that crypto scams, instead of dying down, are both still starting fresh and changing in nature and continue to catch out as many people as ever before.

In crypto, it really still is another week, another scam. Lockdown and the economic loss and uncertainty caused by the coronavirus pandemic have only made the situation worse.

Here are some of the factors that have led to the prevalence of crypto scams still around today:

The economic impact of lockdown and the pandemic

People are increasingly desperate, with the resulting loss of income and financial uncertainty meaning that people are worried more than ever about money.

Financial stress has led people to be more likely to fall for offers that seem too good to be true, or click on dodgy links that offer things at a discount or money-making schemes. Many of the scams offer ways to get rich quick, often promising or claiming to guarantee returns, often several percent a day.

Scams say how easy it is to make lots of money – without any disclaimers or warnings that are typically required for other legal investments. People fall for these too-good-to-be-true offers more than ever when they’re worried about money.

Spending more time at home due to lockdown

More people than ever before are working from home and are spending most of their time at home. This means two things:

  1. Many don't necessarily have the same cyber security they would if they were based in offices or using work computers, and so it's easier for phishing emails or hackers to get through.

  2. People feel more relaxed and let their guards down at home, and so if one sees a message from what looks to be a reliable source, or a website that looks good or similar to known sites, it's all too easy to believe it's harmless and not check all the details to make sure it's secure. 

The rise of social media influence

Another year, another social media platform. Last year with lockdown came the rapid rise of TikTok.

People tend to trust influencers, who are widespread across social media. However, different platforms have different levels of security checks on what content can and can’t be promoted.

Social media influencers can make good money out of promoting scams - either through affiliate commissions or through multi-level marketing referral schemes where they get an (often) large percentage of what their followers and referrals invest.

To be fair to influencers, whilst some actively go out to promote scams, many don’t know that they’re promoting scams until it’s too late - not that that always absolves them. They should of course be doing checks on the projects they promote before leading their followers to invest.

More than a few influencers and celebrities have already been fined or even arrested for promoting scams and are earning good money for leading their followers to invest.

Scams and scammers are getting increasingly good

Scammers are good. It can be very, very hard to tell some scams from non-scams or good sites.

Scams and scam sites often look as real as anything else. Many scammers have professional web designers and employ the best marketers and advertisers money can buy. Some copy known and trusted sites so that it’s incredibly hard to tell the difference, or use templates with wording and offers designed to reel their victims in.

Many crypto - and other - scams are run by professional criminals who know exactly how to make people trust them and how to convince people. In many cases, the people running the scams now are the same ones who have run and exited previous scams, so they’ve learnt all the tricks and know exactly how to con people.

This is especially true for those running some of the MLM or multi-level marketing scams (keep reading for more information about these).

The scams that follow scams to recoup the money that victims have lost

The more people that fall victim to scams or lose their money, the easier it is - unfortunately, and perhaps surprisingly - for additional scammers to target people.

There are now scams to scam those who have already been scammed.

Advertising to those who have fallen victim to scams, some scammers offer services to help them recoup the money they’ve lost, for a fee they must pay upfront. Many people then pay again, hoping to get their initial money back, only to never see that money again.

Lack of regulation

Crypto - both the good and the scams - are evolving at a rapid pace that regulation can’t even pretend to keep up with.

In some countries such as the UK, regulation is starting to creep in but not fast enough. The majority of good companies in crypto want to but can’t – yet- get a stamp of approval from the regulators, through no fault of their own. Regulation just hasn’t got there yet, and no doubt Brexit and Covid haven’t helped.

So, it’s easy for scams to make big claims - such as being listed on Stock Exchanges or that they are regulated - and it’s harder for the good companies to stand out from the scams, so it’s easy to see how people get confused!

A non-definitive guide to some of the biggest crypto scams

Multi-level marketing in crypto and Ponzi schemes

Multi-level marketing (MLM) is a grey area but is (questionably) legal, in some countries.

MLM is legal where a real product is sold. For example, vitamins or products claiming to be healthy are common MLM products. Where MLM doesn’t sell a product, it’s a Ponzi scheme.

MLM has become entwined in some of the worst crypto scams, started by Onecoin – the multi-billion dollar scam that first worked out the power of combining multi-level marketing (high incentives and rewards for its promoters selling get-rich-quick packages).

Where MLM really enters high-value scam territory in crypto; crypto scams have worked out a get-around so that they can sell a ‘product’ instead of just selling cryptocurrency tokens promising to make people rich.

Some of the worst crypto scams, such as Onecoin, have been MLM scams that have sold ‘education packages’ – some of which have been plagiarized from other sources and certainly not worth the thousands or tens or even hundreds of thousands of dollars they have sometimes been sold for. What is promoted just serves as a cover for what they’re really selling - packages consisting of crypto tokens that they promise will make their investors huge returns.

Sites and products offering unrealistically high returns

There have been many cryptocurrencies that have had wild price rises in the hundreds or thousands of percent for their early investors. This is great, for those who got in early, but scams play on this to vulnerable people who want these same returns for themselves.

There are many sites and projects in crypto ‘guaranteeing’ or promising high returns, sometimes one or more percent a day. This is not sustainable, legal or possible to guarantee returns like that.

Social media imposters and giveaways

One trend in crypto scams is how generous celebrities have suddenly become. Scam after scam is still ongoing using celebrities’ names or in some cases even getting into their profiles - without their knowledge.

These scams are simple, but it’s amazing how many of them are still ongoing. They claim that [insert celebrity name here]  wants to give away money, in crypto. If you just send X amount of crypto, you’ll get 2x right back, or 10x right back.

Unfortunately, the celebrities in question aren’t aware of their names or profiles being used in these scams and don’t want to give away any money. Anyone who sends their crypto to these scams will never see it again. Some of these scams look as if it’s really the celebrity posting these generous messages – it isn’t.

Bitcoin doublers

Bitcoin doublers claim to have trading algorithms that they use to make money trading bitcoin, no matter what happens in the markets. The claim is, if you send them your bitcoin, or other cryptocurrencies, they will trade it for you and send you back double in 24 or 48 or so hours.

This would be great, except the algorithms that can double money in a specified period of time sadly don’t exist.

A trick these doublers, and other scams, often use: the first-time people send in bitcoin, or if they send in small amounts, they’ll sometimes send back double the bitcoin, they’ll make the first initial payouts. This is to show first-time users that they do work. Then, once people have used them and seen that they work, they are convinced to send more, and that’s when they never see their money back.

Crypto exchanges - hacks and lack of security!

Some crypto exchanges employ security measures to keep the crypto their users hold as safe as they can. Other crypto exchanges, less so.

Storing crypto on an exchange, as a general rule, isn’t considered to be the best idea. Crypto exchanges are vulnerable to hacks and theft – and we have seen many. This is in part due to the high skill of hackers, but in large part is the fault of the exchanges not putting anywhere near good enough security measures in place to protect their users’ crypto from being hacked.

Some crypto exchanges and their founders are the ones that have been directly responsible for their customers losing their money – there has been more than one case of an exit scam where the founder has run away with all of the millions or even billions of dollars of their customers’ crypto that they have held on their exchanges, with that crypto sometimes never to be seen again.

The problem with labelling everything a scam - differentiating scams from the good

The problem in crypto, is that at some point, everything has been called a scam.

Crypto, as a relatively new and largely misunderstood subsection of digital assets, has been called a scam more often than most niches. It hasn’t been helped by its volatility and especially not by the 2016-2108 ICO era.

The ICO – Initial Coin Offering era - wasn’t a scam. As a new way of fundraising, the concept of ICOs is great. They allow start-ups to raise money without having to get loans, go to banks or rely on friends and family. They allowed anyone to invest, which in many ways, is great.

That was also their downfall. Many people who had never seen such seemingly easy ways to invest, did so.

Some ICO projects were genuinely good companies. The vast majority were less great and lost most of their investors most of their money. But the concept of an ICO as a method of fundraising wasn’t a scam, even if at times it got taken advantage of and abused.

Some tips (not exhaustive) on how to avoid getting scammed

  1. Don't store crypto online or on exchanges; they're frequently hacked.

  2. If any site or offer ever promises/guarantees a return, run away! It isn't possible or legal to do that. If anything mentions crypto and is working on an MLM model, it's almost by definition a scam.

  3. If anyone is asking you to send money by faster payments or by crypto - unless you personally know the person or are 100% certain it's the correct site - run away.

  4. Triple check the domain. Many scams will try and impersonate well-known sites and will change the ending of a domain (.net instead of .com) or change one letter in the domain so that it looks very similar.

  5. If the site/offer is putting any pressure on you to act or invest now, run away. Pressure is an often-used tactic.

  6. Scammers and hackers can easily get hold of your email address and other personal details, so don't trust any form of communication.

  7. Google the name or the site of the offer followed by the word "scam". If there is any mention that people are worried about it, that's for a reason, so steer clear.

  8. Don't trust good reviews. Scammers will often make up reviews or use fake testimonials (or buy them).