Cryptocurrency Scam: How to Recognize It on Time and Not Lose Money

What Is a Cryptocurrency Scam?

Scam is synonymous with "fraud". Cryptocurrency scammers often act according to the one and the same scheme – they create a scam project, artificially increase the price of a crypto product and withdraw money at the peak of the price, leaving investors without money. Note! If you are dealing with a scam, you will always do everything voluntarily!

The absence of a valid legal framework makes possible various fraudulent schemes that are actively used by fraudulent startups, crypto exchanges and individuals to obtain illegal profits. Cryptocurrencies are digital assets that are used as a means of payment and investments. Cryptocurrency scam is a fraudulent operation and deception with the help of cryptocurrencies.

People use cryptocurrencies for many reasons – fast payments to avoid the transaction fees that traditional banks charge, or because it provides some anonymity. Others hold cryptocurrency as an investment, hoping that its value will rise.

However, the vast majority of new small cap tokens are likely to be scams. Therefore, it is safest to simply accept the axiom that up to 99% of new tokens are scams and most projects are just a means to pump money out of your wallet.

The launch of new cryptocurrencies is always tempting, but can be extremely dangerous for crypto users. Quick and easy money is the reason why some developers and crypto scammers release new tokens and coins so often. This is an easy prey that brings a huge profit.

Pump & Dump SCAM

Pump and dump is one of the most common cryptocurrency scams. Fraudsters use digital assets to unreasonably “overclock” prices, attract investments, and then close the project. The price of the cryptocurrency rises sharply, at the peak, scammers sell the entire asset and withdraw money, after which the price of the cryptocurrency drops sharply and investors lose their invested money.

How Pump & Dump Works

To organize the pump & dump scheme, a crypto asset is released to the market, which is not backed by a working product, funding, or team. A new token is created and displayed on the cryptocurrency exchange. Attackers are starting to hype – massively publish information about the prospects of the crypto project to which the token is tied. False websites and roadmaps are created. News of success, laudatory comments and exaggerated claims are broadcasted. Often scammers try to associate a new token with some kind of hype event – for example, with a movie, TV series or a person, often presenting the coin as its “official” asset. This was done, for example, by the creators of the Squid Game token, who positioned it as an asset, allegedly from the creators of the Squid Game series.

Paid bloggers HYIP token on Youtube and in Telegram channels with trading signals, specially created for this. Amid an aggressive information campaign, there is an interest in the object from traders and investors. After listing, a digital asset is being massively bought up, and its value and demand are growing. 

If scammers manage to create a hype around their token, they wait for its price to rise due to high demand, and then suddenly start selling tokens. The issuer skims the cream and drops further support for the asset, leaving its holders with worthless coins. At the peak of value, scammers sell everything, take the money invested by traders, disappear or publish news about the temporary difficulties of the project. The price rapidly drops to zero and traders lose all their funds.

Often, pump and dump scammers use an already existing coin with a low price and liquidity, accelerate its price many times over on “insider” rumors, saying that the project team will invest many, many millions of dollars in support of the project one of these days.

Sometimes bloggers with a large audience pump a cheap coin in their own interests in order to artificially make their profit on a sharp price jump, and then shrug it off – this is the crypto market, high risks, volatility and no guarantees of profit.

A rapid rise in price means a rapid fall. An investor with a price increase can really make some short-term profit on the pump on one condition – he earned and immediately took the money. Otherwise, expect gray temples, adrenaline rush, frenzied pressure, credit card losses. Earned – immediately take the money. Lock in profit!!! Already x160, it's time!


Shitkoin is a cryptocurrency that does not represent and will never represent any value. In order for people to know about shitcoin, they give it the most high-profile names like ASS, Pussy, Poo, and so on. There is even a SCAM coin, the capitalization of which for a short time soared to $70 million. The main task of shitcoins is to cash in on inexperienced investors who have heard about cryptocurrency somewhere, but have not done any market research. “Experienced investors” help them to invest their money in shitcoin. 

Having agreed, scammers artificially inflate the value of a certain shitcoin, attracting the attention of beginners to it, collect all the dividends at the peak of the price, after which the price drops to almost zero. They work according to the pump and dump scheme.
For example, Kim Kardashian and Floyd Mayweather were accused of artificially inflating the price of EthereumMax cryptocurrency
Kim Kardashian and Floyd Mayweather were sued over allegations that they misled investors by promoting a little-known cryptocurrency called EthereumMax to their millions of social media followers. The class-action lawsuit alleges that celebrities made "false or misleading statements" about the obscure token in social media posts. EthereumMax has lost about 97% of its value since the beginning of June, causing some investors to call it a pump and dump scheme.

Kardashian wrote on Instagram: “Are you guys into crypto???? This is not financial advice, but what my friends just told me about the Ethereum Max token!” Kardashian included the hashtag #ad in the post. It's unclear how much EthereumMax paid Kardashian, with estimates that her fee for a sponsored Instagram post is in the range of $500,000 to $1 million.

EthereumMax was also accepted as payment for tickets to the Floyd Mayweather boxing match, boosting trading volumes dramatically. Mayweather also promoted EthereumMax at a major Bitcoin conference in Miami.

The lawsuit alleges that investors who bought EthereumMax tokens suffered losses as a result of the behavior of celebrities. EthereumMax has lost about 97% of its value since early June, prompting some investors to call it a pump and dump scheme. The lawsuit says EthereumMax has nothing to do with Ethereum, the second largest cryptocurrency, adding that its branding appears to be an attempt to mislead investors into believing the token is part of the Ethereum network.

In 2018, the US Securities and Exchange Commission already accused Mayweather of pumping and dumping coins and Mayweather paid over $600,000 as part of a settlement with the SEC.

Fraudsters regularly pay social media influencers to help them pump and dump new tokens based on pure speculation.

Rug pull SCAM

Attackers create an asset (often disguised as popular tokens), for which they launch a trading pair and a pool on a decentralized exchange. Other users add their funds. As a result, the organizers of the scheme abruptly withdraw them, leaving other users with depreciated tokens.

When you buy a particular token, it is attached to a liquidity pool. A liquidity pool is the funds that are locked in a contract, creating a kind of “pool” where you can buy and sell coins so that there is no need to wait for someone to confirm the purchase or sale, automatic market makers use pools and trade quickly and for free.

The scammers launch a new coin, attach it to the liquidation pool and wait for people to start buying coins. Once enough people buy up the coins, the scammers shrink the liquidity pool, withdraw the money, and leave you with a devalued coin. And you find out when it's already too late. “The rug has already been pulled out from under the feet.”
Or another option: scammers create a decentralized trading protocol and add an exploit to its code. They begin to attract users and their funds to the protocol with high rates of return, but in the end they exploit the vulnerability of the code and steal all the funds of users.


Fraudsters create a token, issue it on a decentralized exchange, and start aggressively advertising it. At the same time, the smart contract of the token contains a ban on its sale by anyone other than the organizers of the scheme. The contract contains a code snippet that allows you to withdraw coins only to their own wallets. Scammers launch the coin and people start buying it. When its price reaches a significant point, scammers sell as many tokens as possible, as long as they are at least worth something. 

Such schemes are often less obvious to the untrained eye, and even experienced traders fall prey to honeypots. Seeing how the coin “pumps up” investors rejoice as they watch the value rise and rise. Some of these schemes work for a long time, several days or weeks. People think they have stumbled upon a goldmine and keep buying more and more. At the moment when traders see that it is better to withdraw money, it turns out that this cannot be done, since the smart contract says that the withdrawal of money is possible only to scammers' wallets. The scammer can withdraw money at any time, and there is nothing you can do.

Fraudulent ICOs

Another “high-budget” type of cryptocurrency scam is the ICO scam, the initial offering of tokens. ICO is raising money from investors by selling them cryptocurrency tokens, similar to crowdfunding. In a normal situation, the participants finance the development of the company now in order to receive some benefits from it in the future. By issuing its own "money" and selling it, the project can secure the funding it needs to launch and grow.

The profit depends only on the increase in the value of the new altcoin. For organizers, ICO projects are a great opportunity to get financial support without bureaucratic delays and debt obligations. If the idea attracts the attention of investors, you can build your startup with relatively inexpensive borrowed capital.

At the first stage, the creators of a startup talk about its idea at specialized conferences, on pages in social networks or through influential online publications. The task is simple – to sell the idea to the audience, to arouse interest among potential investors, to show the benefits of the project. At the second stage, the organizers of the ICO register the company, name the specific dates for the launch of the blockchain, determine the amount of funding and the number of issued tokens. 

The third phase of the launch is the presentation of the finished product. The startup team shares with the audience the technical details of the project: the model by which it will develop, the conditions for buying tokens. Be sure to indicate the amount of investment required to launch the network, and the intended purpose of this money.

In the final part, all funds raised from the ICO go to escrow accounts controlled by a third party, not the creators of the project. However, all this does not guarantee the safety of funds. Any such project can fall apart at any moment. The main risk of investing in an ICO is the loss of funds in the event of a startup closing. Statistically, this happens to 99% of startups. The launch of Vitaly Buterin's Ethereum can be called a successful ICO.

There are several types of scams associated with ICOs, but the essence of them is the same. Fraudsters attract investors' money, and then disappear, of course, without fulfilling their part of the obligations. In 2018, investors lost about $100 million on fraudulent ICOs. A fraudster can approach a potential investor with an offer related to the launch of a token or blockchain project that needs funding at the development stage. In exchange for this, the investor will receive a certain amount of project tokens at a very low price with the promise that these tokens will increase in value after the project is launched. 

However, the criminals who promote such projects eventually disappear with all the resources invested. Of all the projects that enter the ICO every year, only 10% survive to full implementation, the rest scam at various stages. So the project token may never rise to the declared heights due to the non-realization of the project, or even stop trading.

One of the most high-profile scams of the cryptocurrency market can be called the closure of the Plexcoin project in 2017. During the ICO, the creator of the cryptocurrency, Dominic Lacrois, managed to raise more than $15 million to develop an improved transaction system that was supposed to seriously compete with Bitcoin, as it would have an average transaction speed in the system of 30 seconds, instead of the inherent Bitcoin.

Fake Tokens Sales

The attackers create a site dedicated to a supposedly new startup and fill it with content in such a way that it creates a plausible impression. They come up with a description of the “blockchain project” and team members, and create pages on social networks. Next, the scammers announce the initial sale of project tokens, from the participants of which they collect real funds. Shortly after that, the scammers stop their activity and take everything for themselves. This type of fraud was especially popular during the ICO era in 2017-2018.

Fake Tokens

Sending fake cryptocurrencies is a fairly common scam. The purpose of such mailings is to gain access to the recipient's cryptocurrency. Fraudsters send tokens worth hundreds of millions of dollars to crypto wallets. The main danger that such cryptocurrencies can provide is the loss of control over the wallet. Selling such a cryptocurrency will not work, and when you try to withdraw funds, you can completely lose all your assets, when you try to sell fake tokens, an error is displayed. They cannot be sold. 

This is due to the fact that the sell function is disabled or it is allowed only for the addresses of the issuer itself. When trying to get rid of the token, a crypto investor may receive a request from attackers to access the crypto wallet and all the assets on it. By giving consent, the user can give attackers full control.

Be very careful if you suddenly receive tokens called ApeCoin or Nike worth hundreds of thousands of dollars in a crypto wallet. Users receive coins that do not match the real altcoin contract. The Etherscan blockchain explorer flags such tokens as fake. Compare contracts.

Exit Scam

Cryptocurrency is unknown territory for many people. Online, people may seem friendly and willing to share their “advice.” But it can also be part of a ploy to get people to invest in their scheme. Some of these schemes are based on referral chains and recruit new "investors". Even a crypto exchange and a crypto wallet can scam.

The largest crypto pyramid PlusToken, founded in China, worked under the guise of a wallet for digital currencies. About a year after the launch, in June 2019, users began to complain about the inability to withdraw their funds. In 2019-2020, Chinese police arrested dozens of members of the scam group. The Chinese authorities estimate the total damage from PlusToken at $5.8 billion.

Financial Pyramids – Investments in Bitcoin

The main way to cheat via Bitcoin is the use of financial pyramids. To that end, Investment companies are created that promise big returns for clients. As a rule, they justify income in the following ways:

  • Investments in the purchase of Bitcoin or other cryptocurrencies on exchanges;
  • Investments in mining (Bitcoin mining) through the purchase of equipment.

Bitcoin pyramid schemes attract customers with unreasonably high interest rates. They offer a profitable affiliate program for customers. Clients themselves distribute affiliate links, attracting new referral users to the fraudulent project and forming new levels of the pyramid.
Fraudsters pay investors money from new cash receipts from lower-level investors, keeping part of the funds for themselves. The actual financial activity is absent. The scammers convince the clients who received the money to reinvest the profits. As soon as the influx of users ends or a large number of negative reviews are accumulated, the pyramid ceases to exist. All money remains with the scammers.

Class Action Lawsuit Against Elon Musk over DOGE

A $258 billion damages lawsuit has been filed in New York District Court against Elon Musk and his companies SpaceX and Tesla Inc, for "participating in a crypto-pyramid scheme" by Doge. Musk's involvement, according to one of the plaintiffs, consisted of fraudulent activities using false advertising and deceit, as a result of which Musk was "unjustly enriched." The plaintiffs insist on recognizing Dogecoin trading as a “gamble”, canceling and returning all their “lost” bets, and also want to ban Musk, as an unlicensed specialist, from doing PR and promoting Doge. The amount of the claim is many times the market capitalization of Dogecoin.

Financial Pyramid OneCoin

OneCoin was announced as an educational service for trading with its own cryptocurrency. To get the OneCoin cryptocurrency, it was necessary to buy an educational course, which cost from €100 to €118,000. Ruja Ignatova, a citizen of Bulgaria, sold educational packages on cryptocurrencies in the form of tokens using the network marketing method. The more expensive the acquired lessons were, the more tokens the client had to get. It was possible to exchange tokens for euros only through the OneCoin own exchange. The creators of the pyramid developed their own OneCoin cryptocurrency, which was positioned as an alternative to Bitcoin. For attracting new customers, the company paid remuneration in cryptocurrencies.

Later, OneCoin began to attract investments directly for the development of cryptocurrency. Ignatova stated that this digital asset is capable of destroying Bitcoin. However, all mining of the asset could only be carried out through sites controlled by OneCoin and all databases were centralized. Because of this, in 2015, the media began to call OneCoin a pyramid scheme. Official claims were put forward by the regulators of Bulgaria and the UK, referring to the fact that the company has signs of a financial pyramid. 

In 2017, Ignatova disappeared, but the financial pyramid existed until 2019. According to various estimates, the OneCoin pyramid caused damage to investors in the amount of 4 to 15 billion EUR. The scandal also involved a large bank, Bank of New York Mellon, which conducted OneCoin operations.

It is unwise to work with cryptocurrency pyramids. Even if you can earn, it is not a fact that you will be allowed to withdraw your profit.

Scam Exchange

According to CoinMarketCap, there are now more than 300 cryptocurrency exchanges. However, not all exchanges proved to be reliable. Many of them were hacked by hackers, and some turned out to be a scam in and of themselves. Perhaps the most famous example is Mt. Gox. Mt.Gox began its work in 2010, when almost no one had heard about Bitcoin. 

Then the Frenchman Mark Karpeles, who at that time lived in Japan, bought the exchange from the programmer Jeb McCaliba, the creator and participant of many crypto projects (among them Ripple and Stellar). In the summer of 2013, about 50% of all transactions in the Bitcoin network passed through Mt.Gox, and the trading volume on the exchange was about 80% of the total turnover of the crypto industry at that time. In 2013, the US authorities arrested Mt.Gox accounts and in 2014 it became known about huge losses at that time: 744.4 thousand users’ Bitcoins disappeared on Mt.Gox, and about 100 thousand more Bitcoins belonging to the exchange itself.

Ponzi Scheme

A Ponzi scheme is a fraudulent scheme in which attackers pay off obligations to customers not from real income, but by attracting more and more participants in the pyramid. The scheme is workable as long as the flow of new customers is steadily growing. Any pyramid scheme in the crypto community is now called a "Ponzi Scheme". The scheme is built on the promise of a large and fast return on the participants' investments. In reality, the founders of the pyramid do not do any real work. 

If they do pay income, it is only to a few contributors and only at the expense of new participants. A fraudulent company works as long as it manages to maintain the illusion of a sustainable business. As soon as clients stop investing, the attackers take the money that has already been invested in the platform and register a new project. The old organization is liquidated and it is almost impossible to get a refund. In the end, the organizers of the scheme appropriate the savings, the pyramid collapses, people are left with nothing.

Companies operating under the Ponzi scheme can be absolutely legal, have a license and honestly pay customers their profits. However, in most cases, the Ponzi scheme is used by scammers to illegally obtain funds. The goal of the attackers is to attract as much money as possible and liquidate the company. Therefore, often false information is published on sites that are easy to verify. For example, if scammers claim that the company has been operating for 15 years, but there is not a single review on the network, this does not happen. So this is a new company. And if she provides false information, then they are scammers.

The Ponzi scheme takes its name from Charles Ponzi. In the 1920s, he founded a company that carried out legal arbitration. However, over time, he began to use the money of new clients to pay off obligations to the past. When the scheme was uncovered, the case went viral in all states of the USA, and the press gave this type of fraud the name "Ponzi scheme".

Ponzi Scheme Mechanism:

  • Fraudsters register the platform and convince the first customers to invest in the company.
  • Attackers continue to search for new victims, convincing them to invest in the company, promising very high returns. From the funds raised, they pay out profits to customers who have invested money before.
  • Next, the organizers convince investors to reinvest the income. Most victims agree because they believe the company is legitimate as long as it pays out the promised profit.
  • As soon as the inflow of new funds stops, the scammers have nothing to pay. After that, Ponzi companies cease to exist.

Ponzi scheme fraud has several characteristics:

  • Fraudsters offer unreasonably high returns on investments. Often it is hundreds of percent per annum. Their main task is to awaken the trader's sense of greed and the desire to get big money in an easy way.
  • The company does not disclose details of income generation. Traders cannot get acquainted with the portfolio of managers, they cannot control what assets the manager invests in.
  • Cold calls. Ponzi schemes are characterized by aggressive marketing. Fraudsters find contacts in open sources and call them with offers to invest. Calls and social media contacts can be pushy.
  • Representatives of companies actively urge not to withdraw funds. Fraudsters using the Ponzi scheme pay customers for a certain time, maintaining the status of an “honest company”. And withdrawing funds from the system is a problem for them. Therefore, they are trying in every way to convince the trader to reinvest money.
  • No license. Often, fraudsters do not spend time and money on obtaining licenses from reputable regulators. They are limited to obtaining an offshore license, a certificate of conformity from a private company, or even operate without any permits.

Ponzi by Bernard Madoff

The Bernard Madoff Ponzi scheme has become one of the most famous scams of its kind in the world. Its peculiarity lies in the fact that it has existed for almost 50 years. Its founder, Bernard Madoff, was one of the leading American financiers of the mid-20th century. He was able to deceive large funds and banks.

In the 1960s, Madoff opened his own investment company, which offered stock and securities investment services to clients. Representatives of the company called potential clients and offered investments at 12-13% per annum. Madoff was trusted because his company paid consistently, and he himself was a co-founder of NASDAQ and served on the board of founders. Representatives of the investment company assured investors that the success of the company is due to insider trading – Madoff held a high position and had access to information.

However, in 2008 the scam came to light. After the onset of the financial crisis, large investors turned to Madoff demanding that their investments be returned prematurely. However, Bernard had nothing to pay. The investigation found that since 1995 his company had not conducted any investment activity and paid money only by attracting new customers.

Madoff was found guilty on 11 counts, including fraud and money laundering. On June 29, 2009, he was sentenced to 150 years in prison. The total amount of damage caused by Bernard Madoff's Ponzi scheme amounted to 17.5 billion USD, of which only 7 billion USD was recovered.

Allen Stanford Ponzi

Texas financier Allen Stanford became the creator of another famous Ponzi scam in the United States and managed to make a fortune of 2.2 billion USD on it. In 1986, Allen Stanford founded Stanford International Bank, which managed to earn a good reputation. After 7 years in 1993, the Stanford Financial Group was established, which positioned itself as an investment fund. Stanford has managed to swindle over 30,000 investors from all over the world. 

Stanford became so famous that in 2008 the authoritative edition of World Finance awarded him the title of “Person of the Year”. After that, the company lasted less than a year. In 2012, Allen Stanford was sentenced to 110 years in prison. By the time the scheme collapsed, the company managed assets worth 50 billion USD. The total amount of damage was 9.2 billion USD.

Can You Make Money If You Fall into a Ponzi Scheme?

Such organizations can indeed accrue profits to customers. However, there is no guarantee that scammers will allow you to withdraw money. Often, attackers convince you to reinvest funds, and in case of refusal, they play for time, claiming that the delays are related to banking problems, technical reasons, and other far-fetched reasons.

If you have reason to believe that you have a Ponzi company in front of you, you cannot do business with it. It is important to understand that the profit under the Ponzi scheme is provided by the money of new participants. As soon as their influx ends, the company will collapse. At what level is the investor, and when the collapse will occur – it is impossible to predict.Therefore, the risks of losing money here are much higher than the potential profit.

Rules of –°onduct for Those Who Face Scam

When the first signs of a scam are detected, the main thing for an investor is to withdraw their assets. If it is impossible to withdraw from the project platform or exchange tokens in the traditional way, non-standard methods should be tried. You can try to bypass the scam on the exchange using third-party exchange resources. When scamming cryptocurrency exchanges, it is also recommended to try the possibility of withdrawing funds in each cryptocurrency presented on the platform.

Often, payments are not blocked immediately to all participants. Check the possibility of withdrawal regularly. If there is a possibility of internal transfers on the platform, then it will not be superfluous to create a new account and try to withdraw funds through it. It also happens that only small amounts are withdrawn. It will not be superfluous to try to withdraw funds in installments.

Don't panic and don't escalate it. It is possible that even at the first sign of a scam, the project will continue to exist for some time and even partially resume payments, but the panic of investors will lead to an early merger. If you want to warn new investors about the dangers of investing in a project, then this should be done in personal messages.

You should also write to the technical support of the project and inform them that you cannot withdraw funds. Perhaps you should indicate that you are a popular blogger or maintain a site for monitoring crypto resources and will be forced to inform your audience that the project has been scammed.

It should not be assumed that everything will work out and the delay in payments is only a temporary difficulty.Yes, this, of course, is possible – and otherwise you can return to the project again. But if a miracle does not happen, then you will lose all the funds.

Often, the administration of the scam uses additional tricks to attract the last stream of investments. These can be various fictitious promotions for depositing funds, an application to restart the project, and so on. In no case should one be led to provocations and invest additional funds, if there is uncertainty in the future work of the project and a closed withdrawal of funds.

We should also not forget about the diversification of risks. You should not invest all your investment capital in one project, and in high-risk investment projects, such as ICO, you should never invest more than you are ready to lose without significant changes in financial condition.

How to Assess the Prospects of a Cryptocurrency?

Do your own due diligence on any proposed project or project you want to be involved in.

  • Technology and application. Evaluate the coin for the best development dynamics, promising technologies and ideas. How significant is the impact on the financial industry, is there any cooperation with large corporations.
  • Fundamental analysis of the crypto market. Altcoin supply and demand, current prices, historical prices, volatility and technology.
  • Degree of decentralization. Decentralization is one of the key factors for cryptocurrencies, because they are created in order to reduce the influence of central authorities.

Before investing in cryptocurrency, you should carefully study the whole ins and outs of the project:

  • evaluate the relevance and reality of the idea;
  • get to know the founders of the project – it's really bad if their identities are not known, real people should be behind the project;
  • pay attention to the biography and education of the creators;
  • track the previous projects of developers;
  • study the proposed development strategies;
  • too high predicted percentage of profitability should alert;
  • evaluate the reliability of the technical component of the project;
  • study the news and opinions of project experts who support the project;
  • read reviews of previous developers' projects, if any;
  • check the efficiency of the project hotline and the professionalism of the answers;
  • check what percentage of tokens are found in one or more wallets – if this is a large proportion, then stay away.

Google the Coin

In order not to become a victim of pump and dump, do not rush to invest in an asset if you see a tempting message or a rapid increase in quotes. Before buying a cryptocurrency on the back of good news, you first need to meticulously check the real reasons for the price increase. If you see that the price of an asset began to grow rapidly, but there were no prerequisites for this, do not risk investing in such a cryptocurrency for the long term. Any increase in value must be justified. 

Check what is known about the cryptocurrency or token on the network. Is it a reliable company that issues it, in which projects it is used, the purpose of the token, and even consensus. Are there any confirmations of the data that the company distributes in support of its token. For example, if this is a contract with a large organization, you need to check the information about this on the official website of that company. First you need to understand why such price movements occur and whether it is safe to invest even for an hour.

How Not to Become a Victim of a Scam Project

We advise you to exercise your own discretion and carefully study the project before considering the purchase of any token. Only your vigilance will help protect you from cryptocurrency fraud. It is very difficult to return the money in these cases, so it is better not to risk it.

How to Understand That the Chosen Platform Is Not a Scam?

A cryptocurrency exchange or investment company must provide all the necessary information about itself in the public domain. Here are the main points to pay attention to:

  • Working hours. A good exchange should be available to users 24/7.
  • Place of registration. Such information should be available on the company's website and should be easy to verify.
  • Transparency of the company. The location of the headquarters and offices, employees, management, founders of the exchange must be known and anyone can check their presence in the public space.
  • Active communication with its users. Here, the same applies to the time of work: user support and constant communication with them is an important touch in the portrait of a reliable exchange.
  • Compliance with the laws and requirements of the country of registration.
  • The exchange must have all the necessary licenses, in addition, the company must comply with AML and KYC rules.
  • Absence of discrepancies in indicators. You must be sure of the provability of data such as trading volumes, attendance, liquidity in the order book. It is worth remembering that today it is very easy to wind up trading volume, liquidity and traffic to the site.
  • No questionable offers on the platform. The existence of such offers as, for example, transactional mining may raise doubts. In addition, each reliable exchange carefully checks the cryptocurrencies that are added to the exchange. So listing dubious projects is a very bad sign.
  • Responsible attitude to security issues. In particular, this applies to the use of cold wallets.
  • Two-factor authentication, biometric fingerprint logins and insurance in case the exchange itself is hacked.
  • Storing user funds in offline cold storage.

You need to understand: there are scam exchanges that were originally created in order to steal users' money, and there are reliable exchanges that, if they become a victim of attacks, do everything possible to fix it – cover the damage, inform, improve security systems. If there were hacks in the history of the exchange, but the exchange solved the problems, continues to work and get better, such a site should not be immediately written down as unreliable.
Before registering, check the following company details:

  • Date of registration;
  • Registration certificate;
  • Legal and physical address.
  • If companies are registered in unreliable, offshore jurisdictions or do not provide information about themselves at all, they are probably scammers. Reviews will also help you choose the right company. Reviews about organizations can only be viewed on independent resources.
  • Do not invest in projects that promise, above all, high returns, and not a quality product. A conscientious entrepreneur never guarantees a profit.
  • Check on the Internet the history of the project or service to which you plan to send your funds. If there is no mention of it in authoritative sources, it is better not to risk it.
  • When trading on decentralized exchanges, beware of "clones" of known coins. Pay attention to ticker names and the amount of liquidity in the pool.
  • If you decide to use a new decentralized protocol, make sure that independent professionals conduct a detailed audit of its code. Well-known auditors of DeFi applications include Certik, Hacken, Consensys.

How to Check a Crypto Company for Fraud?

In the event of a crash, it will be almost impossible to get the money back. Therefore, before you start working with a company, you need to check if it is fraudulent.
It is necessary to pay attention to the following aspects:

  • Availability of reviews. Track reviews on independent platforms. In them you can find useful information about the activities of the company.
  • A transparent scheme for generating income. The company must provide detailed information on how the profitability will be ensured.
  • Absence of dubious provisions in internal documents. Before starting cooperation, study the User Agreement. For example, a broker or investment platform cannot prescribe their permission to block an account, cancel orders or prohibit withdrawals of funds “at their own discretion” and “without explanation”.
  • According to a report from the US Federal Trade Commission from January 2021 to March 2022, 46 thousand users of digital assets lost more than $1 billion as a result of fraudulent activities. Most of the victims were deceived as a result of fictitious investment schemes - $ 575 million. The average loss per person was $ 2600. Most often, victims transferred BTC 70%, USDT 10% and Ethereum 9% to scammers. Nearly half of the consumers who reported a cryptocurrency scam said it started with an ad, post, or social media post. Filter what you see on social media.
  • Invest only the money you can afford to spend. Even if you are trading or investing in legitimate projects, you should remember that the cryptocurrency system is still relatively immature and the level of volatility is very high. This means that an investor can lose a significant amount of their money if they do not use proper financial risk management procedures to protect their investment from a sharp drop.
Robert Williams


calendar icon 16.01.2023

Blockchain technology expert. Crypto Market Analyst. Private investor.

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