Common cryptocurrency scams – how to protect your investments and not fall victim
Whenever money is involved, it is inevitable that fraudsters are scheming. They often use clever tactics to steal cryptocurrency, disguising their schemes as promising investment opportunities or urgent requests. There are many types of crypto scams that take different approaches. Here are some of the most common scams and how they work.
Bitcoin investment scams
One of the most widespread crypto scams involves fake investment schemes. Scammers claim to be financial experts and promise enormous returns on Bitcoin and other cryptocurrency investments. They often pose as successful traders and lure victims in with flashy testimonials or success stories that are made up. Bitcoin scams also use the recognized name of the currency to build false credibility.
Victims are pressured to send an initial “investment” or share sensitive personal details. Some fraudsters use fake celebrity endorsements to add credibility, with manipulated images or videos making it seem like famous people are backing the scheme.
How the scam works
Scammers typically reach out through social media or SMS, claiming they made millions from crypto and can help others do the same. They provide things like charts and fake testimonials, and “exclusive” trading tips to convince people to send them money.
Once the victim transfers funds, the scammer either disappears or requests more deposits, claiming that additional money is needed to unlock more profits. In reality, the victim never sees a return on their investment. Knowing how to spot a Bitcoin scammer can be tough, but be wary if somebody opts for a hard sell or tries to put time constraints on the investment to build urgency.
Rug pull scams
A rug pull scam happens when a new cryptocurrency project is launched and hyped up, before being suddenly abandoned. This can leave investors with worthless tokens. Scammers use aggressive marketing strategies and create the illusion of a promising new coin or decentralized finance (DeFi) project.
They often use social media influencers or viral stars and community hype to get people excited. As soon as enough money is invested, the developers withdraw all funds and disappear, leaving the token price to collapse. This is also known as a “pump and dump” strategy.
Examples of rug pulls
One of the most infamous rug pulls was Squid Coin, a cryptocurrency that gained attention by falsely associating itself with the hit Netflix series Squid Game. The creators restricted investors from selling their tokens and made off with an estimated $3.3 million.
Romance scams (crypto edition)
Romance scams have been around for years, and catfishing is a part of our day-to-day vocabulary. One form of cryptocurrency fraud occurs when fraudsters exploit victims through pretending to be somebody else.
Scammers build fake relationships online and gain trust before introducing cryptocurrency into the conversation.
They often claim to be wealthy investors who can teach their “partner” how to make easy money with crypto. Once trust is established, they convince victims to send cryptocurrency as part of an “investment opportunity” or claim they need financial help.
These scams can lead to devastating financial losses as crypto transactions are irreversible.
Warning signs
- The person avoids video calls or in-person meetings and makes excuses for why they can’t meet.
- They create a sense of urgency, pushing the victim to send money quickly before an “opportunity disappears.”
- They may suddenly need financial help, claiming they’re in trouble and need cryptocurrency to resolve an emergency.
Phishing scams
Phishing scams trick people into revealing their login credentials or wallet details. Scammers use fake emails, fraudulent websites, or malicious messages to steal sensitive information.
Crypto phishing scammers may pose as trusted companies or crypto exchanges, sending emails that claim there’s a security issue with an account. Victims are urged to click on a link and enter their login details and hand over access to their crypto funds.
Signs of a phishing scam
- Urgent emails that claim an account has been compromised or that action is needed immediately.
- Links directing users to fake websites that look almost identical to legitimate exchanges.
- Strange email addresses that reveal the sender isn’t actually from the company they claim to be.
Once login credentials are stolen, hackers drain crypto wallets within minutes, making recovery almost impossible.
Man-in-the-middle attacks
Another important tactic to be aware of on our crypto scams list is called a “man-in-the-middle attack”.
These attacks happen when hackers intercept login credentials while users connect to crypto accounts over unsecured networks like public Wi-Fi. Cybercriminals can steal private keys or login details by exploiting weaknesses in unsecured internet connections to intercept data.
How to stay safe
- Avoid logging into crypto accounts when connected to public Wi-Fi networks.
- Use a VPN (Virtual Private Network) to encrypt data and protect against prying eyes.
- Enable two-factor authentication (2FA) for extra security on exchanges and wallets.
Hackers are always looking for vulnerabilities, so being cautious with internet connections can prevent cryptocurrency scams.
Fake social media giveaways
Scammers often impersonate celebrities or even crypto brands, claiming they are giving away free cryptocurrency. Victims are told they need to send a small amount of crypto first to “verify” their wallet before receiving a bigger payout.
These fake promotions spread quickly on social media where scammers create official-looking posts using stolen images and fake comments.
Why people fall for it
- The giveaway looks real, often featuring doctored videos or social proof – even fake friends.
- Some people made a lot of money investing in the early stages of Bitcoin and this tempts others to try and do the same with a new currency. It adds a false credibility.
- People trust big-name figures who appear to be endorsing the promotion.
Since crypto transactions can’t be reversed, any money lost is normally gone forever.
Ponzi schemes
Ponzi schemes in the crypto world work the same way they always have. New investors fund returns for older ones but no real profits are generated. As long as fresh money keeps flowing in, the scheme stays afloat. However, the moment new investors stop joining, everything collapses and this leaves most participants with nothing.
These scams often promise guaranteed high returns which should always be a red flag. Fraudsters use slick marketing and testimonials to lure victims in, which makes it seem like a foolproof investment. This is not the case.
Famous examples
Several crypto trading platforms have been exposed as Ponzi schemes over the years. One of the most infamous was BitConnect, which promised massive returns using a “trading bot” that supposedly generated profits. When the scheme fell apart in 2018, investors lost over $2 billion and many were left with worthless tokens.
Fake cryptocurrency exchanges
Some scammers have also created fake trading platforms that look just like real exchanges. These fraudulent websites attract users by offering low trading fees, high rewards, or exclusive investment opportunities. Victims deposit funds, believing they are buying crypto, but soon realize they can’t withdraw their money.
These scams operate with professional-looking websites that mimic real exchanges, often complete with fake trading charts and customer support. The platforms may even function normally at first, allowing small withdrawals to build trust. But once larger amounts are deposited, the funds disappear, and the website shuts down.
How to avoid fake exchanges
- Stick to well-known and regulated platforms.
- Always check user reviews and ratings before signing up.
- Be cautious of exchanges that offer deals that seem too good to be true.
- Verify the platform’s security features and whether it requires proper identity verification.
Fake job offers and employee scams
As the crypto industry grows, scammers have also started targeting job seekers with fake employment opportunities. These scams often involve fraudulent recruiters claiming to represent major crypto firms. They lure victims with high-paying roles but demand a training fee or security deposit in cryptocurrency before onboarding.
Red flags to watch for
- Job offers requiring upfront crypto payments for training or equipment. No job offer should require you to pay up front.
- Recruiters who pressure applicants to make quick decisions or avoid video calls.
- Companies with no verifiable history or reviews in the industry.
If a job offer seems suspicious, verify it directly through the company’s official website or LinkedIn page before engaging further.
Flash loan attacks
A flash loan attack is a sophisticated scam targeting decentralized finance (DeFi) platforms. Attackers borrow large sums of cryptocurrency instantly without collateral and then manipulate token prices using their borrowed funds. They can make a profit before repaying the loan in the same transaction.
These attacks exploit weaknesses in smart contracts and liquidity pools. This often means massive losses for users and developers. Flash loan attacks have drained millions from DeFi protocols and this makes them one of the most advanced forms of crypto fraud.
Who’s at risk?
- Crypto traders who invest in DeFi platforms with weak security.
- Yield farmers and liquidity providers staking assets in smart contracts.
- Developers running DeFi projects without strong risk protections.
To reduce the risk, DeFi platforms must continuously audit their smart contracts and implement safeguards against market manipulation. Investors should also research platforms carefully before committing funds.
AI-powered scams
Artificial intelligence is reshaping how scams operate. Fraudsters now use AI-powered bots to impersonate real people in online chats and potentially convince victims to invest in fraudulent crypto schemes.
AI is used in “pig butchering” scams as this type of fraud often requires long-term relationships and chats. AI makes this more manageable for scammers and allows them to target more people.
How AI Is changing scams
- AI chatbots offer fake investment advice, making scams appear professional.
- Deepfake videos impersonate famous figures, misleading investors.
- AI-generated phishing emails are harder to detect, leading to more stolen credentials.
As AI technology advances, crypto users must be more cautious than ever. Always verify investment opportunities through official channels and be skeptical of unsolicited advice.
Bitcoin ATM scams
Bitcoin and crypto ATMs were created to make it easier to buy and sell digital currency, but scammers have found ways to exploit them. Fraudsters may convince victims to deposit money into a Bitcoin ATM, promising it will either keep their funds safe or pay off an urgent debt. Once the transaction is made, the money is converted into cryptocurrency and transferred to the scammer’s wallet. It is nearly impossible to recover.
Common tactics
One of the most common tricks involves scammers pretending to be from a bank or other official organization. They may call or send messages claiming that the victim’s money is at risk or that they owe unpaid taxes. The scammers may even scare people into thinking their bank account has been frozen.
To “fix” the issue, victims are instructed to deposit cash into a Bitcoin ATM and send it to a specified wallet address.
Another common deception is the claim that Bitcoin ATMs act as “safe deposit boxes.” Scammers convince victims that transferring money into crypto will protect their savings from fraud or account freezes.
How to protect yourself from cryptocurrency scams
Always remember that if something sounds too good to be true, it probably is. Scammers rely on panic and build urgency to pressure victims into making mistakes and often promise quick profits or claim urgent action is needed to protect funds. These are classic warning signs of a scam. Pause, and take time to check somebody’s credentials or look for the warning signs.
The following steps can help to protect you:
- Never share private wallet keys or login credentials. Legitimate companies will never ask for this information.
- Use trusted exchanges and wallets. Stick to well-known platforms that have strong security measures and good reputations.
- Be skeptical of unexpected calls or messages. Scammers often impersonate financial institutions or government agencies. Always verify information through official sources before taking action.
- Avoid making payments through Bitcoin ATMs if someone else is instructing you to do so. No legitimate authority will demand payment in this way
Taking precautions is essential and knowing how to avoid crypto scams is valuable information for anybody using crypto.
How to report a crypto scam
Reporting scams can help prevent others from falling victim. Several official agencies handle cryptocurrency fraud reports and allow you to submit investigation requests.
Federal Trade Commission (FTC) – Handles fraud complaints, including cryptocurrency-related scams.
Internet Crime Complaint Center (IC3) – The IC3, run by the FBI, focuses on cybercrime, including cryptocurrency fraud. It works closely with law enforcement agencies to investigate internet-based crimes.
Securities and Exchange Commission (SEC)– The SEC regulates investment markets and cracks down on fraudulent securities schemes, including fake cryptocurrency investment platforms and Ponzi schemes.
Victims should also contact their crypto exchange or wallet provider immediately to report the scam and see if any action can be taken. Individuals aged 60 or older can also contact the National Elder Fraud Hotline at 833-FRAUD-11 (833-372-8311) for help.