Cryptocurrencies promise the world more economic freedom, partly because they are designed to shift control back to the people using it, away from centralized entities like governments, banks, etc. However, with increased freedom also comes increased responsibility, which means that you yourself are responsible for the safety and security of your cryptocurrencies (i.e. private keys).

Part of that responsibility means that you need to learn the technical skills necessary to ensure that you are following good security practices. This is mostly so that you can properly guard yourself against bad actors and scammers in the crypto world. In everyday life, there are already a variety of scams that you need to guard against, but in the crypto world it is maybe 10x worse. This unfortunate fact is due to the decentralized/unregulated nature of crypto, which allows scammers to hide their tracks easily and evade the gaze of authorities.

Instead of always relying on authorities to save you, it may be better to educate yourself about the different types of scams in crypto world and the best ways to avoid them. At CryptoCanary we aim to provide you with a tool that you can add to your toolbox for research and scam avoidance purposes.

CryptoCanary — fighting crypto scams via community reviews

Once you have educated yourself properly, it will become considerably easier to identify the usual suspects, and you will be able to largely eliminate the risk of getting scammed. And remember, learning how NOT to lose your money is even more important than learning how to make profits. Learning how not to get scammed is just one of the skills needed to not lose your money.

In the following sections, we will outline the most common types of scams that exist in the crypto world so you can better recognize them.

Fund Managers

This type of scam is prevalent around social media and the posts all look almost exactly the same. The poster usually says that he has had a lot of losses in crypto or has been scammed many times, but now that he has found Fund Manager XYZ, his life has changed and he is making so much money. Then the post will include the fund manager’s name and contact details. You WILL be scammed out of your coins if you engage with these “fund managers”, so ignore EVERY message on social media that looks like this.

Forex or binary options trading

Posts about the Forex/Binary options trading opportunities/brokers are a real plague and the spam from this is really rampant. Don’t fall for them — they are all scams targeted at getting ahold of your cryptocurrencies. Don’t believe any claims made by people about their ability to withdraw or about the fake gains they have made.

“Earn Bitcoin” or “double your Bitcoin” offers

These posts could also fall under the next category but stand very well on their own too. Posts will claim and give examples of very high earnings on Bitcoin deposits (i.e. “5% per day”), or whatever program they advertise. Obviously you will never see your Bitcoin back. Ignore all these posts.

High Yield Investment Programs (HYIP)

HYIP is a common denominator for various programs that could involve Ponzi schemes, lending/staking programs, trading bots, cloud mining, or any other types of investment schemes that claim to return extremely high returns on your investment. Any type of “investment program” that promises yields that sound too good to be true are probably not legitimate. Also, these have promoters and/or fake testimonials of people showing their fake returns and “proof” of withdrawals.

Ponzi

Ponzi schemes are often combined with pyramid schemes (but not necessarily). Bernie Madoff operated one of the most notorious Ponzi schemes in traditional finance that wasn’t a pyramid scheme. Ponzi schemes claim to have a proprietary investment system or “trading bot” that consistently generates unrealistic investment profits. Initially, the early investors will receive payouts to make it credible for new investors to join. However, the profits of older investors are paid out from the contributions of new investors. Usually, there is a strong incentive bonus structure for reinvesting profits, so that the company can keep balances internal and doesn’t need to actually do real payouts.

The Ponzi usually collapses when not enough new participants enter the Ponzi in relation to the demand for withdrawals. Or they may just shut down operations entirely by exit scamming. Within cryptocurrency, most cloud mining programs that claim to use trading bots or lending/staking programs are Ponzi schemes. Another tell tale sign is that they generally offer “investment packages” or something similar.

Because some of these services (staking, cloud mining) also exist legitimately in the crypto industry, it might be very hard to establish what’s legit and what’s not. But in general, if you notice any sign of “guaranteed” profits, reinvestment incentives, or a heavy dose of testimonials about “real profits”, there is a high chance that you are dealing with a Ponzi.

Two of the most notorious Ponzis in crypto were Bitconnect and USI Tech (both also utilized multi level marketing to promote their scam). Both exit scammed and left investors with worthless investments.

Pyramid/MLM schemes

Multi Level Marketing (MLM) is a way of promoting products/services where the promoters get paid by referring other people and commission is earned over several levels. MLM programs that offer fake products/services to disguise the fact that they are only redistributing money among the organization are pyramid schemes and are illegal in most countries. Because it is so easy to claim you have such a wonderful blockchain product/service/coin/etc. that will generate great profits in the future, crypto offers the perfect disguise for pyramid schemes. Rest assured, anything in crypto that utilizes a multi level marketing bonus program is with 99.9% certainty a scam and will end badly for most participants at some point. Avoid at all cost!

Typical affiliate MLM scheme

Direct Messages

Quite often you will be approached by direct messages by people offering all kinds of opportunities. The fact that you are approached by a stranger (or by someone soliciting a DM from you), is already a huge red flag. Usually such approaches via Direct Messages are followed by offerings that are most likely a scam. Report anyone that approaches you unsolicited on social media (to admin/mod/etc.), and avoid DM requests/any scam offerings made.

If you look into “Andrea’s” profile, you’ll see that she has 1 photo, no public friends, and her Facebook username starts with “Emmanuel”. Definitely a crypto scammer.

Cloud mining scams

Because the operation of a legit cloud mining service (of which there are very few) from the outside looks very similar to how a Ponzi can operate, this is the easiest way to convince crypto beginners that there are money making opportunities at hand. Very often in social media communities, you will be approached or see posts about cloud mining where people try to convince you to invest. Of course do not believe them and avoid at all cost.

Now defunct cloud mining scam

ICO/altcoin exit scams

With altcoins and ICOs, it is also sometimes hard to differentiate or find a hard line between a legit project and a pure scam. Some are purposefully designed to be an exit scam, which means that soon after the ICO raises funds, the team disappears. Others let the scam continue for a while and then disappear with the raised money. Then there are projects that start off with the best intentions, but fail to deliver for a wide variety of reasons, then turn bad and finally exit scam.

Savedroid’s example on how easy it is to exit scam

Sometimes this can happen by bad actors inside an otherwise faithful team. Investing in any altcoin project or ICO (the smaller the size, the higher the risks), is risky business already, but the sheer amount of scam coins make it even harder and you should assume a >90% failure rate probability with every altcoin you invest in. After all, they are essentially startups with little to no accountability/transparency that other startups in the traditional world are forced to provide via regulation.

And because there are so many scam projects out there (either scam-from-the-start or good-projects-turned-bad), it is essential to at least avoid the projects that have signs of being fraudulent. Here are some basic red flags to take note of:

Team visibility and ability to perform background checks, including online visual appearance. There are exceptions (for example: Bitcoin’s “founder” is unknown), because some scammers do appear publicly and some legit projects have anonymous teams. It is up to you to decide whether team visibility (or lack thereof) adds to the project’s shadiness or not.

Available information to judge a project’s validity: website, Github activity, white-paper, etc..

Is it original work (not copy-pasted or even plagiarized) that involves actual innovation?

Is the focus of the project on technology or on potential profits to be made by investors?

Are goals realistic or unrealistically high?

Does the roadmap make sense?

Look at their social media accounts and judge the team’s activity and responsiveness. How are critical questions handled? Instant bans of critics are usually not a good sign.

Look at what the broader community says about the project. Try to search for reviews that are critical about the project (many reviews are sponsored and are therefore biased). CryptoCanary aims to provide a go-to platform where critical reviews about projects can be found in one place.

aims to provide a go-to platform where critical reviews about projects can be found in one place. Check how much shilling or affiliate link promoting is happening for the project throughout the internet and social media. The more there are, the more shady the project is.

Free giveaways / airdrops

Although there are legit airdrops and giveaways by some projects, most of the postings you see about giveaways and airdrops are purely fake. They are most likely phishing scams that try to persuade you to enter your private keys in order to receive free coins. These end up stealing your funds by using the private key that you voluntarily gave up. NEVER GIVE ANYONE YOUR PRIVATE KEY!

Another frequent tactic is the “giveaway” where you first need to send crypto to someone (often a fake profile of famous crypto influencers) and you are promised to receive more of your crypto back (which of course never happens).

These “free giveaways” using fake profiles of influential people is so widespread that those influencers are even changing their profile names warning that they don’t give away free crypto. One of those influencers is Ethereum founder Vitalik Buterin and that is why he has added a warning to his actual Twitter profile name “Non-giver of Ether”.

Final thoughts

I hope this short overview of some of the most common scams in crypto will help you recognize them quicker. However, this list is not exhaustive because scams exist in an unlimited amount of shapes and forms. Only relentless education and research can help you fine tune your scam radar. Join CryptoCanary today and read the project reviews to improve your scam radar so that you can help warn your fellow community members of potential scams. A communal effort is the only way we can clean up the crypto world which is so rife with scams right now!

Do you think we missed a prominent category of scams? Let us know by emailing us at team@cryptocanary.app and we can definitely add it.