So, what are crypto scams?

They are set up to trick people into giving away their money or crypto. 

Some try to lure you into investing in a fake project.

It’s important to know how to protect yourself so you don’t get caught in a crypto scam. 

Let’s break down how you can stay safe.

Common Types of Crypto Scams

These scams come in many forms and while most are hilariously obvious, there are still a few that appear deceptively trustworthy.

Now, how do crypto scams work?

Some scammers try to get your private information in various ways, like pretending to be a legitimate company. 

These scams can seem very convincing, but once they have your money, it’s usually gone for good.

But don’t worry, you can protect yourself by learning to spot these tricks.

Here are some examples:

1. Fake Websites: Some scammers create websites that look like real crypto exchanges or wallets. When you log in, they steal your information.
2. Ponzi Schemes: A crypto Ponzi scheme promises big returns but pays old investors with new investors’ money. It’s all a lie.
3. Fake Celebrities: Scammers often pretend to be famous people and promise to double your crypto if you send them some. This is a crypto investment scam.
4. DeFi Wallet Scams: These scams happen in decentralized finance, where scammers trick people into giving access to their wallets. Once in, they can send all your crypto to their wallets.
5. Phishing: Scammers send emails that look real but contain links that steal your private info. Never click on suspicious links.
6. Pump and Dump Schemes: Scammers artificially inflate the price of a crypto asset, and then sell their holdings for a profit, leaving others with losses.

What Are the Biggest Crypto Scams?

Some of the most significant crypto scams have led to billions of dollars in losses, shaking investor confidence worldwide. 

Here are a few of the biggest crypto scams in history.

BitConnect

It started as a cryptocurrency lending and exchange platform, promising an extremely high return on investment. BitConnect claimed that users could earn up to 40% monthly returns by lending their Bitcoin on the platform.

In truth, it operated as a classic Ponzi scheme, where older investors were paid with the new money coming in from newer investors. It also had a referral system that encouraged users to recruit others, making it seem like a legitimate opportunity.

In early 2018, the platform suddenly shut down, causing its coin, BCC, to crash. This left investors with nearly worthless tokens. 

It’s estimated that investors lost over $2 billion. This makes BitConnect one of the largest crypto frauds ever.

It severely damaged the reputation of cryptocurrency lending platforms. 

Legal action was taken, and several key figures associated with BitConnect were arrested.

Its founder Satish Kumbhani was indicted in the US in 2022 on charges of orchestrating a global Ponzi scheme.

He has since vanished however from his last whereabouts in his native home country in India.

OneCoin

The project was marketed as a revolutionary cryptocurrency that would overtake Bitcoin. 

Founded by Ruja Ignatova in 2014 and claimed to offer education packages about cryptocurrency while also selling its own cryptocurrency called OneCoin.

Despite its promises, OneCoin was never a real cryptocurrency.

It didn’t operate on a blockchain, and the coins could not be traded or mined like legitimate cryptos.

The entire project was an elaborate scam, and Ignatova disappeared in 2017, leaving behind millions of defrauded investors.

Investors around the world lost over $4 billion.

OneCoin became one of the most infamous crypto scams, showcasing the dangers of blindly investing in unknown projects.

Ruja Ignatova remains at large though one of its co-founders has been sentenced to 20 years imprisonment.

The scam however continues to be a subject of international investigations.

Mt. Gox

It was one of the first and largest Bitcoin exchanges, handling 70% of all Bitcoin transactions at its peak.

Mt. Gox was based in Japan and provided a platform for users to trade and store their Bitcoin.

In 2014, Mt. Gox was hacked, and approximately 850,000 Bitcoins were stolen.

The exchange filed for bankruptcy, leaving users unable to withdraw their funds.

Its total loss was valued at over $450 million at the time of the hack, though the current value of the stolen Bitcoin would be much higher.

The Mt. Gox collapse was a wake-up call for the crypto community about the need for secure crypto exchanges.

Regardless, it’s still good practice to never keep your crypto on exchanges. Storing your digital assets in a cold wallet is always one of the best ways to safely store your crypto.

Many victims are still waiting for compensation as legal battles continue, and the incident highlighted the vulnerabilities in early crypto infrastructure.

These cases show that while crypto offers exciting opportunities, it’s essential to stay cautious and informed to avoid falling victim to fraud.

How to Spot a Cryptocurrency Scam

Now that you have an idea on what crypto scams are out there, you must learn how to detect some red flags.

You might ask: 

“How do I know if a crypto investment is a scam?”

Here are some instances:

1. Promises of High Returns: If someone says you’ll get rich quickly, it’s probably a scam. Real investments don’t work like that.
2. Unregistered Companies: Always check if the company is registered. If they’re not, it’s a red flag.
3. Pressure to Act Fast: Scammers often try to rush you. If they say you must invest immediately, take a step back and think.
4. No Clear Information: If you can’t find details about the company or its leaders, it could be a crypto fraud.

All right, so what to do if you think you’re being scammed?

If someone is pressuring you to invest or send crypto, just stop talking to them.

You can also choose to report the scam to the authorities or the crypto platform you’re using. 

This helps protect not only yourself but others as well.

Finally, if something feels off then it probably is. 

Trust your instincts.

How to Protect Yourself from Crypto Scams

Early detection and cutting off communication are some of the most effective methods on how to avoid crypto scams.

Conducting due diligence and having security measures in place are additional means to protect your valuable assets.

1. Use Trusted Platforms: Only use well-known exchanges and wallets. Don’t trust new or unknown sites. It would be best however to use non-custodial storage, such as a hardware wallet to add an extra layer of protection.

2. Enable Two-Factor Authentication: This adds an extra layer of security to your accounts. You download the Google Authenticator for free on the App Store or the Google Play store.

3. Research Before Investing: Before putting money into any crypto project, do your research. Check reviews and read news about the company. DO NOT invest based on any influencer’s review or recommendation alone.

4. Never Share Your Private Keys: Your private key is like a password. Don’t share it with anyone, no matter what they say.

5. Avoid Suspicious Links: Be careful with emails or messages that ask you to click on links. These could lead to a cryptocurrency scam.

How to Report Crypto Scams?

The chances of falling victim to a scam are reduced significantly when you implement the above-mentioned safeguards.

Of course, there’s always a chance one or two of them are overlooked, leading to a successful scam. 

Unfortunately, crypto transactions are often irreversible.

And so, you might ask: 

“What should I do if I fall for a crypto scam?”

It’s important to report it as soon as possible to:

• The crypto exchange you used to make the transaction.
• Local Authorities: You can report scams to your local police or fraud agencies.
• Financial Regulators: In the U.S., the SEC or CFTC handles reports of crypto scams.
• Cybercrime agencies like the FBI or SEC in the U.S.
• Interpol: Works internationally to track down scammers across borders.

Reporting helps protect others and increases the chances of catching the scammer.

Now, can you write off crypto scams?

It depends.

If you lose money in a crypto scam, it’s possible that you can report the loss on your taxes, depending on where you live. 

In some countries, crypto losses can be written off as theft or fraud, but you’ll need to check with a tax professional to see if this applies to you.

Stay Smart, Stay Safe

Cryptocurrency is an exciting world full of possibilities, but it’s important to stay smart and safe. 

Always research before investing, never share your private keys and, report scams if you come across them. 

By staying informed and taking the right precautions, you can avoid the traps of crypto fraud and safely navigate the world of cryptocurrency.

Be aware, that you can enjoy the benefits of crypto without falling for the tricks of scammers.

FAQs

1. Is cryptocurrency a scam?

Cryptocurrency itself isn’t a scam, but there are scammers in the space. 

Stay cautious and only use trusted platforms.

2. Can crypto wallets be hacked?

Yes, if you don’t secure your wallet properly, it can be hacked. 

Online wallets or hot wallets have a higher chance of getting hacked since they are connected to the internet. 

On the other hand, hardware wallets or cold wallets have a lower chance since your private keys are stored offline.

Cold wallets are only connected to the internet when you need to make a transaction.

In either case, always use strong passwords and two-factor authentication when possible.

3. Can DeFi wallets be safe from scams?

DeFi wallets can be safe if you use trusted platforms and never give away your private keys. 

Watch out for DeFi wallet scams by detecting red flags and ceasing all forms of communication with the potential scammer.