Popular investment scams explained!

The following chapters offer a small introduction to popular investment scams and how these work. Please read through this section carefully and see if any applies to your situation.

 


Fake ICOs


Fake ICOs became very popular in 2017 and continue to operate on a global scale. They are usually promoted on BitcoinTalk, Twitter, or within Telegram groups. It is rather easy to recognize them by checking the following:

  • The whitepaper of the project is usually copied from another source or heavily plagiarized. You can check this by using Copyscape.
  • The whitepaper and website will host a roadmap that creates unrealistic expectations and FOMO to potential investors (e.g. the coin is expected to see a 1000% growth in value over a 3-month period).
  • Investors will be asked to send funds to a wallet address that is not whitelisted
  • The distributed cryptocurrency is not listed in any popular exchange or is only listed on exchanges that are very cheap/free to get listed on.
  • The team behind the project is anonymous or uses fake personas. Perform a Google search for their profile photos and try to find their profile on LinkedIn.
  • The domain is purchased with cryptocurrency and is thus not linked to any personal information. You can check this here and contact the domain registrar. 

Social Media Phishing


This scam is usually performed on social media channels like Twitter and Telegram. Scammers will attempt to impersonate an influential crypto persona asking users to send Ethereum to a particular address. In exchange, they claim to offer large amounts of cryptocurrency in return. Of course, users never actually receive funds in return and lose access to the funds they sent. To spot such scams:

  • On Twitter, always check the handle of the user’s name. Does it match the handle of the original person they claim to be?
  • On Telegram, you may be added to a group or channel without your will. You may also be contacted by a random person showing unusual interest in you. In both cases, it is best to avoid any form of contact.
  • Another way to recognize these scams is by their offer. Scammers will usually offer fake rewards in the class of hundreds of thousands of dollars, defying any and all logic.

Ponzi fraud & Pyramid schemes


Pyramid and Ponzis are considered to be the oldest types of financial scams. They operate and grow based on Multi-Level Marketing (MLM).

  • Ponzi schemes are strategies through which new investors can earn large amounts of money based on the influx of new user funds. When there are no new users joining the platform, there are no more funds to pay existing users. BitConnect is the most popular example of a cryptocurrency Ponzi scheme. In the context of crypto, these types of scams will usually portray themselves as “lending platforms”, pursuing users to stake their funds to earn very large returns (e.g. 10% per week).
  • Pyramid schemes are able to operate and pay users as long as these users can pursue other investors to enroll using their referral code. The more people that sign up under you the more you earn. However, similar to Ponzi schemes, when user influx decreases, there are no funds to pay existing users.

The best way to protect yourself from such scams is to perform thorough research before investing. Look at a cryptocurrency project from a fundamental level and try to understand its value proposition. If its value is solely based on new user participation, it is best to stay away.

Scam Coins

Aside from fake ICO’s, there is a high chance you might come across scammy cryptocurrency projects. In short, these are altcoins that help early adopters earn a large amount of money in a short amount of time (through pump & dumps), only to later be left abandoned by the development team and early bagholders.

In recent times, the rise of DeFi projects has also increased the number of scammy cryptocurrency projects. Due to the popularity of decentralized exchanges, anonymous teams are able to grow massive communities around new tokens, only to later sell all their holdings and crash their price in the open market. A popular example of such a project is Pickle.Finance, which even received endorsements by Ethereum’s founder before losing nearly all its value.

It’s nearly impossible to detect scam coins. Once again, it is important to research a coin’s fundamentals, understand its utility, and make an educated decision. Additionally, it’s best to start by investing in projects whose founders are known and are listed in popular centralized exchanges.