The following chapters offer a small introduction to popular investment scams and how these fraudulent schemes operate. Please read through this section carefully and see if any apply to your situation, as self-education is your best defense.
1. Fake Initial Coin Offerings (ICOs)
Fake ICOs were prominent in 2017 and continue to operate today, often promoted on platforms like BitcoinTalk, Twitter, and Telegram.
| 🚩 Red Flag / Vulnerability | Protective Action |
|---|---|
| Plagiarized Whitepaper | The whitepaper is copied or heavily plagiarized. Use tools like Copyscape to check for originality. |
| Unrealistic Roadmaps | The roadmap creates unrealistic expectations and FOMO (Fear of Missing Out), promising returns like 1000% growth in three months. |
| Non-Whitelisted Wallets | You are asked to send funds to a wallet address that is not officially whitelisted by the project. |
| Unknown Exchange Listings | The coin is not listed on any popular exchange, or is only on exchanges that are very cheap/free to list on. |
| Anonymous/Fake Team | The project team is anonymous or uses fake personas. Perform a Google search for their profile photos and check for professional profiles on LinkedIn. |
| Unlinked Domain | The domain is purchased with cryptocurrency, making it unlinkable to personal information. Check the domain here and contact the domain registrar if suspicious. |
2. Social Media Phishing Scams
These scams are often carried out on Twitter and Telegram, with scammers impersonating influential crypto figures to lure users into sending cryptocurrency.
| Platform | Red Flag | Protective Action |
|---|---|---|
| Scammer asks you to send Ethereum to an address for a guaranteed large return. | Always check the handle of the user's name. Does it match the original person they claim to be? | |
| Telegram (Groups/DMs) | You are added to a group/channel without consent, or contacted by a random person showing unusual interest. | Avoid any form of contact. Also, recognize that offers promising fake rewards worth hundreds of thousands of dollars defy all logic. |
3. Ponzi Fraud & Pyramid Schemes
These are the oldest types of financial scams, operating and growing based on Multi-Level Marketing (MLM).
A. Ponzi Schemes
These promise large returns to existing investors using the funds collected from new investors. When the influx of new users stops, the scheme collapses.
Crypto Context: These often pose as "lending platforms", asking users to stake funds for very large, unsustainable returns (e.g., 10% per week). BitConnect is a famous example.
B. Pyramid Schemes
These schemes rely on users recruiting new investors using their referral code. The more people you sign up, the more you earn. The payout stops when new user participation decreases.
Protection: The best defense is thorough research. Look at a project's fundamental value proposition. If its value is solely based on new user participation, it is best to stay away.
4. Scam Coins (Pump & Dump)
| Type | How it Works | Protection |
|---|---|---|
| General Scam Coins | Early adopters earn high returns in a short time, then the coin is abandoned. | Research the coin's fundamentals, understand its utility, and make an educated decision. |
| DeFi Scams | Anonymous teams use decentralized exchanges (DEXs) to grow massive communities, only to then sell all their holdings (a "rug pull"), crashing the price. | Start by investing in projects whose founders are known and which are listed on popular centralized exchanges. |