Crypto Fraud: What You Should Know to Avoid It

Jul 6, 2021 06:19 PM ET
Crypto Fraud: What You Should Know to Avoid It

Cryptocurrencies have come a long way. According to CoinMarketCap, there are more than 10,000 cryptocurrencies that are valued at more than $1 trillion. At the same time, the number of crypto-related scams has increased, costing people millions of dollars. 

According to CipherTrace, people lost more than $4.1 billion in crypto scams in 2019. They lost more than $400 million in the first four months of 2021. This article will look at some of the top crypto scams and how to avoid them.

Initial Coin Offerings (ICO)

An ICO is an unregulated method in which blockchain developers use to raise money. In fact, it is the process in which most of the cryptocurrencies that you know were funded earlier on. For example,, the company behind EOS raised more than $4 billion in its ICO. Similarly, Justin Sun’s Tron raised $70 million for its ICO. 

Three are many challenges with ICOs, which has made some countries like China ban them. Similarly, advertising companies like Google and Facebook have banned their ads in a bid to protect customers.

The idea behind crypto scams is relatively easy since anyone can start them. For example, you can come up with a well-designed website, a professionally written white paper, and a good marketing strategy.

There are several types of ICO scams. There are exit scams, where people market an ICO, raise cash, and then disappear. There are also bounty scams that fail to pay their holders the proposed rewards. Further, there are URL scams, where a fraudster will create a fake website and collect funds from unsuspecting people.

You can avoid ICO scams in a variety of ways. The most direct one is to avoid investing in ICOs altogether. Combined, you have more chances of losing money when investing in an ICO than making it. Second, identify whether the ICO is a scam by looking at simple things. For example, most ICO websites have a team page. You can do an image search of these team members to confirm their activities. Finally, read the white paper to understand what you are investing in.

Crypto managed accounts

Another relatively popular scam is known as a managed account. Managed accounts are scammers who operate online crypto investment platforms and promise hefty rewards to their customers. 

The idea behind this is relatively simple. First, a scammer will create a good-looking website and claim to offer crypto investments. In most cases, the website will include video and impressive graphics showing their returns. Second, the scammer will promote the website on various platforms like Facebook and Google. 

Finally, after acquiring new customers, the company will disappear. Unlike other types of managed accounts, the victims will have little way out since they know too little about the people behind the scam.

These scams have become relatively popular today. Indeed, people have lost millions of money investing in “crypto hedge funds” that promise spectacular returns. A good example is Stefan Quin, a hedge fund manager who lied to investors about his fund’s returns. He faces more than 20 years in prison.

You can avoid these scams by just staying away from people who promise you excellent returns. Only invest in companies that you know well and those that are regulated by your country’s financial regulator.

Crypto robots scams

A robot is also known as a bot or a bot or an expert advisor. It is a piece of software that promises investors spectacular returns by doing in-depth analysis on thousands of coins.

These scams work in a relatively simple way. A software developer will come up with a bot and a good-looking website and start selling the robot. In most cases, the website will have excellent reviews from some of its past users. The site will also have a way in which you can buy the bot. The amount of the bot can range from less than $10 to more than $1,000.

After buying the robot, you will find that it mostly does not work. At times, the bot could be infected with malware that will lead to more losses. 

There are several ways of avoiding robot scams. First, always buy a robot that gives you a free trial. This will help you assess its efficacy. Second, always do a background study on the website. For example, find out the people behind it by doing a Whois search.  Third, you can do reverse image searches to find out whether people who leave reviews are genuine or not. Finally, you should always find reviews of the robots before you buy them.

DeFi fraud scams

Decentralized Finance (DeFi) is another industry that has become well-known for its scams. The industry has more than $50 billion in total value locked (TVL). While there are many genuine projects in the ecosystem, many people have lost a lot of money. 

It is estimated that fraudsters stole more than $83 million in the ecosystem in the first four months of the year. This happens simply because the industry is not regulated. As such, it is relatively easy for an anonymous group to start a project, raise money, and then disappear. You can avoid DeFi scams by first studying more about them before you invest. 

Exchanges scams

There are also scams that are related to exchanges. In 2021, it was reported that two South African brothers disappeared with crypto worth more than $3 billion. They operated a crypto exchange. A few years back, a crypto exchange founder died, leaving many investors without access to their coins. He was the only one who knew the password of the main wallet. 

Sadly, many similar situations will continue happening. You can avoid them by only relying on well-regulated exchanges like Binance and Coinbase.


Crypto scams are set to keep rising even as governments strategize on how to reign in the industry. In this article, we have looked at some of the most popular crypto scams and some of the best ways to avoid them.

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