How to Identify Crypto Scams5-min read
Lone Suhali | Updated on 06/1/2025
The rapid evolution of cryptocurrency and blockchain technology has created a flourishing market for digital assets. Unfortunately, it has also created fertile ground for scammers looking to exploit new and experienced investors alike. From initial coin offerings (ICOs) to non-fungible tokens (NFTs) and decentralised finance (DeFi) projects, the crypto space’s complexity can often cloak deceptive schemes. Recognising the hallmarks of a scam can save you from substantial financial loss. Below, we explore some of the most notorious crypto scams, the strategies they use, and the red flags to watch for.
In This Guide:
- Common Types of Crypto Scams
- Red Flags and Warning Signs
- How Proven Scams Operate
- How to Verify a Project
- Protecting Yourself Against Scams
- Real-World Examples of Infamous Scams
- The Affiliate Angle: How Paid Promotions Fuel Deception
- Next Steps and Final Thoughts
1. Common Types of Crypto Scams
1.1 Ponzi and Pyramid Schemes
How They Work
Ponzi and pyramid schemes rely on recruiting new participants whose money is used to pay returns to earlier investors, rather than generating any legitimate profits. At first, you may see “guaranteed” or “high” returns. But these payouts are usually sourced from the influx of new investors, rather than genuine business activities or trading results.
Case Study: BitConnect
- Overview: Launched in 2016, BitConnect promised daily returns of up to 1% through an algorithmic “trading bot.”
- Outcome: In 2018, multiple regulatory warnings and lawsuits exposed the scheme. Investors lost most of their funds, with total losses estimated to be in the billions of dollars.
- Key Lesson: Any platform claiming consistent, high-yield returns with little to no risk is a major red flag.
1.2 Fake ICOs (Initial Coin Offerings) and Token Sales
How They Work
An ICO is similar to an IPO (Initial Public Offering) but for tokens. Scammers create a flashy website, whitepaper, and hype around a new crypto project, then invite the public to invest early for supposedly massive future gains. Once money pours in, the criminals may simply disappear.
Case Study: PlexCoin
- Overview: Claimed to offer a revolutionary new payment system and promised extravagant returns of 1,354% on investments.
- Outcome: Shut down by the U.S. Securities and Exchange Commission (SEC) in 2017, leading to legal actions against the founder.
- Key Lesson: Always verify a project’s team, technology, and regulatory compliance. If a project’s claims seem too good to be true, they probably are.
1.3 Pump-and-Dump Schemes
How They Work
Organisers artificially inflate (pump) the price of a low-volume cryptocurrency by spreading rumours or hype through social media and private groups. Once the price rises sharply, they sell (dump) their holdings, causing the price to crash, leaving other investors with worthless tokens.
Example
- Overview: Certain Telegram or Discord groups secretly coordinate mass buying of a particular coin.
- Outcome: Unsuspecting investors jump in after the price starts climbing, only to see the coin’s value plummet as soon as the orchestrators unload their tokens.
- Key Lesson: Sudden, unexplained price spikes in obscure tokens are suspicious. Be wary of “trading groups” and always look at the coin’s fundamentals.
1.4 Rug Pulls
How They Work
In a rug pull, developers launch a seemingly legitimate DeFi project or NFT collection. They encourage people to stake or buy tokens, often touting unbelievably high returns. Once the project accumulates significant funds, the dev team abruptly withdraws liquidity or mints more tokens, then sells them en masse, causing the token’s value to collapse.
Case Study: SnowdogDAO
- Overview: A DeFi project on the Avalanche blockchain promised high yields and was marketed as a meme coin with future potential.
- Outcome: After a week of hype, developers executed a complex buyback that benefited only a few insider wallets. Most investors saw their tokens crash to near zero in minutes.
- Key Lesson: Projects that lack transparency about liquidity pools, or that let developers hold a massive portion of the token supply, can be poised for a rug pull.
2. Red Flags and Warning Signs
2.1 Guaranteed High Returns
No legitimate crypto investment can guarantee high returns—especially on a daily or weekly basis. The market is inherently volatile, and any claim of “no risk” or “guaranteed profits” is almost certainly deceptive.
2.2 Anonymous or Vague Team Members
Legitimate projects often have clear, accessible information about their founders, developers, and advisers. If a project’s website does not list credible professional backgrounds, or if the team uses only pseudonyms without any track record, proceed with caution.
2.3 Poorly Written Whitepapers
A whitepaper is the core document outlining a crypto project’s objectives, technologies, and tokenomics. Scammers often rely on buzzwords, hype, and plagiarised text. Look for red flags such as grammatical errors, nonsensical jargon, or lack of clarity on real-world use cases.
2.4 Aggressive Marketing Tactics
Watch out for social media feeds flooded with unrealistic success stories or memes about instant millionaires. Overly pushy marketing, heavy reliance on celebrity endorsements without real substance, or spammy community channels are all indicators of possible foul play.
2.5 Non-Existent Roadmap or Project Milestones
Legitimate crypto projects typically offer a clear roadmap. If a project claims it will solve huge problems but provides no technical details or realistic timelines, it’s likely just hot air.
2.6 Suspicious Smart Contracts or Lack of Code Transparency
On platforms like Ethereum, the underlying code for token smart contracts is usually open-source or at least verifiable through block explorers like Etherscan. If you cannot verify the code or if the code has major vulnerabilities, exercise extreme caution.
3. How Proven Scams Operate
3.1 Leveraging FOMO (Fear of Missing Out)
Scammers thrive on urgency. They frequently warn prospective investors that an opportunity is time-limited or that they’ll miss out on massive returns if they don’t act immediately. This psychological pressure pushes people to invest without adequate research.
3.2 Exploiting Trust in Social Media Influencers
From YouTube personalities to Twitter celebrities, fraudsters may pay or trick influencers into promoting their scams. The influencer might not even know it’s a scam, but their endorsement can quickly attract thousands of followers, injecting legitimacy into a fraudulent project.
3.3 Using Fake Testimonials and Fabricated Partnerships
Scam websites are often populated with fictitious success stories, phoney user reviews, or even partnership claims with major tech or financial companies. A quick check with the purported partner’s official channels (e.g., their verified Twitter or press releases) can debunk these lies.
3.4 Obscuring True Ownership or Location
Scammers often register their companies in obscure jurisdictions with lax financial regulations, making it hard to track them. They might also fake physical addresses or create shell entities. When things go wrong, victims have nowhere to turn for recourse.
4. How to Verify a Project
4.1 Investigate the Team
Check LinkedIn, GitHub, or other professional networks to confirm the identities and track records of the founders and developers. See if they’ve worked on notable past projects or have relevant expertise in blockchain technology.
4.2 Read the Whitepaper Critically
A genuine whitepaper offers insight into the project’s technology, roadmap, and potential risks. Ask yourself these questions:
- Does the project solve a real problem or offer unique features?
- Are the token’s economics (or “tokenomics”) explained clearly?
- Is the language coherent, or just hype-driven?
4.3 Check Code Repositories
For blockchain projects, look at public repositories on platforms like GitHub. Legitimate teams often share their source code, maintain regular updates, and openly discuss issues or improvements.
4.4 Research Community Feedback
Scammers sometimes lock down their Discord or Telegram channels to censor complaints and questions. In an authentic project, the community is engaged in transparent, constructive discussions. Revisit established crypto forums (e.g., r/CryptoCurrency on Reddit) to see if anyone has flagged concerns.
4.5 Look at Audit Reports
Smart contract audits by reputable third-party firms (e.g., CertiK, Quantstamp, PeckShield) can be a good sign. However, not all audits are equal. Some scammers buy superficial audits that gloss over code flaws. Always verify the auditing firm is trustworthy and the audit is thorough.
5. Protecting Yourself Against Scams
5.1 Use Reputable Exchanges
Major regulated exchanges (e.g., Coinbase, Binance, Kraken) conduct due diligence before listing assets. While not foolproof, the likelihood of listing outright scams is reduced. When dealing with smaller or decentralised exchanges, be extra careful to validate the token’s legitimacy.
5.2 Diversify Your Portfolio
Even if one of your cryptocurrency investments turns out to be a scam or suffers a market collapse, having a diversified portfolio can help mitigate losses. Spread your investment across several projects, ideally ones with proven track records or legitimate fundamentals.
5.3 Enable Security Measures
Use hardware wallets (e.g., Ledger, Trezor) or reputable software wallets with strong encryption. Always activate two-factor authentication (2FA). Avoid clicking on suspicious links or downloading unknown software claiming to offer free tokens or secret tips.
5.4 Stay Educated
The crypto world evolves quickly, and so do scammers’ tactics. Follow trusted crypto news outlets, subscribe to reputable analysts, and participate in educational forums that discuss the latest trends and potential pitfalls.
5.5 Consult Financial and Legal Experts
If you’re considering a substantial investment or a complicated DeFi project, consult professionals—lawyers, certified financial planners, or blockchain experts—who understand the landscape. They can help you navigate regulatory ambiguities and assess potential risks.
6. Real-World Examples of Infamous Scams
OneCoin
- What Happened: Marketed as “Bitcoin’s successor,” OneCoin raised billions of dollars worldwide from 2014 to 2017. The founders claimed it had its own blockchain, which turned out to be non-existent.
- Outcome: Several leaders of OneCoin were arrested. Ruja Ignatova, a key figure, disappeared in 2017 and remains a fugitive.
- Lesson: Verify whether the project actually uses a legitimate blockchain. Grand claims without transparent proof are a red flag.
PlusToken
- What Happened: A 2019 scheme that posed as a high-yield investment wallet promising daily returns of up to 10%.
- Outcome: Hundreds of thousands of investors lost funds when the platform abruptly vanished, with the organisers siphoning off over $3 billion.
- Lesson: High-yield investment programs are almost always unsustainable and collapse once recruitment slows.
MTI (Mirror Trading International)
- What Happened: Promised AI-driven Bitcoin trading with unrealistic gains. In reality, it functioned as a Ponzi scheme.
- Outcome: Collapsed in 2020. The CEO disappeared, and authorities worldwide began investigating the company.
- Lesson: If a company touts a “proprietary trading bot” but fails to provide detailed proof of these trades, it’s usually a scam.
7. The Affiliate Angle: How Paid Promotions Fuel Deception
Crypto scams don’t always involve fraudulent platforms alone—sometimes they’re boosted by affiliates who receive commissions for every new sign-up or deposit they generate. While there are legitimate affiliate marketers, some operate under false pretences, posing as independent reviewers or news outlets when they’re really pushing questionable projects for profit. These “affiliates in disguise” might gloss over risks, exaggerate returns, or use aggressive marketing techniques to sway unsuspecting investors.
If you’d like to dive deeper into this aspect of the crypto scam landscape—learning how affiliates function, why they may not properly vet the products they promote, and how to spot disguised promotional content—be sure to read our full guide on affiliate marketing pitfalls. It covers the tactics affiliates use, red flags to watch for, and best practices for protecting yourself from dishonest endorsements.
8. Next Steps and Final Thoughts
The best defence against crypto scams is a mix of knowledge, caution, and due diligence. If an opportunity sounds too good to be true, it almost certainly is. Always question marketing claims, verify project details, and be wary of any investment that guarantees profit without risk. Use the resources at your disposal—code repositories, professional networking sites, reputable crypto media, and regulatory bodies—to confirm a project’s legitimacy.
With the crypto market growing daily, new opportunities will emerge—but so will new scams. By staying informed and vigilant, you can safeguard your investments and contribute to a healthier, more transparent cryptocurrency ecosystem.
Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions.
FAQs
What’s the easiest way to spot a crypto scam?
Look out for promises of guaranteed or excessively high returns with little or no risk. Genuine cryptocurrency investments are volatile and never come with such guarantees.
Are all new crypto projects scams?
No. Many legitimate projects launch regularly. However, new or lesser-known projects do carry heightened risks—so always research the team, read the whitepaper, and verify project authenticity before investing.
How do I know if a project’s whitepaper is credible?
A credible whitepaper outlines the problem the project aims to solve, explains its technology, and offers detailed tokenomics. If it’s filled with vague promises, unverified claims, or heavily plagiarised content, that’s a major red flag.
What is a ‘rug pull,’ and how can I avoid it?
A rug pull occurs when a project’s creators abandon it suddenly and drain its liquidity, causing token prices to crash. To avoid rug pulls, check if the development team is transparent, verify locked liquidity or vesting schedules, and assess the project’s code audits.
Are celebrity endorsements always trustworthy?
No. Some celebrities and influencers are paid to promote projects they haven’t researched thoroughly. Always corroborate an endorsement with your own due diligence—don’t just rely on star power.
How do I spot an affiliate-driven review site?
Affiliate-driven sites sometimes hide their financial incentives and post overly positive reviews. Look for balanced coverage (pros and cons), transparent disclaimers about affiliate links, and verifiable author credentials.
Can I recover my funds if I fall victim to a crypto scam?
It’s often difficult to recover lost funds, as crypto transactions are generally irreversible. Your best bet is to contact law enforcement or relevant regulatory bodies, and gather as much evidence (transaction IDs, emails, chat logs) as possible.
Is it safe to invest through social media recommendations?
Proceed with caution. Social media is rife with pump-and-dump groups and sponsored posts disguised as impartial advice. Cross-check all tips with legitimate news sources, project documentation, and community discussions.
How can I protect myself against malware or phishing scams?
Use reputable anti-malware and antivirus software, and never download suspicious files or click unknown links. Always check URLs for typos or slight variations (e.g., “coinhbarat” instead of “coinbharat”) before entering sensitive information.
Who should I contact if I suspect a scam?
Report to your local financial regulatory authority or law enforcement agency. You can also share your experience on trusted crypto forums or communities to warn others.