This article is about the 10 most common crypto scams and how you can tell if something is legit. Scams are everywhere. Letters and phone calls from “The IRS” or whichever government agency sounds the most official plague us all. Crypto scams are particularly dangerous.
Crypto transactions are one-way. If you send money to a scammer, you don’t get that money back. The only way to protect yourself is to be informed and inform others. Our community has a bad reputation for scammers and we have to help people identify scams.
Everyone can be scammed and actually, the smarter someone is (or thinks they are), the more vulnerable they are to some scams. Keep your wits about you and never think “it won’t happen to me.”
These are the most common scams we’ve identified:
- Pump and Dump
- Ponzi and Pyramid Schemes
- ICO Scams, Rug Pulls, and Exit Scams
- WhatsApp “Trading Professional”
- Fake Giveaway
- Fraudulent Exchange
- Blackmail Scam
- Cloud Mining
Think You’ve Been Scammed?
Crypto transactions are irreversible and you probably won’t get your money back. That doesn’t mean you won’t get retribution.
You must immediately start gathering information about what has happened. Think back to how this process started and document everything. Write out what happened and get screenshots or make transcripts of everything.
It is extremely important that you record all transactions that took place. The addresses can be used to track the scammer’s activity. Once you’ve gathered all your information, it’s time to find someone who can help.
Where to find help:
- Go to the Federal Trade Commission
- Look for Crypto Security Companies
- Or Crypto Recovery Firms
10 Common Crypto Scams
Scams have some recognizable patterns. Look out for the identifiers of each of the scams and you will avoid most of them. Use common sense and be skeptical to sniff out the rest.
Without further ado, here are the most common scams…
Pump and Dump
Pump and dumps are a coordinated market manipulation.
A group will encourage its members to buy a specific coin at a specific time. Coins with low liquidity will rapidly increase in price. The hope is that other people (not members of the group) will also buy the coin.
While people are pumping the coin, the leadership sells coins they already owned or purchased before the coordinated pump. They lie to everyone in the group, convincing them that as the price goes up, people from outside the group will start buying.
In practice, the pump dies almost immediately after the group has started because group members try to jump ship as soon as they’ve made a profit.
How to Identify a Pump and Dump
A private (or public) group is coordinating to get everyone buying a coin to pump it at the same time.
Avoiding Pump and Dump Scams
Don’t buy anything during a coordinated pump.
Phishing is one of the most popular and effective types of scam. Some are very sophisticated and will look and act exactly like the service you think you’re using, but are actually fake.
Email is the most popular method to deliver phishing hooks, but crypto scams are very popular through messaging services like Telegram and Discord. These scammers make a profile that looks identical to a community moderator.
Any unexpected message that looks like it came from a community leader is not legit. Here is a great article that covers this in more detail, written by Ledger.
How to Identify Phishing Scams
The email address or message you will be unexpected, not from the actual website or person (even if it looks real).
Avoiding Phishing Scams
Ignore, Block, and Report any emails or messages that look suspicious. Invitations to private trading groups, pre-sales, or anything should be immediately reported to community moderators.
How to Fight Back Against Phishing Scams
You can report emails using your email service provider’s security team. Here are some providers: Gmail, ProtonMail; just search “Report phishing emails <your_email_provider>” and you’ll get the answer. This can get the email domain blacklisted and then all their emails will be automatically flagged as spam worldwide.
Ponzi and Pyramid Schemes
Ponzi schemes or pyramid schemes use new members to pay for the profit guarantee of previous members. The exponential nature of these structures makes it mathematically impossible for anybody but the earliest members to make profits.
Don’t try and be an early member — don’t try and recruit people into a pyramid scheme.
These scams are not unique to crypto and are some of the most devastating scams that exist. People unwittingly give their entire life savings to scammers and recruit their family members into the same scam.
Investment scams drive people to commit suicide and worse.
How to Identify a Pyramid Scheme
Any promotional structure that guarantees profits and especially gives you percentage-based incentives on referrals and referrals’ referrals.
Avoiding a Pyramid Scheme
Do not join. Do not recruit.
Recruiters are often very convincing and have a well-practiced pitch. Always take some time to look into any organization and be skeptical of anything that sounds particularly generous.
How to Fight Back Against Phishing Scams
Report pyramid schemes to crypto news agencies, watchdog firms, or your local regulators. These scams work on social pressure and marketing. Bad publicity can do massive damage to Ponzi schemes.
ICO Scams, Rug Pulls, and Exit Scams
ICO Scams, Rug Pulls, and anything else in the category of Exit Scams is mostly unique to crypto. The free-market nature of crypto allows lots of great projects to get funding from all over the world and small investors to get in early on projects that would be impossible otherwise.
Editor’s Note: The same skills needed to sniff out scams can also be used to make you tons of money. Want to learn how to identify killer crypto projects before everyone else? I used these exact techniques to make a 40x return. Check out: Pumpamentals 101: What Makes a Crypto Moon.
The free-market also allows scammers to push their scam coins.
ICO scams are projects that will never be made but will be heavily marketed to draw in early investors. Once they’ve drawn in the victims, the owners will sell all their tokens (or sell until the price is extremely low). Since there are many new legitimate projects in crypto, identifying these can be tricky. Keep in mind that most crypto projects will fail and there will always be opportunities in the future.
We need to increase awareness and build trustworthy institutions in the crypto space to fight the exit scam problem. You will need to be extra careful when making investments in the crypto space.
How to Identify Exit Scams
Be very careful of the following traits: Anonymous teams; teams that are greatly unqualified; projects riding a recently hyped trend; projects with no whitepaper; projects with no working product; projects that haven’t even started development; projects that are advertising before anything else.
How to Avoid Exit Scams
Don’t buy completely unproven projects with no proof of development and avoid anonymous teams. Working products that are forked can still be scams. Always do your own research into the team, whitepaper, development, and project feasibility.
WhatsApp “Trading Professionals”
These are prolific on YouTube.
It took me 5 minutes to find this example screenshot because they’re everywhere. Don’t trust any random messenger numbers on the internet.
These usually work like this: Several bots will join the comments and have a fake conversation between several accounts. At some point, one of them will recommend “trading with Mr. Charles Baker” (insert any name here). Then, a few more will say that they’ve had great success and already made 0.5 BTC with Mr. Baker! They will include a WhatsApp number or other private messaging service.
Most of them are pretty clever and will ask questions and throw in possible downsides. Anything to seem legitimate. None are legitimate.
How to Identify WhatsApp “Professional Traders”
Anybody that is offering to help you invest or invest for you.
Trading is extremely difficult and anyone with the skills to do it for you, doesn’t need your money — but they will take your money. These people will try and convince you to do something that will compromise your account or otherwise gain access to your crypto wallets.
Avoiding WhatsApp “Professional Traders”
Ignore, Block, and Report anyone offering to help you trade or invest your crypto.
This is another scam that’s huge on YouTube. These are usually pre-roll video ads or live streams and they always feature a video of a prominent figure.
Scammers will use public figures to entice people to their scam. People in the crypto space never giveaway crypto. You never would need to “verify your address” by sending crypto. If you send crypto here, you will never get anything back.
These are always real videos displayed next to a fake giveaway.
How to Identify a Fake Giveaway
Any public figure giving away crypto — especially if there is a conference video accompanied by instructions on how to join the giveaway.
Avoiding Fake Giveaways
Don’t send anything to anybody claiming they will give you crypto.
Very few crypto exchanges have any volume to speak of.
Unless you have a very good reason, don’t use anything other than a top-10 exchange. There is almost no reason for anyone to experiment when it comes to exchanges. Use what’s popular. Avoid what’s not.
How to Identify a Fake Exchange
Any exchange that is not publicly recommended by many people. It’s not necessarily fake but it’s not worth the risk.
Avoiding Fake Exchanges
Stick to the most popular exchanges.
These are not the most popular, but they can be unsettling.
If you receive anything threatening, the first step is to calm down. These are usually spam messages that take advantage of some publicly available personal information to scare you into compliance. This could be your password!
They will use the private information to try and prove that they know who you are and have access to your accounts. Really, they’ve just found a bunch of data on the dark-web and sent out tons of spam emails.
How to Identify a Blackmail Scam
Random emails or messages threatening to expose you, attack you, etc. unless you give them crypto.
Avoiding Blackmail Scams
Take common-sense security measures, don’t give out any of your crypto addresses, don’t make it publicly known that you have crypto.
Malware is the most nefarious way that people can gain control of your crypto.
There are fake wallets, fake browser addons, even applications that mine crypto without your knowledge. The best solution is to prevent malware from ever getting on your device and only use crypto on a clean device.
How to Identify Malware
Generous free offers that require you to download software or a specific crypto wallet are probably malware.
If you’ve installed malware you may notice strange behaviors on your device or new “features.” Your device may also begin to suddenly run slower.
Don’t install things from unknown sources — look up the website yourself to download something, don’t use links, and always check the address bar. You should also use a virus scanner before using crypto services on a device (I recommend Malwarebytes and have used it for 10+ years).
Some cloud mining services are legit, but the entire industry is generally not worth your time. It is also fairly easy to fake these services. Due to these combined factors, you should probably avoid cloud miners.
How to Identify Cloud Mining
Rent-a-Miner services that promise crypto mining services for a subscription. This one’s pretty self-explanatory.
Avoiding Cloud Mining Scams
If you’re not deterred and you still want to try out cloud mining, use online shopping common sense.
Always check out the ratings (third-party rating services are preferred) and avoid anything promising huge returns. Crypto mining is extremely competitive and has razor-thin margins and cloud mining is even less profitable than traditional crypto mining.
General Tips to Stay Safe
- Use 2FA (non-SMS > SMS)
- Always triple check the address
- Never share your private keys
- Use a cold wallet
- Be skeptical of easy money and fast money
- Create a new wallet whenever you want to test out something new
- Never forget: High-profits are always high-risk
There’s more than scammers out for your crypto. If you’ve made any money in crypto, the IRS wants a piece of your earnings. We don’t give the IRS anything extra by using some simple tax strategies.
Don’t get caught with a huge tax bill and make sure you plan ahead. You can use the same techniques we do (for free): Check out our post about Crypto Capital Gains in the United States.
How to crypto scams work? ›
Crypto scammers use many of the same tactics employed in other financial crimes, such as pump-and-dump scams that lure investors to purchase an asset with fake claims about its value or outright attempts to steal digital assets.Can I get my crypto back from scammer? ›
Report The Scam To The Law Enforcement Authorities
Although it doesn't assure fund recovery, it's also best to report the cryptocurrency scam to your area's designated law enforcement authorities. Typically, when you report a scam, the government will track down the criminals and get your funds back for you.
Scammers in recent weeks have employed up fake cryptocurrency web pages to attempt to steal money from users, the latest tactic to emerge in what's already been a costly year for crypto-related hacks.What are the latest scams 2022? ›
- Google Voice Scam. ...
- Rental Assistance Cons. ...
- Fake-Job Frauds. ...
- Fake Amazon Employees. ...
- Cryptocurrency ATM Payments. ...
- Local Tax Impostors. ...
- 'Favor for a Friend' Gift Cards. ...
- P2P Payment Requests.
Websites like CoinMarketCap offer all the publicly available information needed to verify that a cryptocurrency is legitimate. Also, make it a point to check whether it is trading on the popular exchanges like WazirX, CoinDCX and CoinSwitch Kuber as they perform their due diligence as well.What percent of Cryptos are scams? ›
Americans lost $680 million to crypto fraud in 2021.
|Year||Percentage of scams that used crypto as a payment method that started on social media|
|January 2021 to March 2022||49%|
Scammers exploit social influence in a couple of ways. These include faking testimonials and reviews or even going as far as creating fake social media accounts to do so. There's also targeting individuals with phishing emails that pretending to come from people who have benefited from a particular product or service.Can anyone recover stolen crypto? ›
Once your virtual currency has been stolen it is incredibly unlikely that you will be able to recover it.How do hackers steal your cryptocurrency? ›
Applications (software) and devices can be hacked. Because private keys are stored in application and device wallets, hackers can access them and steal your cryptocurrency.Can you claim money lost in crypto? ›
The IRS requires that you report all sales of crypto, as it considers cryptocurrencies property. You can use crypto losses to offset capital losses (including future capital losses if applicable) and/or to deduct up to $3,000 from your income.
What is the safest crypto site? ›
- Best Exchanges. Best Crypto Exchanges 2022. The Top 5 Safest Cryptocurrency Exchanges. Top Decentralized Exchanges.
- eToro. Coinbase. Kraken. Binance. Bitbuy. CoinSmart. Bitstamp.
Go to your local police station to report a crime, or to FBI's Internet Crime and Complaint Center (IC3) or to the Federal Trade Commission at the Federal Trade Commission.What is the most trusted cryptocurrency platform? ›
- Coinbase - Best for Beginners.
- Binance.US - Best for Low Fees.
- Crypto.com - Best for Security.
- BlockFi - Best for Earning Interest.
- Bisq - Best Decentralized Exchange.
- COVID-19 Scams, Rumors, and Price Gouging.
- Banking Scams.
- Telephone Scams.
- Census-Related Fraud.
- Government Grant Scams.
- Investment Scams.
- Lottery and Sweepstakes Scams.
- Charity Scams.
- Advance Fee Scams. ...
- Tech Support Scams. ...
- Phishing. ...
- Emergency Scams. ...
- IRS or Government Imposter Scams. ...
- Foreign Money Exchange Scams. ...
- Counterfeit Cashier's Checks. ...
- Bogus Debts.
- Copycat government websites. Some scams involve websites designed to look like official government websites such as HMRC. ...
- Dating and romance scams. ...
- Holiday frauds. ...
- Mandate fraud. ...
- Pharming. ...
- Phishing emails.
1. Facebook, Account Cloning: Scammers use the photos and information on your public profile to create a replica account. They ask your friends and family for money and send them malicious links that if clicked can steal their personal and financial information leading to identity theft and financial ruin.What is a red flag of many common scams? ›
Missing documents that are fraud red flags include registration of motor vehicles, lists of sales and purchases, checkbooks, and inventory reports. When such records disappear, it may point to an undesirable situation that may lead to the loss of certain assets or money.Are there fake crypto apps? ›
Scammers are using fake crypto apps to steal funds from investors. Some malicious apps find their way into official app stores. Scammers have been taking advantage of blockchain's decentralized and immutable nature to swindle crypto investors since the advent of the technology.What crypto should I stay away from? ›
Cryptos to Avoid at All Costs
According to Weiss Crypto Ratings, cryptocurrencies with low ratings, ranging from E-, E to E+, should be avoided. To put that into perspective, at the time of writing, both Bitcoin and Ethereum have a B+.
What information does a scammer need? ›
What they want are account numbers, passwords, Social Security numbers, and other confidential information that they can use to loot your checking account or run up bills on your credit cards. Identity thieves can take out loans or obtain credit cards and even driver's licenses in your name.How do scammer get your money? ›
Scammers get access to your bank account numbers through fraudulent telemarketer calls or by stealing them from unsecured websites when you sign up for a free trial. Once a scammer has access to your account information, they can debit your account every month with your knowledge or approval.What are the signs of someone scamming you? ›
- Scammers Want. You To Wire Money. You may be asked to wire money or purchase pre-paid debit cards. ...
- Scammers Tell. You To Keep It “Secret” ...
- Scammers Make. It Sound Too Good To Be True. ...
- Scammers Contact. You “Out Of The Blue” ...
- Scammers Claim. There Is An “Emergency” ...
- Scammers Ask. For Your Personal Information.
According to IRS Notice 2014-21, the IRS considers cryptocurrency to be property, and capital gains and losses need to be reported on Schedule D and Form 8949 if necessary.Can crypto hackers be caught? ›
In general, hackers can never assume their crypto transactions won't be traced. Blockchain's immutability means that, as we've seen recently with Laura Shin's work and the Bitfinex arrests, the most surprising reveals can happen even years later.Can crypto be traced by police? ›
Even with cryptocurrency, investigators can follow the money. Bitcoin, the Internet currency beloved by computer scientists, libertarians, and criminals, is no longer invulnerable.What is the biggest hack in crypto? ›
The five largest-ever cryptocurrency hacks
$470m - Mt Gox, February 2014. $532m - Coincheck, January 2018. $540m - Ronin Bridge, March 2022. $611m - Poly Network, August 2021.
Investors have lost over $3 billion to hackers across 125 hacks in 2022 so far, which is likely to surpass 2021 as the biggest year for hacking on record, according to blockchain analytics company Chainalysis.How much crypto is stolen every day? ›
Shobhit Seth is a freelance writer and an expert on commodities, stocks, alternative investments, cryptocurrency, as well as market and company news.How much crypto Do you need to claim? ›
Tax filers must answer a question on Form 1040 asking if they had any type of transaction related to a digital asset during the year. Crypto exchanges are required to file a 1099-K for clients who have more than 200 transactions and more than $20,000 in trading during the year.
What happens if I don't report crypto on taxes? ›
If you don't report taxable crypto activity and face an IRS audit, you may incur interest, penalties, or even criminal charges. It may be considered tax evasion or fraud, said David Canedo, a Milwaukee-based CPA and tax specialist product manager at Accointing, a crypto tracking and tax reporting tool.What happens if I don't report crypto losses? ›
After an initial failure to file, the IRS will notify any taxpayer who hasn't completed their annual return or reports. If, after 90 days, you still haven't included your crypto gains on Form 8938, you could face a fine of up to $50,000.What is the main crypto website? ›
Coinbase is by far the most popular and one of the best cryptocurrency exchanges because you can invest directly with USD. You can currently purchase Bitcoin, Ethereum, and Litecoin and 30+ other coins and tokens on the platform.
This cryptocurrency is known as one of the fastest and secure blockchains as XRP can process 1500 transactions per second with an average ledger settlement (approval time) of 3-5 seconds.
The Exodus Wallet is safer than the Coinbase web wallet because the user holds their private keys and maintains complete control over their assets.What if someone sends you a crypto? ›
A recipient is never taxed when they receive a gift of cryptocurrency. However, when the recipient sells or otherwise disposes of the cryptocurrency, then the recipient will need to report that transaction on their tax return.Can you track a scammer? ›
An IP address can be used to trace the location of the scammer if the IP address is not hidden using a VPN or other means. There are a variety of ways to obtain someone's IP address.
- Investing simplicity and and high interest rates: Gemini Exchange.
- Diversified investing needs: Robinhood.
- Trading platform and crypto selection: Coinbase.
- Membership ecosystem: SoFi Active Investing.
- User-friendly trading platform: Cash App Investing.
- Low fees: Binance.US.
|Name of exchange||Why Better than Coinbase||Our Rating|
|Pionex||Low risk investment strategy.||5/5|
|Bitstamp||Cheaper (between 0.05% to 0.0% fees) trading than Coinbase. Almost same as Coinbase Pro.||5/5|
|Crypto.com||Crypto.com Visa card – 4 tiers. Higher crypto staking yields.||4.5/5|
Here are our other top picks:
What are the 3 most common types of scams? ›
- Dating and romance scams. ...
- Computer hacking. ...
- Online shopping, classified and auction scams. ...
- Banking, credit card and online account scams. ...
- Small business scams. ...
- Job and employment scams. ...
- Golden opportunity and gambling scams. ...
- Charity and medical scams.
- Dating and romance scams.
- Investment scams.
- Upfront money scams.
- Online auction scams.
- Computer-hacking scams.
- Computer “service” call.
- Other scam types.
- Cyber crime scams. E-crime is criminal activity carried out using computers or the internet. ...
- Telephone scams. ...
- Email scams. ...
- Online shopping and finance scams. ...
- Protecting your personal information online. ...
- Postal scams. ...
- Online dating or relationship scams. ...
- Doorstep criminal scams.
- Tries to gain trust. An online scam will often try to gain your trust in some way. ...
- Emotional. ...
- Asks for action. ...
- Unexpected contact. ...
- Asks for personal info. ...
- Overpays you. ...
- Promises something. ...
- Wire transfer request.
Harshad Mehta, did a fraud without bank receipt of ₹5 billion from State Bank of India and individual scam of ₹14 billion using fake bank receipt using illegal system of Indian Banking System.Who gets scammed online the most? ›
On average, the oldest Americans lost the most money to online fraud. Roughly 105,000 individuals 60 and older reported a combined $966 million in losses, averaging more than $9,100 per person.How can you check if a website is legit? ›
- Use the free McAfee WebAdvisor to check for safe sites. ...
- Check the padlock in the address bar. ...
- Verify the website's trust seal. ...
- Use the Google Transparency Report. ...
- Check the company's social media presence. ...
- Analyze the overall look of the website.