How to Avoid Crypto Scams?

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Sounds familiar?

Sounds like something you see in the headlines every now and then?

There are currently 2,386 cryptocurrencies listed on Coinmarketcap

Do you know know exactly how many are real, and how many are scams?

You don’t. 

And neither do I. 


As more people recognise the value and potential of cryptocurrency, cases of scams are also on the rise. According to the blockchain forensics company CipherTrace, approximately $4.26billion were siphoned from crypto users in 2019 alone. In addition, recent report by blockchain analysis company Chainanalysis revealed that out of all types of crypto-related crimes, scam crimes account for majority of the illicit crypto transaction volume in 2019.

(Credit: Chainanalysis)

Targeting our greed, ignorance, and herd mentality, crypto scammers lure us into the honey trap of “GET RICH QUICK & EASY” with lucrative promises of low risk and high returns. 

As most crypto markets are not regulated, there are no authorities to protect users against these scams. This means we are pretty much on our own. How do we know which ones to invest in, and which ones to avoid?

Know thy self, know thy enemy.

To avoid these scam projects, we must know the tell-tale signs of scam, as well as why we tend to succumb to temptation.

But before that, we need to talk about Bitcoin and altcoins.

To date, Bitcoin is still the badass mafia boss of all cryptocurrencies, the most valuable coin out there.

(Pssst……Don’t know what’s a Bitcoin? We gotcha fam! Five Fun Facts About Bitcoin? Definitely a must read!!)

As the popularity of Bitcoin grew, people recognised its potential but also saw some of its down sides (such as high power consumption, slow transaction rate, etc.). So, they created their own alternative coins, called the altcoins.

Some of them, such as Ethereum and Litecoin just to name a few, developed well, and went to join Bitcoin on the crypto hall of fame. They are commonly referred to as the large cap coins

Some that didn’t do so well, and that’s okay. : )

Among those are scammers with no intention of making a legit coin in the first place – they only want your money! These projects are structured in a few identifiable methods, namely – the pyramid scheme, ponzi scheme, pump & dump, and fraudulent ICOs


Here’s a few types of crypto scams you need to look out for:


1. Pyramid scheme:

Pyramid schemes is when top-tier members profit from investments or payments made by lower-tier members, forcing the latter to recruit even newer members in order to profit or even break even from their investments. 

The pyramid tumbles when the lower-tier members fail to recruit anyone else, leaving the newest members to brace most of the impact. 

Let’s say your friend John sold you a bottle of Fish Oil Essential Supplements that can increase your IQ by 60 in 3 years, “100% guaranteed! Scientifically proven!” 

(Credit: Created by DigiFinex on the one and only, beloved Canva)

You bought one bottle for like uhm… $8,000 (“Good things don’t come cheap,” said John). 

Indeed, you felt more refreshed and alert just from using it for a month! 

John also told you that for every person you sell the fish oil to, you can keep 20% for yourself, 10% to him, and the rest to the company (“It’s a win-win situation!” said John). 

You concurred. 

Afterall, there’s nothing wrong with improving each others IQ, and earning a little cash at the side, right?

After fishing out (haha) all your potential targets friends you have since primary school, you managed to sell 10 bottles of fish oil! #AchievementUnlocked

As a result, not only did you managed to cover your initial cost, but also made a profit from the remaining amount (YASSS)!

Your friends loved the oil, and loved rebates more. They also managed to sell the fish oil to a few friends, whom in turn sold it to a few more friends, and a few more… and the pyramid builds itself. 

(Credit: DigiFinex)

The pyramid scheme can be used for most products, stocks, and of course, cryptocurrency. 

Those that entered the system early will benefit more because money keeps coming. But it’s not so lucky for the later investors – they would have to waddle their way through a minimized pool of potential targets. Failure to recruit enough people means that they might not even be able to cover their initial costs. 

So apart from the schemers perched at the top of the pyramid, the following layers of investors are both victims and perpetrators of such scheme. 

Read more about real-life news of pyramid schemes here and here!


2. Ponzi scheme:

You may see ponzi scheme and pyramid scheme being used interchangeably – while they are both scams, the structure differs. 

Ponzi scheme scammers spin yarns of lucrative investments with high returns and little to no risks

What they really do is to collect investments from newer investors and give it to older investors in the name of “returns”. When there is no more new investors, or when investment from new investors failed to match the “returns”, the scheme falls apart. 

>> Bitconnect <<

One of the most infamous cases of ponzi scheme is Bitconnect

Bitconnect provided a platform for users to invest their money for Bitconnect Tokens (BCC). The money will be managed by a Bitcoin investment algorithm that buys Bitcoin when the price is low, and sell it when the price goes up. However, no details are provided regarding how the algorithm works. 

Bitconnect also guarantees a daily interest of 1% for all investments that users make on their platform, which is suspicious: Markets are so incredibly volatile – even the most seasoned traders make erroneous predictions. How can this platform able to guarantee a fixed amount of interest everyday? 

Yet, no one caught all these red flags.

Bitconnect’s popularity surged. 

Within one year since its inception in 2016, it attracted more than 50,000 users, and the price of BCC reached its all time high of $463

One of its investors Carlos Matos made himself an Internet meme with his overly enthusiastic and confident speech at a Bitconnect ceremony. #bitconeeeeeeect

It was only in late November 2017 did industrial experts and Ethereum founder Vitalik Buterin called Bitconnect out as a scam: 

(Credit: Twitter)

Soon after, Bitconnect received a notice from the UK government to prove its legitimacy within 2 months, and a cease and desist from the Texas State Securities Board in January 2018. 

As a response, Bitconnect announced its closure on 13 January 2020. 

Following that, the price of BCC fell by more than 90%. 

(Picture taken from xbc.net, which was taken from the bitconnect website)

People were left upset, confused, and unable to withdraw their money back. 

Such instances aren’t once-off occurrences. Check out other infamous ponzi schemes, such as OneCoin and PlusToken!


3. Pump & Dump:

Pump-and-dump is a type of false advertising that boosts the price of a product, stock, or asset through false or misleading statements. 

Scammers will first buy heavily into an asset with low trading volume to pump the price up. 

Then, they will entice gullible victims to buy the asset quickly with promises of a drastic upward price swing. 

(Credit: DigiFinex)

Since people could see prices rising in real-time, they would often believe the claims and make investments that boosts the price higher. This hype will attract more hopeful investors to step into the honey trap.

When enough people have invested in this asset, the scammers will dump their shares at a high price. This will cause a drastic drop in asset value. 

This scheme is commonly used on small cap coins, as the addition of each new investor will affect the price visibly.

P&Ds have been made more common with the prevalence of the internet – should you receive insider news, emails, or posts promoting a random coin without mentioning the risks, beware and be aware! Many of these promoters are paid to do so. Always do your research before you invest! 


4. Fraudulent ICOs:

Initial Coin Offering (ICO) is a method of fundraising. 

While the method isn’t a scam, many fraud companies used ICO and a lousy whitepaper to crowdsource a hefty sum for their non-existent, virtually useless shitcoins, and run off with the money before the public realize that it’s all a fraud. 

2017 was the height of ICOs due to the Bitcoin price swing, and literally any ICO, dubious or not, can gather load of funds within hours. Among the legit ICOs are fraudulent ones that left many pockets empty. 

Hence, many countries, including South Korea, China, Nepal, have either banned ICOs or stepped up regulations against it. 

For a clearer idea of how a scam ICO works, do read up on the ingenuity of the Useless Ethereum Token (UET)!!!

These schemes may differ in structure, but they can also overlap in many ways. Afterall, scammers are here to scam your money, and they will do whatever to get you!


Tell-Tale signs of scam coins:

  1. Technology:
    • No real block chain or tokens.
    • No open source codes (verifiable via Github), or have codes that are plagiarized from other currencies with little to no variants. 
  2. No applicable scenarios:
    • No actual, applicable scenario or use cases for their blockchains. 
  3. No white paper:
    • Have your guards up if the company refuses to disclose their white paper, or if their white paper is filled with low quality, dubious fluff that does not explain the block chain technology and the project directly.
  4. Ghost teams: Scam projects usually do not have very credible people in the team.
  5. Nothing but a hype:
    • It’s a big no-no if you see recurring lines like “100% returns”, “high returns no loss”, “zero risks”.
    • There is bound to be rises and drops in the markets, so it is impossible to guarantee users a risk free, gains-only investment.
  6. No freedom to exchange:
    • Decentralization is a main characteristic of block chain, but ironically, most scam projects are controlled by a person or entity, so most of the exchanges could not be done freely at a public exchange, but rather, through more risky means of over-the-counter (OTC) exchange.


How to up your scam detection game:

  1. Google it! Check if there are any negative news reports or reviews about the company or the project.
  2. Read the project white paper – if it’s written badly, or if chunks of it are plagiarized from elsewhere, then you better up your guard!
  3. Research on the CEO & team members – Don’t be fooled by the professional photo shoots, diverse team backgrounds, and eye-blinding smiles! It is very easy for scam companies to fluff up their team.
  4. Use your common sense: If it’s too good to be true, it ain’t true!

Ask yourself – will you give out $50 when someone gives you $5?

(Credit: Reddit user/Thatsplumb)


Ain’t nobody got time for THAT!

Pssst…… you aren’t going to read that white paper, aren’t you? 😉

(Just like how you’d always skim pass the terms & conditions) 

Most of us don’t have the time to digest the mind-boggling, sleep-inducing, and overall just tedious-looking white paper. Even if you do, how the heck would you know if the paper was plagiarized or not? (p.s. speaking as a tech/maths noob, even the Bitcoin white paper had me zoned out at the second half):

(blah blah blah…… A screenshot from Nakamoto’s bitcoin white paper)

And sometimes it’s just so difficult for you and I to identify the credibility of a project –  some teams look right down impressive!

And what if you can’t find any negative news, and you don’t know of any industry people to clarify with? Hey, even Warren Buffett got scammed by a ponzi scheme selling solar panels last year (or watch this well-put video about it)!

That’s why we have……. DigiFinex!! *insert confetti sparkles*

We research on potential projects & teams before listing so that you don’t have to!

We are digital assets trading platform with over 200+ listed tokens, whereby each of them carefully selected & researched to ensure that only the most premium token project is provided to you!

Apart from the usual listing application route, we also offer a community token listing platform, where YOU can vote for your favourite project tokens! Top 3 voted projects will be listed FREE OF CHARGE! We have just ended our 11th round of community listing! Check it out here!

At the end of the day, cryptocurrency is still a pretty new industry that offers numerous opportunities and potentials. Just like how it can amass lots of like-minded individuals to innovate, it is bound to attract many malicious scammers who will do everything to rob your dollars. Whether you’re a seasoned trader or a curious newbie, remember to always trade with caution!


Not sure if the message or email you’ve received comes from your trusted crypto exchange or an impersonator? Check out our poster on the 4 ways to avoid crypto phishing!  

If you realized that you have invested in a scam project, withdraw immediately! 

Then report them to the police to prevent more people from getting scammed! 

If you have fallen victim to a scam, read this article by Money Back Hero to the ways to get your money back. It’s difficult, but you have to try!



Aziz. “Identifying Crypto Scams: The Comprehensive Guide.” Master The Crypto, 7 Nov. 2019, masterthecrypto.com/identifying-scam-coins/.

“BitConnect – Anatomy of a Scam.” Hackernoon, 25 Jan. 2018, hackernoon.com/bitconnect-anatomy-of-a-scam-61e9a395f9ed.

“Cryptocurrency BitConnect Breaks Records in Value and Market Cap.” PR Newswire, 27 Mar. 2017, www.prnewswire.com/news-releases/cryptocurrency-bitconnect-breaks-records-in-value-and-market-cap-300429781.html.

Dhir, Rajeev. “How a Pump-and-Dump Scheme Works.” Investopedia, 26 Apr. 2019, www.investopedia.com/terms/p/pumpanddump.asp.

Reale, Amanta. “What Is BitConnect (BCC) and How Does It Work?” Finder UK, 15 Nov. 2017, www.finder.com/uk/bitconnect.

Reiff, Nathan. “How to Identify Cryptocurrency and ICO Scams.” Investopedia, 25 Jun. 2019, www.investopedia.com/tech/how-identify-cryptocurrency-and-ico-scams/.

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