How To Identify Crypto Scams



Jul 5, 2021


It is extremely unfortunate, but scams are rife in the digital asset world. When we look at the history of scams in general, you will find that most of them involve the promise of higher than average returns. And with digital assets and cryptocurrencies seemingly set to become the future financial backbone of society, it is no wonder that scammers are jumping on the bandwagon and utilizing its promising narrative to con people out of their money.

But no matter what the scheme is, whether it is an all out cyclical ponzi scheme, or a complex network of multi-level-marketing (mlm), there are common signs in each one that the public should look out for before parting with their money.

In this post we have 12 warning signs for you to look out for when a company promises “passive income” and higher than average returns on investment. They are ordered by priority as the most important warning signs:

1- Scamsters impersonate a big account, ask you to send crypto to them, then promise to return an inflated amount back to you

Possibly the most common scam in industry. A hacker or scammer will impersonate a big account (Twitter, Facebook, YouTube, Instagram, etc.) and will respond in the comments of a post by the big account they are impersonating with an offer. The offer usually involves users sending crypto to a specific wallet, and in return, these scammers promise to pay back up to double the sent crypto.

This offer usually links out to a website that makes victims feel like it could be legitimate, with elaborate promises of big returns. But the moment you send your crypto to their offered address, it is gone forever.

In order to further convince potential victims, the scammers will create bot accounts of fake users replying to their offer with testimonials like “yes! This really works!”. 

If anyone ever promises to double or even simply increase your money if you send them them crypto first, don’t do it! It is extremely likely to be a scam.

2- Payouts are only accessible inside the company’s own dashboard.

This is always a giveaway. If you have to send Bitcoin or crypto to a specific wallet address in order for it to start earning interest/payouts, that is a very first serious red flag. While some (very few) legitimate operations require your crypto to be within their ecosystem (like BlockFi), most simply need your API keys, not for you to deposit the crypto directly. When a scammer does this, they simply want access to your crypto, and then they can display on their dashboard whatever payouts they want because they’re fake. 

3- Closed ecosystem means no verification possible

Because of this closed ecosystem described above, there is no way to verify how many users are on board, how much money has been invested, and how much mining power there should be in relation to those users.

Whereas with all things related to blockchain, anything and everything can be transparently verified on the blockchain of the specific digital asset.

4- The actual details of the profit-generating mechanism are never disclosed.

A scam will merely promise great returns using blockchain hype words like “mining” and “ai” (artificial intelligence) or “algorithmic trading”, but use very little documentation (if any at all) or proof to confirm exactly how the returns are made.

5- Free to attend events are held regularly, which are used to hype the public into signing up.

Ambitious scammers create events and encourage friends and family to invite all their friends, and hype their audience up with very convincing methods that tricks the audience into making their investment / contribution.

6- Marketing materials promise financial freedom and use flashy imagery.

Images like Lamborghinis, Ferraris, beach paradises, hotels, expensive food, are all used in the marketing materials to add to the convincing hype. And then financial freedom and “passive income” is used to further convince the audience. While Bitcoin, as a deflationary currency, is certainly a great opportunity for a new financial ecosystem, it still carries risk, and these risks are seldom explained, if ever.

7- Returns are (almost) guaranteed – and used constantly in marketing materials.

Most scams will be very strong in the promise of profits. There is no guarantee of profits in investing. There is always risk that must be taken note of. These returns are above normal investment rates. Whether it be mining (cloud mining is a big scam) or trading, it is almost impossible to be a perfect trader generating the same returns every month. Always ask for official past performance records to confirm the promises. And make sure the offer includes a statement similar to “past returns don’t guarantee future profits”.

8- When you ask serious questions, answers become vague, or don’t get answered at all.

Vague responses or even angry criticism of your questions are a clear sign that the scammers are being defensive and have something to hide. 

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Those are the primary red flags when looking at potential schemes.

We have come across numerous multi level marketing and outright ponzi schemes around the globe, and in our many years of being in this industry, and they all share at least half of the above points, many times all of them!

It’s important to note that there is a difference between a multi level marketing scheme and a ponzi: A ponzi scheme technically does not have a product at all, and is purely cycling the last user’s money to pay the first users in a constant loop – until it all pops – with no real product being used or sold. Whereas multi level marketing often uses similar tactics, but integrates a real product – be it Property Investment, Stock Broking, Holiday Timeshare, or Digital Assets like Bitcoin. But they too quickly reach saturation point, and either need to pivot their business model, or shut down and start again. That is: If regulators don’t get to them first.

It is unfortunate that so many scammers and fraudsters have flooded the blockchain industry, as they are giving this exciting technology a bad reputation. But giving blockchain a bad reputation because of the scammers is like giving diamonds a bad reputation because of smugglers.

Just like the Gold Rush of the 1800s, where the Wild West was filled with scammers, thieves and crooks, we’re seeing the same thing in the digital asset industry. But just like the Wild West, the thieves and crooks didn’t change the fact that there was real Gold to be mined and accessed. There was a real economy around a real commodity.

In the same way: Don’t let scams in the digital asset industry cause you to write off the industry as a whole. We are dealing with worldchanging technology, based on real, encrypted, hard-coded digital assets – there is a lot to be excited about.

Stay safe! 

(All trading involves risk. Losses can exceed deposits.)

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