While there are tons of amazing and worthwhile projects in crypto, there are also many bad actors in this space trying to take advantage of new investors.  This article is intended to highlight some of the many forms a crypto scam can take, so that you don’t get separated from your crypto.  Let’s start with a thought experiment.

 

Imagine for a moment that you’ve just signed up for this new and exciting way to make money.

The offer is awesome, almost too awesome.  It goes something like this: there’s a company that you can loan your bitcoin out to that will give you 1% daily compounding interest on your investment, if you agree to lock up your funds (that is, you’re unable to withdraw them) for the better part of a year.

Let me put that into perspective for just a moment.

If you put $1,000 into your average bank account, you’d be earning roughly 0.03% annually.  That means you’d have earned thirty cents in interest in an entire year.  On a thousand bucks.

Now, this company is offering you a daily 1% on that same $1,000.  That means you’d earn $10 in interest on the very first day.  And since that interest is compounding, in just three years you’d have $50 million.

Sound too good to be true?  Well, it totally is.  But that didn’t stop an estimated 1.5 million people from being duped out of $2.6 billion by one of the most notorious crypto scams in history.

This was in fact a real scam known as BitConnect, and it was one of the many, many ways that unsuspecting investors have been scammed in the wild wild west of crypto.

 

Know Your Crypto Scams

Look, I don’t have to tell you that losing your money is the worst.  But the more you know about what a crypto scam looks like, the better you’ll be at spotting and avoiding one.

These things can take all sorts of forms, but here are some of the ones I’ll be covering in this article series:

1. Ponzi schemes
2. Fake exchanges
3. Scam mining apps
4. “Giveaways”
5. False job offers
6. Phony wallets
7. Fake ICOs
8. Pump-and-Dump schemes
9. Exchange hacks
10. Rug pulls

This is by no means an exhaustive list, but I thought these might be some of the most important scam topics to be aware of as you find your footing in crypto.  This is an exciting and often rewarding place to be, and it’s always good to be informed.

For the sake of readability, I’ll be discussing the first three scams in this article with you: Ponzi schemes, fake exchanges, and scam mining apps.

Let’s get into it, shall we?

 

Ponzi Schemes

Remember the sketchy BitConnect example I started this article off with?  That was a classic example of a Ponzi scheme, and is perhaps the most notorious one in all of crypto.  But what is a Ponzi scheme?

A Ponzi scheme is a scam that usually works like this: a company will ask you to lend them your money so that they can invest it in some product or service.  They then claim to be, like, reeeeeally good at making money on that product or service, and will give you a guaranteed return on your investment because these guys are just so freaking good at flipping it.  But you have to agree to let them hold onto your money for a specific amount of time.

But, in reality, there is no actual product or service at all.  They are taking the money that new investors put in, and giving it to the earlier investors.  That’s it.  And when those running the Ponzi scheme finally run out of new investors to take money from, the whole thing collapses and the company usually runs off with your money.  No bueno.

This is almost exactly what happened with BitConnect.  They promised a guaranteed return for investors because they had a special “trading bot” that just couldn’t lose, no matter what, even when the market was down.  Just keep your money locked up with them for the better part of a year, and you’ll earn 1% compound interest per day!

Uhhhhhh… no thanks.

Other notorious crypto Ponzi schemes include PlusToken, OneCoin, and USI Tech.  The combined value of the funds stolen from these three Ponzis at the time amounts to over $10 billion.  Whoa.

So to recap, you may be dealing with a Ponzi scheme if all these elements are present:

• You are being asked to “loan” someone your money
• They are promising an unusually high rate of return
• They are guaranteeing a set, regular payout regardless of the market conditions
• You are unable to withdraw your money for a specific period of time, usually for weeks, months or more

The allure of high rates of return in crypto are certainly enticing, but you know what they say:

If it sounds too good to be true, it probably is.

 

Fake Exchanges

With the growth of crypto comes the expansion of platforms and exchanges that offer crypto coins and services… and not all of them are legit.

With that said, another scam that has duped many would-be investors is the fake exchange or website.  Imagine registering at what you believe to be a totally legit exchange to buy of that some sweet, sweet crypto.  You give them your money, and when it comes time to withdraw your crypto… uh oh!  Bupkis.  You’ve been had.

What really happened was you never bought any actual crypto, and now the “exchange” has your money.  You’ve fallen victim to the “fake exchange” scam, and it’s one that can be easily avoided.

First, do your due diligence as to whether the exchange you’re using is actually a legitimate one.  There are tons and tons of great exchanges out there; don’t head to just any exchange, and be sure to do your research as to who the most reputable players in the crypto space are and start from there.  If you’re looking for a high-quality exchange, I recommend checking out my article on this topic before diving in.

Second, you should never feel pressured to make a large deposit or add more funds at any time.  If you’re being prompted to do so, you may be dealing with a scammy exchange.

Also, as with the Ponzi section, if an exchange is offering you a rate of return that seems too good to be true, or (on the other side) is charging you exorbitant purchase or withdrawal fees that are not made clear right off the bat, you may be dealing with a scammy exchange.

An alphabetical list of many certified-fake exchanges, ICOs and apps compiled by Crypto Chain University can be found in this article.

 

Scam Mining Apps

Many crypto coins are created by “mining,” or using computer power to solve complex mathematical problems that reward those who solve them with newly minted crypto.  As the value of certain cryptos rise over time, the more lucrative it can be to mine your own rather than buy them.

And this is where mining apps come into play.  Your phone is a computer, and as such you can theoretically use that processing power to mine certain crypto coins.

While since 2018 Apple has banned mining apps from its App Store and Google has banned them from its Play Store, crypto mining apps on phones like Android are more popular than ever before.  However, a recent report by Lookout has identified over 170 Android apps that exist to scam users out of their cryptocurrency… with most of them offering fake cloud mining services for a fee.

How do mining app scams work?  First off, most of them start with a fee to download the app itself, paid directly to the scammers.  Once you’ve downloaded the “mining app,” you’ll be given regular reports of all that sweet, sweet crypto you’re supposedly earning by using their “miner.”  That number is fake, and you aren’t really earning anything.

Most of these apps will require you to “earn” a minimum balance before you’re able to withdraw, and even when you’ve hit that number and initiate the withdrawal you’ll likely get a message saying that your withdrawal is “pending.”  Meanwhile, your balance will be set to zero, and the whole thing starts all over again.

No real crypto earned, no real withdrawal made.  It’s a serious bummer.

To add to the money-suck of these schemes, the apps will often display a low hashrate (the amount of computing power you are using to mine the crypto).  The higher the hashrate, the more crypto you’ll likely earn, so these scammers will often offer to upgrade your hash-power… for a fee.

This comes in the form of “virtual hardware” that you can buy that will purportedly help you mine more crypto, and faster.  These services, according to the Lookout report, can cost you anywhere from $12.99 to $259.99, and they do literally nothing.

Boom, another way you just lost your money.

How do you avoid falling into a fake mining app scam?  First, only install an app directly from an official app store.  Since even the legit app stores have been known to carry fake mining apps however, looking into what developers are behind the app, and if no information exists on the team I would steer clear.

Also, independently research other users’ reviews outside of the app store reviews.  If people have made successful withdrawals, that’s a good sign that your mining app is legit.

Finally, read the terms and conditions as well as the apps permissions.  If no terms or conditions even exist, that should be a red flag.  Also, if the app is requesting permissions for oddly personal data or for things it shouldn’t need to access, it’s likely a fishy one.

 

There’s much more to cover, but these are a few scams to keep an eye open for.

As the value of the crypto market grows, it’ll be increasingly important to safeguard your assets from bad actors.  The more you know the ways in which you can be taken for a ride, the better off you’ll be at spotting and avoiding these scams.

Stay tuned for further articles on:

• “Giveways”
• False job offers
• Phony wallets
• Fake ICOs
• Pump-and-dump schemes
• Exchange hacks
• Rug pulls

 

Until the next time, stay golden!

 

If you’re looking for a place to buy crypto but aren’t sure which exchanges are legit, be sure to check out my article on crypto exchanges.

Have you or someone you know fallen victim to a crypto scam?  Are there ones you’d like to see covered in future articles?  Leave a comment below.