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Top 5 Crypto Scams: Here’s What You Need To Know

The cryptocurrency space is one of the most innovative and fast-growing sectors in the world. However, despite all the good it has done so far, it is hard to gloss over the fact that we continue to have some bad actors and negative elements. Today, we will go through the top 5 crypto scams. The purpose of this blog is not to scare you but to educate you about some red flags.

Top 5 Crypto Scams #1: Phishing

Due to the pandemic, phishing has gone out of control. As per F5 – a US cybersecurity firm – the number of phishing incidents exploded by 220% in 2020 and 15% year on year ever since.

So, what exactly is phishing? It is a social engineering attack where the scammer tries to trick you into revealing sensitive info via a message. In essence, they are “fishing” for your details.

Top 5 Crypto ScamsImage Credit

The image above is an example of phishing. The best way to protect yourself from attempted phishing is to see the source from where you are getting the email/message. For example, is it from a “coinsmart” email or a “c0insmart” email? Additionally, it is advisable to connect with the concerned company’s support staff to know the legitimacy of the message you received.

Related: Will the real CoinSmart please stand up?

Phishing Example

In February 2022, OpenSea – the world’s largest NFT marketplace – suffered a million-dollar hack via mass phishing. As per blockchain security firm PeckShield, over 254 NFTs were stolen, including the ones from Decentraland and Bored Ape Yacht Club.

Top 5 Crypto Scams

The victims received the above email asking them to authorize OpenSea to migrate their listings. However, as soon as they gave the authorization, the attackers had the power to steal their NFTs.

Top 5 Crypto Scams #2: Rug pulls

A “rug pull” happens when the developers abandon a project and run away with their user’s funds. The way this scam works is pretty simple:

  • Developers create a protocol and list it on a DEX.
  • They then drive up sufficient hype via various media channels.
  • New users buy the tokens in a DEX.
  • The developers remove all liquidity from the DEX and flee.


These rug pulls usually happen in Decentralized Exchanges since DEXs use Automated Market Makers (AMMs), wherein anyone can create a market. There is no due process or diligence involved. This has unfortunately become very prevalent in recent years due to the rise of DeFi.

 

Top 5 Crypto Scams

As per Chainalysis, the total money stolen by scammers in 2021 was less than in 2019. However, you can see a massive spike in rug pull scams.

To avoid falling for this trap, there are several things that you can do:

  • Analyze the coin: Does it serve a real purpose? What are the coin experts saying about the coin? Is it listed on a centralized exchange?
  • Analyze the team: Does the team have a proven track history of launching promising protocols? Is there a scammer involved in the game?
  • Analyze the tokenomics: Does the coin have a vesting mechanic? Usually, the tokens assigned to the team are “vested” or locked for a specific time period.

Ask yourself these questions and then decide if the protocol deserves your money or not.

Rug pull Example

In November 2021, the SQUID token, inspired by Squid Game, grabbed all the headlines. Capitalizing on the show’s incredible hype, SQUID quickly jumped to $2,850. However, the developers promptly pulled the rug, and prices crashed by 99.99%.

This could have been avoided since there were multiple red flags. Firstly, the token had no utility. Secondly, investors weren’t allowed to sell off their tokens due to a locking mechanism – this was highly suspicious.

Top 5 Crypto Scams #3: Pump-and-Dump

Up next, we have the good ol’ pump-and-dump schemes. These are fairly common in both the crypto and traditional finance worlds. This is how this scam works:

  • The Pump: A group of traders plans to artificially spike up the coin price by initiating a “coordinated buy-in”. There are plenty of Telegram groups working 24/7 to do precisely this. The idea is to lure in new traders by showing high gains.
  • The Dump: Once more and more new users buy-in and the price explodes, the original pumpers sell-off all their tokens to net a profit. The subsequent price drop leaves all the new traders in the red.

There is only one sure way to protect yourself from a potential dump – don’t get lured by flashy numbers and percentages.

Pump-and-Dump Example

In February 2022, celebrities like Nick Carter, Soulja Boy, Lil Yachty, Jake Paul, and Ben Phillips were sued for pumping SafeMoon’s price by luring investors with misleading promotions and unrealistic profits. As per the filing:

“On December 31, 2021, the price of the SafeMoon Token hit a low of $0.0000006521 per token, an over 80% drop from its height during the Class Period, which it has not been able to recover. As of the filing of this Complaint, the trading volume for the SAFEMOON Token has plummeted to around only $60,000.”

Top 5 Crypto Scams #4: Pyramid Schemes

Pyramid schemes are another example of scams that have crossed over from the traditional finance world to the crypto world. In a pyramid scheme, you make money by recruiting more investors into the system. It is called a “pyramid” because the number of investors entering the ecosystem increases at each level from top to bottom.

Identifying this scam is pretty simple. If there is a scheme that gives you a commission for building a sub-network of users underneath you, then just avoid it.

Pyramid Scheme Example

Ahh…. it’s time to talk about Bitconnect.

Top 5 Crypto Scams

The meme that keeps on giving.

It might be a joke now, but what’s not funny is that many people lost their entire life savings because of this scam. In fact, the Bitconnect scam was so popular that the native token was, at one point, the 8th largest coin in the world by market cap.

 

Top 5 Crypto Scams

 

So, how did Bitconnect work? Check this out 👇

Top 5 Crypto Scams

See the pyramid?

Top 5 Crypto Scams #5: Fake Social Media Profiles

Now, this is a major one. The idea is pretty simple. The scammer impersonates a well-known figure in the crypto space and either makes a post or DMs you explicitly asking for crypto. There are many ways that you can identify these fake profiles. Let’s do a quick test now, shall we?

Check this out:

Top 5 Crypto Scams

…and this:

Top 5 Crypto Scams

 

“MCP” is a pretty well-known crypto trader for those who don’t know. So, the simplest way to know a real from fake is the handle name. So, for example, the profile name is “MiddleChildPabk,” – so logically, it would mean that the account with “MiddleChildpabl” is the fake one.

However, there is one more thing that you can do – let’s check the number of followers.

Top 5 Crypto Scams

Ok, this profile has over 67,000 followers and is followed by some well-known profiles on Twitter – that’s pretty credible.

Top 5 Crypto Scams

On the other hand, this account has only 106 followers and isn’t followed by any prominent folks – that’s a major red flag.

Fake Social Media Example

Let’s check out something that’s equal parts hilarious and sad. These are just a handful of fake Vitalik Buterin profiles on Twitter:

Top 5 Crypto Scams

As you can see, most of them have not even put in any effort – checkout the handles. In fact, even the real Vitalik Buterin pointed that out:

Top 5 Crypto Scams

However, the fact remains that many people fall for these scams and end up giving away their crypto to these profiles. One of the best ways to identify a real profile from a fake is to check for the “Twitter Verification” symbol where applicable.

Related: These scams could be affecting CoinSmart users

Conclusion

The crypto ecosystem is one of the most innovative sectors we have ever seen. However, the unreal price jumps and expectations of “quick profits” make it easy for malicious parties to prey on unsuspecting folks. We hope that this article will help you identify the most common scams and interact with this incredible space without worrying about getting duped.

top 5 crypto scams