Top types of crypto scams: How to detect and protect yourself

September 3, 20244 min read

Data from DeFiLlama, a platform that tracks the amount of funds deposited in decentralized finance (DeFi) projects, put the total amount locked in these platforms at over $80 billion as of August 2024. Cryptocurrency exchanges and self-custody crypto wallets also hold hundreds of billions of dollars, awakening the appetite of malicious actors like scammers. Below, we look at the top types of crypto scams, how to detect them from a distance, and how to protect yourself.

Top types of crypto scams

Investment crypto scams

Investment crypto scams are undeniably the most prominent and tend to net more victims and funds. This type of scam works by promising too-good-to-be-true returns. Scammers convince victims by lying that they are �investment managers� further claiming that they have made a fortune through the said investment.

In some cases, scammers pay the promised ROI in the first few days as a way to make victims confident in investing more funds. An example of this type of cryptocurrency scam is the BitConnet scheme that collapsed in early 2018 with over $2 billion of investors� funds after operating for roughly two years.

Ponzi schemes

Ponzi schemes are also among the top types of crypto scams. They resemble an investment scheme with the difference being that it thrives on convincing investors to bring more people into the scheme to increase their earnings. In other words, it uses a multi-level marketing (MLM) technique.

The scam can sell anything from educational courses to investment plans, and extra benefits at exclusive joints like clubs. Just like investment crypto scams, Ponzi schemes pay the first investors to boost their confidence, before abruptly shutting down leaving investors stranded.

The infamous OneCoin project led by Ruja Ignatova is a classic example of a Ponzi crypto scam. Ignatova launched the project in 2014 and it collapsed in 2016 having drained approximately $4 billion of investors funds.

Phishing crypto scams

This type of scam involves scammers tricking cryptocurrency holders into revealing their crypto wallet�s details like passwords and seed phrases. Malicious actors use these details to drain stored crypto. Scammers disguise themselves as employees of crypto companies like exchanges or wallets.

Sometimes, they offer victims a chance to withdraw funds from �hacked� crypto projects. In other cases, they clone popular crypto websites, hack social media accounts, and direct users to external sites using malicious links. Once a victim clicks on the links, they get wallet details and drain their wallets.

Romance crypto scams also known as pig-butchering crypto scams

Scammers using this tactic first form a romantic connection with the victim before making their move. Just like the other types of crypto scams, malicious actors using this technique mostly scout for victims on social media platforms and online dating avenues.

Scammers convince victims to send them crypto like Bitcoin (BTC) to offset a financial need or lure them into investing in a malicious deal where they�ll ultimately lose their funds.

How to identify most types of crypto scams

Most types of crypto scams use the same tactics to lure victims. Common things to look out for include:

Guaranteed returns - Scammers know you want a safe way to grow your wealth. So, they promise guaranteed returns on the invested amount without a clear breakdown of how they�re going to achieve it.

Poor or non-existent details- If the details about the said project are scanty or a whitepaper with lots of grammatical errors or something seems to be written in a rush or too much generalization of concepts, it�s a scam.

Team members with general titles - Titles like �has been an investment professional for 20 years� but don�t provide past, and verifiable, experiences, it is probably a scam.

Love from online strangers - When you get unsolicited romantic or friendship messages on social media, it could be the start of getting scams.

Promises of getting rich overnight - Investment deals flaunted as offering free money or quick returns are likely to be fake

How to protect yourself from most types of crypto scams

To be to the safe side:

Invest in projects you understand and don�t be driven by pressure from strangers or even friends and family.
Use strong security measures on your crypto wallets, apps, and bank apps.
Don�t be in a hurry to invest in a new project.
Look out for the characteristics of scams as we�ve discussed above.
Download apps only from official sources

Conclusion

Investment, Ponzi, romance/pig-butchering, and phishing scams are the top types of crypto scams. Although these scams use different methods to lure victims, they mostly prey on people�s thirst for easy money, making quick returns, and the need to attain financial freedom.

To protect yourself, be on the lookout for projects offering free money and too-good-to-be-true returns. Also, use strong passwords on your crypto wallets, and bank apps, download apps from official sites, do your own research (DOYR), and only invest in what you understand.