Common Types of Cryptocurrency Scams and How to Avoid Them

December 12

Cryptocurrencies have been on a rollercoaster ride for many traders. Some have experienced significant financial gains, while others have not. News stories have reported on bitcoin trading activity revealing cases in which scammers have taken advantage of greedy people seeking to get rich quick in cryptocurrency trading. To help you steer clear of this malfeasance, here are a few of the fraudulent cryptocurrency scams to look out for and how to avoid them.

Common Cryptocurrency Fraud Schemes

  • Pump and Dump Investment schemes
  • Exchanges that lack proper security or credentials
  • Fake Wallets
  • Pyramid or Ponzi Schemes through email
  • Phishing Schemes aimed to trick employees
  • Imposters posing as brands or friends

One of the reasons why many new traders end up losing money due to cryptocurrency scams is because they don’t know much about how this digital asset works. It’s easy for newcomers to be confused by the various types of cryptocurrencies available, as some can be exchanged for U.S. dollars, whereas others have no value other than the fact that they can be used as digital tokens.
Some people who hear about altcoin bubbles can get lured into putting money into companies claiming to crowdfund. This makes it easy for a fraudulent company to pose as a valuable investment in an initial coin offering (ICO). Many of these ventures have been like the dotcom bubble companies of the late 1990s in that they lacked a real plan for generating revenue. Shady ICOs trade on several unregulated online exchanges and brokerages involved with cryptocurrencies.

Due to rising fraudulent ICOs, China has banned them, while the U.S. Securities Exchange Commission (SEC) has filed fraud charges against two ICOs. Once a fraudulent firm collects deposit money, it may charge high commissions and create obstacles for withdrawing funds.

One of the most traditional schemes that has crossed over into the digital world is “pump and dump”, in which scammers promote worthless tokens, and then sell these tokens once they’ve attracted enough buyers. Pyramid schemes are designed to reward early investors at the expense of later investors. Social engineering is another traditional scam that has gone digital, in which scammers befriend strangers in social media or email, and then take advantage of them by promoting worthless cryptocurrencies.

How to Defend Your Business Against Cryptocurrency Fraud

Trading cryptocurrencies, or any other speculative financial instrument, requires careful risk management. Here are some steps traders can take to minimize or prevent losses:

  • Carefully research details about the investment opportunity
  • Store cryptocurrency in a secure online place
  • Understand how fraudulent ICO schemes work

It’s imperative to know what an investment opportunity is all about, which requires thorough research. Here are some of the dead giveaways that should raise suspicion about a new cryptocurrency offer that may just sound too good to be true:

  • Unoriginal whitepaper
  • Anonymous team players
  • Sense of urgency to enter a trade
  • Inconsistencies in written and spoken words
  • Lack of good responses to deep questions
  • No sense of business model
  • No reason to be associated with tokens

Traders should also do research on the exchange that offers the altcoin transaction. Be aware that several altcoin exchanges have come and gone in recent years, usually because the operations were too small to take on large volume. Another scam to avoid involves fake or cloned wallets discovered on Google’s Play Store that are designed to send money to scammers.


When exploring the new world of cryptocurrencies for investment opportunities, it’s important to understand the different types of schemes that are trying to fool people who don’t do their due diligence.

The best way to avoid cryptocurrency scams is to act with a sense of caution and knowledge that there are countless schemes out there. Fortunately, the cryptocurrency world is also full of reputable exchanges, and as long as you do the research necessary to find out who they are, you can have peace of mind knowing that you’re investing in safe, legitimate cryptocurrencies.

Johannes Beekman

About the author

After 25 years in engineering, Johannes Beekman founded IoT Marketing with the goal of helping companies bring wide-scale awareness to their inventions. He received a Master of Science in Physics degree from the Eindhoven University of Technology, and a Master in Business Administration degree from the Wharton School of the University of Pennsylvania, and started his career in the semiconductor field. Johannes pioneered two successful wafer fab startups for Philips Electronics; one in Europe and the second one in Asia. And served as Senior Program Manager for Sematech, where he provided solutions for semiconductor industry-wide product improvement and cost reduction challenges. Johannes has also published articles on several trade-focused websites.


Agriculture IoT, Healthcare IoT, home IoT, industrial IoT, internet of things, IoT, IoT blog, IoT Business, IoT companies, IoT consulting, IoT cybersecurity, IoT Devices, IoT home, IoT marketing, IoT Security, IoT sensors, IoT Technology, Manufacturing IoT, Medical IoT, Retail IoT

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