Common Cryptocurrency Scams and How to Avoid Them
In today’s world, your cryptocurrency is an incredibly valuable asset to criminals. It’s liquid, highly portable and, once a transaction has been made, it’s almost impossible to revert it. As a result, a wave of scams (both decades-old classics and cryptocurrency-specific swindles) has flooded the digital realm.
In this thread we’ll identify some of the most common cryptocurrency scams.
1. Social Media Giveaway Scams
It’s amazing, nowadays, how everyone seems so generous on the likes of Twitter and Facebook. Check the replies to a tweet with high engagement, and you’ll no doubt see that one of your favorite crypto companies or influencers is doing a giveaway. If you send them just 1 BNB/BTC/ETH, they promise to send you back 10x that amount! It seems too good to be true, doesn’t it? Unfortunately, that’s because it is. That’s a pretty good rule of thumb to apply to many of these scams.
It’s incredibly unlikely that someone is hosting a legitimate giveaway that requires you to first send your own money. On social media, you should be wary of these kinds of messages. They might come from accounts that might look identical to the ones you know and love, but this is part of the trick. As for the dozens of replies thanking said account for their generosity – they’re just fake accounts or bots deployed as part of the giveaway scam.
Suffice it to say, you should just ignore these. If you’re really convinced they are legit, take a closer look at the profiles and you’ll see the differences. You will soon realize that the Twitter handle or the Facebook profile are fake.
And even if a top exchange or any other entity decides to host a giveaway, the legitimate ones will never ask you to send funds first.
2. Pyramid and Ponzi schemes
Pyramid and Ponzi schemes are slightly different, but we’re placing them into the same category because of their similarities. In both cases, the scam relies on a participant bringing new members with the promise of incredible returns.
Ponzi schemes
In a Ponzi scheme, you might hear about an investment opportunity with guaranteed profits (this is your first red flag!). Commonly, you’ll see this scheme disguised as a portfolio management service. In reality, there’s no magical formula at work here – the “returns” received are just other investors’ money.
The organizer will take an investor’s money and add it to a pool. The only inflow of cash into the pool comes from new entrants. Older investors are paid off with newer investors’ money, a cycle that can continue as more newcomers join. The scam unravels when there isn’t any more cash coming in – unable to sustain payouts to older investors, the scheme collapses.
Consider, for instance, a service that promises 10% returns in a month. You could contribute $100. The organizer then ropes in another ‘client’, who also invests $100. Using this newly-acquired money, he can pay you $110 at the end of the month. He would then need to entice yet another client to join, in order to pay the second one. The cycle continues until the inevitable implosion of the scheme.
Pyramid schemes
In a pyramid scheme, there’s a bit more work required by those involved. At the top of the pyramid is the organizer. They’ll recruit a certain number of people to work on the level beneath them, and each of those people will recruit their own number of people, etc. As a result, you end up with a massive structure that grows exponentially and ramifies as new levels are created (hence the term Pyramid).


So far, we’ve only described what could be a chart for a very large (legitimate) business. But a pyramid scheme is distinct in the way it promises revenue for recruiting new members. Take an example where the organizer gives Alice and Bob the right to enlist new members for $100 each, and takes a 50% cut on their subsequent revenue. Alice and Bob can offer the same deal to those they recruit (they’ll need at least two recruits to recover their initial investment).