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CRYPTO INTELLIGENCE SYSTEMTM

Zone 2
Fraud & Scams

Spotting and Avoiding Crypto Scammers

Crypto is where innovation and potential financial gains collide. It’s also where crypto scams are lurking about. As the popularity of crypto continues to rise, the amazing real innovation is paralleled by the fraudulent creativity of scammers expecting to dupe enough people out of millions. You’ve got to spot and protect yourself from crypto scams.

man using laptop finding out he's been crypto scammed

How to spot a crypto scam

Cryptocurrency scams come in various forms, each designed to deceive and defraud investors. From fraudulent presales to Ponzi schemes and phishing attempts, the tactics employed by crypto scammers are diverse and continually evolving. The red flags and warning signs remain consistent, providing clues to those who know what to look for.


Key Takeaway

Both good and bad actors are highly skilled and motivated. The difference is bad actors have NO product and NO integrity.



Key indicators of crypto scams

You can often see a crypto scam a mile away – if you know what to look for. This is the good news even though some scams leave more clues than others.

Unrealistic promises

Beware of schemes promising guaranteed returns or unrealistic profits with little to no risk. Such promises often signal a Ponzi scheme where early investors are paid with the money of new investors, creating a facade of profitability until the scheme inevitably collapses.

EXAMPLE

SuperCoin is the best new project of 2024 with fixed returns starting at 2,337%. Turn just $1,000 into $23,370 with our cutting-edge, automated, proprietary AI trading technology. The more you invest the higher your returns. Get a 25% referral bonus for every friend you refer.

It’s essentially illegal to offer guaranteed returns by every financial regulator in the world. This is a classic tell-tale sign of fraud inside and outside of crypto.


Key Takeaway

There is NO such thing as guaranteed returns anywhere in life. As a Vault Wealth article puts it, “Unfortunately, the notion of 'guaranteed returns' is akin to believing in unicorns – both are nonexistent. The term 'guarantee' is essentially a myth.”



Lack of transparency

Legitimate cryptocurrency projects are transparent about their team, technology, and goals. Conversely, crypto scams often operate under a veil of anonymity, making it difficult to verify the identities and credentials of those behind the project. This is not an absolute rule because there are many legitimate projects with an anonymous team. Teams remain anonymous for many reasons including regulatory uncertainty and overreach. Always look for transparency and full disclosure of teams, but it’s not the only factor. If you excluded every project without transparency, you’d miss some good ones along the way.

Pressure to invest quickly

Scammers frequently employ high-pressure tactics, urging investors to act swiftly before an opportunity vanishes. Resist the urge to make impulsive investment decisions and take the time to conduct thorough research before committing funds. Time pressure is an age-old ruse to dupe investors by triggering the fear of missing out (FOMO). Crypto scams often play the FOMO card more than time pressure and want to keep their scam open for as long as possible to rake in millions. 

In many cases crypto opportunities are ephemeral (i.e. short shelf life) so you have to “ape” in if you don’t want to miss the opportunity. The meme coin craze is a good example where multi-thousand percent returns could happen in hours or days.


Key Takeaway

It’s time for an important repeat. NEVER invest more than you can afford to lose. Regardless of what crypto or NFTs you choose to invest in, make this your guiding light. If you tend to take riskier bets, then this rule will still save you in the long run.



Related: How to Help My Friend Who’s in a Crypto Scam

Unsolicited communication

Be wary of unsolicited text messages, emails, or social media posts promoting investment opportunities. Legitimate projects rarely engage in unsolicited outreach, and such communication is often a hallmark of phishing attempts or fraudulent schemes. This is classic pig butchering 101. The “text message by mistake” that turns into a friendship then a scam is one the most baffling psychological brainteasers of all time. Nonetheless, people continuously fall for this crypto scam - so don’t do that.

Poorly designed websites and whitepapers

Examine the quality of the project's website and whitepaper. Typos, grammatical errors, and poorly constructed documents are indicative of a lack of professionalism and may suggest a scam. Mistakes and lack of attention to detail provide a treasure trove of red flags. Where there is one typo, for example, there are many. This is hands down the best way to identify crypto scams.


Key Takeaway

Fraudsters and crypto scammers are motivated, but they are lazy and want to do the least amount of work for the highest returns. This laziness is the Achilles heel that manifests in all the typos, grammatical errors and poor graphics while providing a bread crumb trail of red flags.


 

Pump and dump schemes

In pump and dump schemes, scammers artificially inflate the price of a cryptocurrency through false or misleading statements, only to sell off their holdings once the price peaks, leaving unsuspecting investors with significant losses. Many crypto YouTube influencers are “trusted” by their followers yet paid by projects to promote the pump and dump. Anyone who receives paid promotion has a conflict of interest and MUST disclose the compensation. Beware this exists, even though it can be hard to identify.

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Anatomy of a crypto scam

The AltLayer protocol launched with a classic airdrop campaign in February 2024. All the airdrop details on Medium were posted by AltLayer which is a legitimate project.

We received the following phishing email on 2-27-24. Let’s break down all the red flags shown in the screenshots below:

crypto scam email example
crypto scam email example about $ALT Token

Spot these crypto scam red flags


1. You will never get a unique airdrop email (e.g. the 1675 $ALT tokens).

2. The sender email is [email protected] a classic flag for a crypto scam.

3. Your email is not associated with your ETH address so you wouldn’t get a custom email.

4. An Ethereum address would be selected, not a hash value.

5. A claim period should be stated, NOT an urgency statement.

6. This is nonsense. It’s prompting you to connect a wallet with lots of assets.

7. This is nonsense. It’s an attempt to look credible.

8. Airdrops are not randomized and hash value statement is incorrect, same as above.

9. There is no “signature block” at the bottom of the email which should contain name, address and other company information.


Key Takeaway


Every single data point in the phishing email is a red flag so the crypto scammer is incompetent and could have done a better job if they actually studied crypto and knew how to speak the language. The good news is, the scam is so bad you should be able to spot it right away.


 

You may use your email to sign up for the AltLayer blog, for example, but that email is NOT connected to your wallet and AtLayer doesn’t know how many coins are allocated to you. If someone falls for a crypto scam like this, then they would likely connect a wallet and lose all their assets to a crypto drainer, for example.

 

Related: Top Crypto Fraud Risks and How to Avoid Them

Protecting yourself against crypto scams

 

The better informed you are about crypto fraud and scams, the lower your risk and the greater your returns. Here are tips for protecting yourself against crypto scams and scammers:

1. Conduct due diligence

Research any cryptocurrency project before investing. Evaluate the team members' backgrounds, scrutinize the project's technology and roadmap, and seek independent reviews and analysis from reputable sources. You should do some due diligence, but the question is how much. Think about due diligence on a spectrum because no one has the time for hours of solid research, which would be challenging even on a full-time basis.


Key Takeaway

Due diligence is a cost-benefit exercise. You have to decide how much time to invest before putting your money to work and how much of your funds you want to risk. This gets fine-tuned with experience and intuition.


 

Here are some quick things that you should ALWAYS do:

  • Do a Google search for “is ‘Project Name’ a scam?” (e.g., “is SuperCoin a scam?”)

  • Install a browser plugin called Scam Sniffer which helps detect scams.

  • Review social accounts to review post activity, age of account and number of followers.
  • Connect with the project’s Discord to get intel from the “mouths of babes.”

A Google search seems obvious, but it’s easy to forget. If it’s a really bad scam, you’ll get a number of negative hits. Remember the absence of anything negative doesn’t guarantee the project is legit.

2. Stick to established platforms

Trade and invest in cryptocurrencies through reputable and regulated exchanges. Established platforms have robust security measures in place and adhere to regulatory standards, reducing the risk of falling victim to scams. This is a conservative approach which lowers your risk but also limits your opportunities. 

EXAMPLE

Coinbase has been around for over10 years and has a blue chip reputation. Coinbase has a protocol for listing new coins on its exchange; therefore, you can piggyback on their due diligence and only buy coins from them or similar trusted sources.

3. Use a hardware wallet for cold storage

Store your cryptocurrencies securely in hardware wallets rather than leaving them on exchange platforms. Cold storage wallets offer an added layer of protection against hacking and theft. We cover this in depth in Zone 1 Risk and Security. Hardware wallets prevent crypto wallet drainer malware, for example, but don’t prevent you from making a dumb mistake and sending funds to a crypto scam.

4. Get educated and look for social trust

Stay abreast of the latest developments and trends in the cryptocurrency industry. This means reading news articles, watching YouTube videos and listening to podcasts, among others. Knowledge is your best defense against scams and staying informed empowers you to make informed investment decisions.


Key Takeaway

Social trust is a key due diligence tool, and you increase your social trust intelligence by getting educated which creates a network effect of who knows and is connected to whom. People are consciously and unconsciously validating crypto ecosystem players through various forms of content.



EXAMPLE

Epicenter.tv has been highlighting the blockchain and crypto space since 2013. Their project founder interviews are highly reputable therefore making Epicenter a key “social trust” due diligence resource. The podcast hosts are well-connected in the space and use their network to identify projects for the show.

5. Trust your gut

If an investment opportunity seems too good to be true or raises doubts, trust your instincts and proceed with caution. It's better to forgo a potentially lucrative opportunity than to fall victim to a crypto scam. There are plenty more opportunities so don’t worry about missing out when your instinct tells you to pass. The more you practice due diligence the better you get. 

“An investment in knowledge pays the best interest.” - Benjamin Franklin

6. Educate others

Spread awareness about crypto scams within your social circle and community. Educating others about the warning signs of scams can help prevent them from becoming victims. @ZachXBT “Rug pull survivor turned 2D detective,” is an example of a great resource and someone who educates others on X.

The crypto market has massive opportunity for investors, but it’s a double-edge sword with nefarious actors on the other side. By familiarizing yourself with the red flags and warning signs of crypto scams, conducting due diligence, and exercising caution, you can protect yourself against falling victim to fraudulent schemes. Crypto education is your friend and it’s your best defense against crypto scams.

As always, your goal is to get a Crypto Bullseye™.


Content Insight

This content has been created through a collaborative effort, combining the capabilities of artificial intelligence (AI) technology and the expertise of a seasoned professional with extensive experience in the crypto space. While AI played a role in generating portions of this material, it has been carefully reviewed, researched, and refined by a human expert to ensure accuracy, relevance, and a nuanced understanding of the subject matter. The information presented herein reflects a synthesis of AI-generated insights and the real-world knowledge contributed by the human expert, aiming to provide a comprehensive and well-informed perspective on the topic. Users are encouraged to verify details independently and seek advice from qualified professionals before making any financial or investment decisions.

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