Cryptocurrency Fraud: Top Cases and 5 Protection Tips

Cryptocurrency Fraud: Top Cases and Protection

Cryptocurrencies are some of the most discussed investment assets. In 2017, the value of Bitcoin reached nearly $20.000, with cryptocurrencies becoming a popular instrument for both trading and investment. In 2021, the BTC fee surpassed $60.000. However, these assets still present great risks, which is why investment projects of this type require a cautious approach.

Over the past four years, cryptocurrency scams have become commonplace. It is easier for scammers to work with cryptocurrencies as many countries still do not have regulations for them, which is why the scammer can avoid prosecution.

Therefore, before investing in digital currencies, the instruments need to be checked thoroughly. Let’s take a closer look at what cryptocurrency fraud is, its signs and how to avoid becoming a victim of scammers when investing.


Definition of cryptocurrency fraud

Definition of cryptocurrency scams

Cryptocurrency scams are fraudulent companies that steal money from users who use cryptocurrencies.

Crypto are digital assets that can be used as a payment instrument. Cryptocurrency fraud is possible as many countries have yet to introduce strict legislative standards regulating these assets.

The absence of laws and regulations opens the door to fraud schemes, which are actively used by shady startups, cryptocurrency exchanges and private individuals for illegal gain.

Token scams are also very popular. Tokens are a variety of digital assets, which are not a payment instrument but are used to represent the digital balance in a specific asset or access to some services in a cryptocurrency project.

In some cases, tokens are even a certain analogue of bonds — stocks or bonds.

Token scams are even more widespread as there is no need to build your own blockchain for them.

Tokens can be created on existing platforms. For example, the Ethereum platform allows you to create tokens from the patterns ERC20, ERC23, ERC721, ERC1155 and others.

Thanks to simple creation and virtually complete absence of control, cryptocurrency scams successfully develop schemes to steal customers' money.


Main cryptocurrency scams

There are many cryptocurrency fraud schemes. There are unique methods of stealing your money, and there are only general methods, typical for other assets as well.

Let's review five examples of digital asset scams, which are often used by crooks.

Cryptocurrency Fraud: Pump and Dump

Pump and Dump

Pump and Dump is one of the most popular fraud schemes involving digital assets. Cryptocurrency scams use digital assets to artificially increase their value, attract investment and then shut down the project.

  • This is how the scheme works:

A simple token, for example based on ERC20, is created and an ICO is launched.

Scammers start actively publishing large volumes of information about the 'important' project the token is linked to.

Fake news about successes, articles and expert opinions about the high value of the token in the future are posted and published.

The 'promotional' campaign arouses the interest of traders and investors, who start to buy the digital asset, causing its value to increase.

The growth of quotations becomes a catalyst of increased demand, which pushes the price even higher.

When all the messages are found to be fake, the quotes drop to zero. Scammers keep the money, while investors lose all their funds.

In many cases, there is no need to create a new token. Scammers simply take existing currency with low price and liquidity, inflate its value often using some rumors or even without them.

Once other traders get on the hype, scammers sell their coins, and the value drops dramatically.

Before buying an asset in the context of good news, first check that the information is properly substantiated.


Cryptocurrency Scams: Bitcoin Scams

Therefore, before investing in digital currencies, the instruments need to be checked thoroughly. Let’s take a closer look at what cryptocurrency fraud is, its signs and how to avoid becoming a victim of scammers when investing.

The pyramid scheme is the main Bitcoin scam. It is about creating a particular investment company that promises huge profits to the clients.

As a rule, they explain profits involving the following methods:

  • Investments in the purchase of Bitcoin and other cryptocurrencies on exchanges;
  • Bitcoin mining investments through the purchase of equipment.

Bitcoin scams using a pyramid scheme operate in the same way as in the case of stocks or Forex .

They lure customers by promising unreasonably high interest rates. They offer a beneficial partnership program for their customers (as a rule, various commission levels).

Customers distribute partnership links, attracting new users to the fraudulent project, forming new levels of the pyramid.

Planners pay money to investors out of new payments from lower-tier investors, leaving some of the money for them.

the blows of Bitcoin do not conduct real business. They also convince customers, who received the money, to reinvest their profits.

As soon as the influx of users ends or the number of negative reviews becomes too high, the pyramid ceases to exist. The planners keep the money.

Cryptocurrency scams also often use the Ponzi scheme. It is similar to the pyramid scheme, but with some differences.

In it, fraudsters, not users, attract customers. They find contacts in open sources, call on the phone, write on social media and emails, convincing potential victims to invest their money.

As a rule, a Ponzi scheme does not feature a partner program, but there are different promotions and bonuses.


Cryptocurrency Fraud: Exchange Hacking

Cryptocurrency Exchange Invasion

Cryptocurrency exchange hacking is another method of cryptocurrency scams. Some cryptocurrency exchanges have weak security, which hackers take advantage of.

As a rule, hackers try to hack wallets and withdraw cryptocurrencies from them, as it is very difficult to track small transactions.

There have also been cases where hackers broke into an entire exchange and stole cryptocurrencies from thousands of wallets.

These situations, however, are fewer and farther apart as coins stolen in large numbers are monitored and coins are marked.

Cryptocurrency Fraud: Phishing

Phishing is a type of fraud that involves stealing personal data.
Attackers can use a variety of methods to steal information, including:

  • Email phishing scams;
  • Malware;
  • QR code that leads to a fraudulent website.

Scammers who use phishing disguise themselves as exchanges or investment platforms. They offer customers beneficial partnership terms and offer to follow the link to learn more.

Once the user follows the link, the malware is downloaded onto the user's device, which transfers all logins and passwords from the user's crypto wallets to the scammer.

The other option is when the user sends his personal data to the scammer himself. For example, a fraudulent website is created disguised as a major cryptocurrency exchange.

The customer can fund the account by specifying the cryptocurrency wallet number and passwords.

However, instead of registration, investors lose their wallet and the scammer steals the cryptocurrencies.

Cryptocurrency Fraud: Money Laundering

Money laundering is a popular type of cryptocurrency fraud. People use cryptographic assets to launder illegally obtained money.

Money is invested in cryptocurrencies and illegal earnings are legalized as a return on investment.

Furthermore, cryptocurrencies can be used directly for illegal activities. Public authorities in many countries fight the use of digital assets for the purchase of drugs, weapons, terrorist financing, etc.

Cryptocurrency Scandal Rating You Should Know

History knows many types of cryptocurrency fraud. Some of them were known cases around the world. Let’s look at some of the most well-known examples of cryptocurrency scams.

Actions disguised as tokens — Telegram

Telegram Open Network

One of the biggest high-profile cases involving cryptocurrency happened with the messaging app Telegram.

In 2018, app creator Pavel Durov announced the development of the Telegram Open Network (TON), a new cryptocurrency-enabled blockchain platform called Gram.

It was planned that the cryptocurrency would be used for internal payments for goods, works and services that would be sold through the platform.

The story was taking place in the context of the cryptocurrency boom of 2018. Building on the success of digital assets, Pavel Durov's team carried out an ICO (initial coin offering) selling TON tokens.

The project managed to raise $1,7 billion from 171 investors.

However, the launch of the TON project and the Gram cryptocurrency has been delayed. In 2019, the Commission for United States Securities (SEC) filed a complaint against Telegram for violating the issuance procedure.

The SEC has stated that under United States law, TON tokens are securities.

In this sense, Telegram should have provided information on its business operations, financial situation, risk factors and management, which had not been done.

The court upheld the claim filed by the SEC and on May 12, 2020 Durov announced the cancellation of the TON project.

Investors continue to challenge their rights in the courts.


Eric Savics lost money due to phishing

Eric Savics lost money due to phishing

Eric Savics, the host of Protocol Podcast, a popular technology podcast from the United States, has fallen victim to phishing.

The expert mistakenly installed a plugin for storing keys, as a result of which bitcoins were stolen from his account.

The story took place in July 2020. Eric Savics believed in a fraudulent Keep Key project, which was a plugin for storing cryptocurrencies.

The podcast host installed the Keep Key plugin on their Google Chrome browser and passed the registration procedure.

However, the plugin asked for the key to the Bitcoin wallet. Savics didn't suspect anything, so he entered the information, which led to his money being stolen.

The scammers, who developed Keep Key, changed the wallet key, causing Eric Savics to lose his money.

At the time of the theft, there were 12 BTC in the wallet, which at the exchange rate at the time was $110.000.

After the incident, subscribers transferred 0.7 BTC to Savics as donations. Savics promised that he would return the money to subscribers once he regained access to the crypto wallet.


KuCoin Invasion

KuCoin Invasion

The KuCoin incident is one of the latest cryptocurrency exchange hacking stories. The Singapore-based cryptocurrency exchange reported the crash on September 27, 2020 on its official website.

Hackers managed to steal around $150 million from the cryptocurrency exchange. Funds were withdrawn in Bitcoin, other cryptocurrencies and tokens, including ERC20.

The company reported that unidentified individuals were able to gain access to the cryptocurrency wallets of KuCoin users.

The exchange recorded large withdrawals from wallets on September 26. The security audit was immediately released, which revealed that the platform was hacked.

Immediately after the hack, KuCoin suspended its operation. The team at the Singapore-based cryptocurrency exchange has recommended its customers to transfer all coins to cold wallets and promised to fully cover the losses.

In April 2021, the exchange's operation was fully restored.


OneCoin pyramid scheme

OneCoin pyramid scheme

OneCoin has become one of the biggest and most well-known pyramids related to the cryptocurrency world.

The company started its operations in 2014. Bulgarian Ruja Ignatova, the founder, sold 'educational packages' in cryptocurrencies using the multilevel marketing method.

The creators of the pyramid developed their own cryptocurrency — OneCoin, positioned as an alternative to Bitcoin.

The company's 'educational packages' featured 7 levels for customers, with prices ranging from EUR 100 to EUR 118.000 each.

The packs provided a specific number of tokens, which could be used to mine OneCoin and pay for new projects.

The company paid cryptocurrency rewards for referrals. The size of the reward depended on the package the new user purchased.

However, later, OneCoin began to attract investments directly for the development of the cryptocurrency.

Ignatova claimed that this digital asset could destroy Bitcoin. However, asset mining could only be done through the sites controlled by OneCoin and all databases were centralized.

Due to this, the media started calling OneCoin a pyramid as early as 2015.

The first official complaints were filed by the Bulgarian regulator — The Financial Supervision Commission (FSC) — in 2015. In 2016, the UK regulator — Financial Conduct Authority (FCA) — launched an investigation.

Both authorities claimed that the company had shown signs of a financial pyramid. In 2017, Ignatova disappeared, but the pyramid lived on until 2019.

According to different estimates, the OneCoin pyramid inflicted damages from 4 to 15 billion euros on investors. In addition, Bank of New York Mellon, which carried out OneCoin transactions, was involved in the scandal.


How to avoid cryptocurrency fraud: 5 top tips

Only your vigilance can help protect you from cryptocurrency scams. It's extremely difficult to get your money back in these cases, so it's best not to risk it.

We offer five tips to help you avoid cryptocurrency scams:

1 — Check information and reviews about the company

A cryptocurrency exchange or investment company must provide important information about them.

In particular, before registering, check the following:

  • Registration Date;
  • Registration certificate;
  • Legal and business address.

If companies are registered in unreliable offshore jurisdictions or do not provide important information, it is highly likely that they are fraud.

Also, reviews will help you choose the right company. Use only independent sources to read reviews about organizations.

For example, on our website you will find honest and unbiased opinions about different projects related to cryptocurrency.

2 — Use a cold wallet

Cryptocurrency storage is an important aspect of protection against scams and intrusions.

There are two methods for storing digital assets:

  • Hot — online wallets accessed via the internet;
  • Cold — cryptocurrencies are stored directly on your devices — computers, smartphones, hardware wallet, etc.

A cold wallet is safer. It is much more difficult for a hacker to break into your storage without having access to the device.

If you keep cryptocurrencies in cold wallets, you will reduce the likelihood of hacking and stealing your digital assets.

3 — Protect your wallet

To avoid losing money, you need to properly protect your wallet.
There are several simple methods of protection, which virtually all stores offer:

  • Two-factor authentication;
  • Notifications by email, text and special code for access confirmation;
  • Biometric authentication (if you are using a smartphone);
  • Secret word or phrase.

When choosing an encrypted wallet, make sure that there are a large number of methods of protection against theft.

Also, don't forget to regularly update the app, as project teams regularly release updates, improving its security.

4 — Protect yourself from phishing

Phishing protection mainly depends on your attention and vigilance.

The tips here are as follows:

  • Do not click on links from unknown sources;
  • Do not download and install files if you are not 100% sure they are safe;
  • Check and double check that the links are correct. Scammers often use the same name but change the domain or a symbol in the name;
  • Never give out your cryptocurrency wallet key.

Only your own vigilance and caution will help protect you from phishing. So always be suspicious of any offer, even the most attractive one with unknown links and files.

5 — Check the cryptocurrency information

To avoid becoming a victim of the Pump and Dump scam, do not rush to invest in an asset if you see a compelling message or rapid growth in quotes.

Any increase in value must be proven, so it is necessary to obtain as much information about the asset as possible before investing in it.

Check available information about the cryptocurrency or token online. See if the mining company is trustworthy, if there is any confirmation of the information distributed by the company in support of your token.

For example, if it's a contract with some big organization, you need to check the information about it on that organization's official website.

If you notice that the value of the asset is growing rapidly, although there is no reason to do so, do not take the risk of investing in this cryptocurrency.

First, you need to understand why this is happening and whether it is safe to invest money.

Cryptocurrency investor safety rules


Therefore, before investing in digital currencies, the instruments need to be checked thoroughly. Let’s take a closer look at what cryptocurrency fraud is, its signs and how to avoid becoming a victim of scammers when investing.

Best cryptocurrency exchanges

Quick registration

Using Binance's native cryptocurrency, the BNB, reduces fees by 25%.


Binance is a household name for anyone who has ever traded cryptocurrencies or was looking for the best cryptocurrency exchange. It's one of the dominant exchanges in the industry, and there are some good reasons for that.

For starters, Binance has some pretty high trading volumes. If you're a novice when it comes to encryption negotiation (or simply negotiation in general), you may not be aware how significant this point actually is!

See, if an exchange has some high trading volumes, that means people really trust the platform, and there are a lot of cryptocurrencies that go through it constantly.

  • A well-known cryptocurrency platform
  • More than 100 different cryptocurrencies available for trading
  • Two-factor authentication
  • It can be a little difficult for beginners.

Quick registration

With over 17 million registered users, eToro offers one of the largest and most active trading communities


Innovative platform: eToro has distinguished itself through its social investing platform, an innovative tool that allows users to copy trades from other investors.

Internationally Established: Founded in 2007, eToro has over 20 million users in 140 countries worldwide — and the US is now on that list.

However, while eToro runs multi-asset exchanges (offering stocks, commodities and Forex trading) in other countries, so far US clients can only trade cryptocurrencies on the platform.

Social Trading: EToro's CopyTrader allows you to automatically copy and trade based on the movements of other traders. How it works: You choose an investor you want to copy, and with a click of a button you can start mirroring their positions automatically (with the option of a stop-loss level to limit potential losses).

The minimum amount to copy a user is $200 and the maximum amount is $500.000. Users can copy up to 100 traders simultaneously. Even without using CopyTrader, users can view millions of portfolios, statistics and risk scores from other traders.

  • Offers access to 17 cryptocurrencies.
  • Expanding the educational offer for novice traders
  • Social Trading: Ability to copy trades from popular traders.
  • Free stock and ETF trading
  • Regulated in two high-profile jurisdictions
  • Customer support needs to be improved
  • Internal withdrawal fees
  • Low leverage and higher minimum deposits, but within a reasonable range

Cryptocurrencies are one of the most popular investment assets of our time.

Some investors only work with them, while others use them to diversify their investment portfolio.

However, the increased interest in cryptocurrencies by traders and investors also increases interest in them by scammers.

Considering that cryptocurrencies are not yet regulated in most countries, it is not possible to rely on the help of public authorities.

The only thing that can help you avoid being deceived is your own vigilance.

Carefully choose cryptocurrency projects. Enable as many account protection methods as possible and choose only trusted cryptocurrency exchanges. Always verify information that comes from external sources.

Therefore, before investing in digital currencies, the instruments need to be checked thoroughly. Let’s take a closer look at what cryptocurrency fraud is, its signs and how to avoid becoming a victim of scammers when investing.Cryptocurrency Scam FAQs


Can I get my money back in the event of a cryptocurrency exchange hack?
If the hack was the fault of the cryptocurrency exchange, and it was not your fault, there is a possibility that you will get the funds back. As a rule, the scholarships have a special fund just in case.
Can I profit from a cryptocurrency pyramid?
We do not recommend working with cryptocurrency pyramids. Even if you manage to make a profit, it is not certain that you will be allowed to withdraw it.
Is it possible that cryptocurrency exchanges won't let me withdraw the profit?
Unfortunately, there are fraudulent cryptocurrency exchanges that do not allow you to withdraw funds. That's why the choice of bag is so important. Respected trading platforms always allow clients to withdraw their money.
Are there countries where cryptocurrencies are completely banned?
Yes, for example, it is forbidden to work with cryptocurrencies in India or Pakistan.





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