Cryptocurrency Scams: How to Detect, Prevent, and Recover from Crypto Scams

When we were kids, we saw our dads going to their 9-to-5 jobs every day to earn money. Some even invested in stocks to save for college or to buy a house. Back then, investing in stocks seemed like the fastest way to grow your money, especially if you had a good stockbroker friend. We grew up thinking that money was made by working hard all our lives. 

But in 2009, everything changed with the launch of cryptocurrencies like Bitcoin by computer programmers. This new way of investing brought the idea of “high risk, high reward.” Unlike stocks, you could start investing in digital currencies with just $100. The idea of getting rich quickly without a traditional job or advanced knowledge became very attractive to young risk-takers who dreamt of living a luxurious life. 

Today, there are over 560 million cryptocurrency users worldwide, showing how popular this new way of making money has become.  It’s a thrilling space where the potential to make good money is high. But, like any wild adventure, there are dangers lurking around. 

A recent data analysis by BBB revealed that 80% of Americans who were targeted by crypto and investment scams in 2023 lost their money. So, how can you protect your money from these types of scams while investing? If you are confused about this, then this blog is for you. We’ll dive into how to detect and prevent them and what to do if you ever fall victim. 

What is Cryptocurrency, & How is it different from forex trading?

People frequently think that crypto and foreign exchange buying and selling are the same thing, but actually, both are totally different from each other. Cryptocurrency is a kind of digital or digital foreign money that makes use of cryptography for security.

Unlike traditional currencies issued by means of governments (just like the US dollar or Euro), cryptocurrencies operate on a specific technology known as blockchain, a decentralized device that records transactions across many computer systems.

Aspect	Cryptocurrency	Forex Trading
Definition	Digital or virtual currency using cryptography for security.	Trading of fiat currencies in the foreign exchange market.
Examples	Bitcoin (BTC), Ethereum (ETH), Ripple (XRP)	USD, EUR, JPY, GBP
Regulation	Varies by country, often less regulated	Highly regulated by government bodies and financial institutions
Market Hours	24/7 trading availability	24/5 trading, closed on weekends
Volatility	Generally higher, with significant price swings	Generally lower, with more stable price movements
Market Size	Smaller, rapidly growing	Largest financial market globally
Underlying Assets	Digital tokens and blockchain technology	National currencies
Liquidity	Can vary, generally lower liquidity	High liquidity due to large volume of trading
Trading Platforms	Crypto exchanges (e.g., Binance, Coinbase)	Forex brokers (e.g., OANDA, Forex.com)
Ownership	Actual ownership of digital assets	Speculative trading, usually no ownership of physical currency
Security	Relies on blockchain technology, prone to hacking	Regulated brokers, generally higher security standards
Transaction Costs	Can be high due to network fees	Typically lower, spread-based fees
Market Influence Factors	Technology updates, regulatory news, market sentiment	Economic indicators, geopolitical events, interest rates
Accessibility	High, available to anyone with internet access	Also high, but may require more formal setup with brokers
Innovation	Rapid innovation, new coins and technologies regularly	Less frequent innovation, traditional market structure
Investment Potential	High risk, high reward	Moderate risk, typically lower returns compared to crypto

Types of Cryptocurrency Scams 

Cryptocurrency has quickly grown to be a popular virtual asset in today’s world. Its decentralized nature and ability for excessive returns have attracted many investors and tech fans. Cryptocurrencies like Bitcoin and Ethereum make it easy to do transactions across borders and offer new funding opportunities, setting up a sturdy presence within the financial world. A 70-year-old California woman filed a lawsuit in 2024 against Chase Bank after she lost $720,000 to a fraudster in a crypto scam. This incident has shown the world that the scammers are targeting people from all age groups. 

However, as those digital currencies come to be more famous, scammers are becoming extra innovative in targeting unsuspecting traders. The rise of cryptocurrency has now not only changed how we consider cash but has additionally brought about a boom in sophisticated scams designed to trick even well-aware customers.

These are the most common scams happening in the crypto market.

1. Ponzi Scheme

A Ponzi scheme is a fraudulent investing scam promising high rates of return with little risk to investors. In the world of cryptocurrency, it involves convincing investors to buy into a new cryptocurrency or investment platform, promising high returns. Early investors are paid with the funds from new investors, creating the illusion of profitability. However, the scheme collapses when new investments stop coming in, and most investors lose their money.

How to Spot a Ponzi Scheme:

• Promises of high returns with little or no risk.
• Returns that seem too consistent, even in volatile markets.
• Lack of transparency about how profits are generated.
• Heavy emphasis on recruiting new investors.

2. Phishing Scam

Phishing scams involve tricking individuals into providing their private keys or other sensitive information. Scammers often use fake websites, emails, or messages that appear to be from legitimate cryptocurrency exchanges or wallets.

Once the victim provides their information, the scammer can access and steal their cryptocurrency. According to a scientific study, the percentage of fraudulent cryptocurrency exchanges was 83%, and phishing was the second largest category after referral fraud

How to Spot a Phishing Scam:

• Unsolicited emails or messages asking for personal information.
• Websites that look legitimate but have slight differences in the URL.
• Poor grammar and spelling in messages.
• Urgent requests for action, such as “Your account will be suspended.”

3. Cloud Mining Scam

Cloud mining involves renting mining hardware to mine cryptocurrencies. Scammers set up fake cloud mining services, promising substantial returns on investment. Investors pay to rent the mining power, but in reality, there is no mining occurring, and the scammers disappear with the invested funds.

How to Spot a Cloud Mining Scam:

• Promises of guaranteed returns.
• Lack of transparency about the mining operation’s location and hardware.
• Absence of user reviews or negative reviews online.
• Unrealistically low costs for mining contracts.

4. Romance Scam

In romance scams, scammers create fake profiles to pretend someone they are not. Mostly they chose to pretend someone rich and wealthy with in-depth knowledge of crypto trading. Over time, they gain the victim’s trust and eventually ask for money, often in the form of cryptocurrency. According to stats, In 2022, crypto romance scammers stole $139 million from their victims. 

How to Spot a Romance Scam:

• Fast-moving relationships and mutual understanding of all the aspects of life.
• Requests for money, especially in cryptocurrency.
• Refusal to meet in person or make video calls.
• Sob stories that seem too dramatic or far-fetched.

5. Fake Airdrops and Giveaways

Scammers create fake airdrops and giveaways, often promoted through social media. They promise free cryptocurrency in exchange for a small fee or personal information. Victims end up losing their money or having their information stolen.

How to Spot a Fake Airdrop or Giveaway:

• Promises of free cryptocurrency for little effort.
• Requests for a small fee to participate.
• Messages from unofficial or unknown sources.
• Unrealistic claims of massive profits.

6. Malware and Ransomware

Scammers use malware and ransomware to infect victims’ devices. Malware can steal private keys and personal information, while ransomware locks the victim’s device and demands payment, often in cryptocurrency, to unlock it.

How to Spot Malware and Ransomware:

• Unexpected pop-ups or downloads.
• Suspicious emails or messages with attachments or links.
• Unusual behavior on your device.
• Requests for payment to unlock your device or data.

7. Fake Exchanges or Wallets

Scammers set up fake cryptocurrency exchanges or wallet services that look legitimate. When users deposit their funds, the scammers steal the money. These fake platforms often disappear without a trace.

How to Spot Fake Exchanges or Wallets:

• Unfamiliar or new exchange names.
• Offers of unusually high returns or bonuses for joining.
• Lack of reviews or negative reviews online.
• No clear information about the team or company behind the platform.

8. Pump and Dump Schemes

Scammers promote a low-value cryptocurrency to inflate its price (pump). Once the price rises, they sell their holdings at a profit, causing the price to crash (dump). Investors who bought at the inflated price lose their money.

How to Spot Pump and Dump Schemes:

• Sudden, unexplained spikes in cryptocurrency prices.
• Promotions on social media or forums urging people to buy quickly.
• Lack of underlying news or developments to justify the price increase.
• A sudden drop in price after a sharp rise.

9. Fake Initial Coin Offering (ICO) Scams

Scammers create fake ICOs to attract investors to a non-existent project. They present a convincing whitepaper and marketing campaign to lure in victims, who end up losing their investment when the scammers disappear.

How to Spot Fake ICOs:

• Unverified or anonymous team members.
• Promises of guaranteed returns.
• Lack of a working product or clear roadmap.
• Poorly written or plagiarized whitepaper.

10. Pig Butchering Scams

In pig butchering scams, scammers build a long-term relationship with the victim, fattening them up (gaining their trust) before leading them to invest in fake opportunities. Once the victim invests heavily, the scammer disappears with the money.

How to Spot Pig Butchering Scams:

• Overly friendly and persuasive individuals.
• Requests for large investments after gaining trust.
• Complex and hard-to-understand investment opportunities.
• Reluctance to provide clear information or meet in person.

How to Detect Crypto Scams: 4 Big Red Flags

Cryptocurrency scams come in numerous forms, mirroring traditional financial crimes aimed toward siphoning money from financial institutions money owed or making unauthorized charges on credit scores. In the crypto international, scammers use numerous tactics to seize your digital currency. In 2021, scammers pocketed a record $14 billion from cryptocurrency.

 From phishing schemes to Ponzi schemes and fake investment possibilities, they employ sophisticated strategies to exploit vulnerabilities in the digital world, making it important to stay vigilant and informed to protect your crypto money. 

 Here’s how to spot a crypto scam before it’s too late

Too Good to Be True Promises

When it comes to investing, the old saying “If it sounds too good to be true, it probably is” holds a lot of wisdom. In the world of cryptocurrencies, this is especially important to remember. Scammers often lure unsuspecting investors with promises of guaranteed returns or extraordinarily high profits with minimal risk. 

Tell-Tale Signs:

• Promises of a fixed percentage of returns regardless of market conditions.
• Lack of concrete information about how the profits will be achieved.
• Claims that an investment will double or triple within days or weeks.
• Vague descriptions of the investment strategy, technology, or process involved.
• Encouragement to invest large sums of money quickly to maximize returns.

Unsolicited Messages:

Scammers often use unsolicited messages as a way to lure unsuspecting people into fraudulent investment opportunities. These messages can come in various forms, which includes emails, social media messages, and calls. The intention is to create a feel of urgency and consider, making the sufferer trust they may be being supplied a unique and profitable opportunity.

Tell-Tale Signs:

•  Poor grammar, spelling mistakes, and unprofessional design elements.
• Promises of guaranteed high returns 
•  Unexpected attachments or links can be attempts to install malware on your device or direct you to phishing websites.
• If you can’t find any information about the sender or the investment opportunity online, or if the contact information is vague or non-existent, it’s likely a scam.

Pressure to Act Quickly

Scammers thrive on growing a sense of urgency to cloud your judgment and rush you into making hasty decisions. By pressuring you to act quickly, the goal is to stop you from conducting research or advice from legit crypto forums, which will increase the probability that you’ll fall for his or her enticement. 

Tell-Tale Signs:

• Claims that the offer is available for a very short time.
• You are told you are among a select few receiving this offer.
• Persistent follow-ups urging you to act immediately.
• Discouragement from seeking advice or doing your own research.

Unverified Information

When investing in cryptocurrencies, it’s important to confirm the legitimacy of the company or individual at the back of the project. Unverified statistics may be a big red flag and a major sign of a scam. Scammers frequently create fake profiles, web sites, and social media accounts to lure unsuspecting investors. 

Tell-Tale Signs:

• Legitimate companies will provide clear ways to contact them. Scammers often omit this.
• Lack of presence on reputable sites like LinkedIn, Reddit, or industry forums.
• No information about the team members or fake profiles on social media.
•  Inability to find any history of the company or individual in previous legitimate ventures or projects.

How to Prevent Crypto Scams

In the ever-evolving world of cryptocurrency, the appeal of high returns on small cash has attracted thousands and thousands of buyers. However, with the rapid increase in the popularity of cryptocurrencies, there may be additionally a surge in malicious activities targeting innocent individuals.

Crypto scams have turned out to be more and more advanced, preying on new and skilled buyers. According to a recent report by the Federal Bureau of Investigation (FBI), losses from crypto investment scams in the U.S. reached $3.94 billion in 2023, marking a 53% rise from $2.57 billion in 2022. 

As such, knowing how to protect yourself from those scams is important.  

So it’s important to talk about how to avoid them altogether:

1.Do Your Research: 

Before you invest in any cryptocurrency or platform, make sure to do thorough research. Look for reviews, check their credentials, and read up on their track record. Always independently verify any requests for debt payment. 

If someone claiming to be from a company or government agency contacts you, hang up and call the official customer service phone number published by the company or agency. Legitimate entities do not demand payments via cryptocurrency or offer rewards for cryptocurrency payments. 

Here are some tips to Do Research for Cryptocurrency:

• Learn about what cryptocurrencies are, how they work, and the technology behind them
• Look at the market cap (total value) and trading volume of the cryptocurrency to gauge its size, popularity, and liquidity. 
• Study the historical price trends of the cryptocurrency you are interested in.
• Study the White Paper in detail before investing in a specific cryptocurrency. 

2. Use Reputable Platforms: 

Most importantly, avoid sending cryptocurrency to anyone you haven’t met in person. Even if you have met them, exercise caution. So, it is best practice to stick to well-known and established crypto exchanges and wallets. Sometimes the scammers will contact you by creating fake celebrity profiles. Keep in mind that celebrities do not contact you personally for investments. These platforms have more security measures in place to protect your investments. 

List of Best Crypto Exchanges

• Gemini

• Rating: 4.9
• Trading Fees: 0.2% Maker, 0.4% Taker
• Tradable Coins: 70+

• BYDFi

• Rating: 4.6
• Trading Fees: 0.1% to 0.3% Maker/Taker
• Tradable Coins: 400+

• Kraken

• Rating: 4.5
• Trading Fees: 0.9% for stablecoins, 1.5% for other cryptos (Kraken Instant Buy)
• Tradable Coins: 200+

• Crypto.com

• Rating: 4.5
• Trading Fees: 0.075% Maker, 0.075% Taker
• Tradable Coins: 250+

• Coinbase

• Rating: 4.3
• Trading Fees: 0.4% Maker, 0.6% Taker
• Tradable Coins: 200+

3. Enable Security Features: 

Use two-factor authentication (2FA) and other security features offered by your crypto exchange or wallet to add an extra layer of protection to your accounts.

4. Be Skeptical of New Coins: 

New cryptocurrencies can be exciting, but they can also be risky. Be cautious and only invest in new coins after they’ve been thoroughly vetted. If you are eager to know about the latest cryptocurrency in the market and its potential success rate, then you should go to cryptocurrency exchange websites. These are some of the most reliable sources for finding new investments.

What to Do If You’ve Been Scammed

In high-risk situations like investing, there’s always a chance of losing money, no business can promise otherwise. When it comes to cryptocurrencies, apart from market changes, the next biggest risk for investors is falling victim to scams, which can lead to significant financial losses.

According to a report, Americans made over 43,000 complaints to the FBI’s Internet Crime Center about potential cryptocurrency scams last year. To prevent these scams from happening, several companies and universities have created software to detect scams on social media platforms. 

Researchers at San Diego State University have developed an AI system called GiveawayScamHunter to detect and expose cryptocurrency giveaway scams on Twitter. This innovative system has identified over 95,000 scam lists and extracted information related to 327 scam domains and 121 scam-related wallet addresses, revealing the operations and scale of these scams.

Here are a few immediate steps to take after falling victim to a scam.

1. Document Everything:

Collect all relevant documentation related to the scam, including emails, chat logs, transaction details, and any other correspondence with the scammer. Take screenshots or print out copies of conversations and transactions as evidence. This documentation will be crucial when reporting the scam. For physical records, print out copies of important emails, transaction details, and chat logs.

Store these in a secure place as backup documentation. Truth Scouts and other online public record search providers give you the chance to discover all available internet details about a scammer.

Simply enter the email address or phone number through which they contacted you to uncover more information. It will further help you in providing complete evidence to your local law enforcement agencies. Go to truth-scouts reverse email lookup and reverse phone lookup service to trace the person behind this scam.

2. Report It Immediately

If you suspect you’ve been scammed in a cryptocurrency transaction, it’s crucial to act swiftly. First, contact your crypto exchange to report the fraudulent activity. 

Most reputable exchanges have procedures for handling such incidents and can provide guidance on the next steps. Prompt reporting can help freeze the account involved and potentially halt further unauthorized transactions. The first thing you need to do is to submit a report to the FBI Internet Crime Complaint Center (IC3) or contact your local FBI Field Office and provide as much transaction information as possible. here is the list of websites where you need to submit the report:

• The FTC 
• The Commodity Futures Trading Commission (CFTC) 
• The U.S. Securities and Exchange Commission (SEC)
• The cryptocurrency exchange company you used to send the money

3. Warn Others

Sharing your experience about a cryptocurrency scam on social media, forums, and review sites is crucial for building a community of informed investors. When you share the details of how the scam happened, what tactics were used, and the consequences, you provide valuable insights that can help others avoid similar pitfalls. Start by posting on popular platforms like Twitter, Facebook, Reddit, and dedicated crypto forums.

Following is the list of popular forums, blogs, and websites where crypto enthusiasts gather. 

Forums:

• BitcoinTalk
• Reddit (subreddits)
• CryptoCompare Forums
• Cryptohub Discord
• Cracking Crypto Discord
• r/CryptoCurrency Discord

Blogs:

• CoinDesk
• CryptoSlate
• CoinTelegraph

Websites:

• CoinMarketCap
• Crypto Twitter
• Crypto YouTube Channels
• CryptoPanic.com
• Airdrops.io

4. Seek Professional Help

If you’re unsure about how to proceed or if you’ve suffered significant financial loss, consider seeking advice from a financial advisor or legal counsel specializing in cryptocurrency fraud. Cryptocurrency scams can be complex, often involving sophisticated techniques that make it difficult to trace and recover lost funds. Professionals who specialize in crypto fraud recovery have the expertise, tools, and networks to navigate this challenging landscape. 

5. Notify the Platform: 

If the scam took place on a cryptocurrency exchange or trading platform, notify their customer service without delay. They may have protocols in place to investigate and potentially freeze the scammer’s account. Regularly check your cryptocurrency wallets, bank accounts, and credit cards for any suspicious activity. Set up alarms for transactions to stay informed of any unauthorized access.

6. Utilize Blockchain Analysis Tools: 

Blockchain analysis tools can be invaluable in tracing transactions and identifying the destination of your funds. Tools like Dune Analytics, Glassnode, and CipherTrace specialize in blockchain forensic analysis and can assist in tracking down stolen cryptocurrency. Following is the list of top Blockchain analysis tools available in the market, 

• Dune Analytics
• Nansen Limited
• Chainalysis
• Messari, Inc.
• DefiLlama
• Coin Metrics Limited
• Glassnode
• CipherTrace, Inc.
• CoinMarketCap
• AnChain.AI Inc.
• Crystal Blockchain
• LunarCrush
• TRM Labs
• BASE
• Binance
• Coinfirm
• CoinGecko
• Cryptocurrency Calculator

Wrapping It Up

Cryptocurrency offers incredible opportunities, but it’s crucial to stay vigilant and informed. By learning to detect and prevent scams, you can protect yourself and your investments. And if the worst happens, knowing how to react can help you recover quickly.