Crypto Scams Have Caused Billions of Dollars in Losses—Here are Five of the Worst Ones

Alevin Chan

Alevin Chan

Last updated 01 February, 2022

The crypto sector has vast potential, but is also plagued by scammers, hackers and exploits. Here are five of the worst crypto scams that have cost investors billions of dollars, and how you can avoid them. 

Cryptocurrency is already 13 years old, and through its tumultuous history, has weathered  numerous worrisome - and sometimes downright chilling - headlines.

Just in 2021 alone, an estimated US$14 billion was reportedly stolen from cryptocurrency investors. That’s a sobering figure by any definition. 

In case you’re wondering how you could navigate the Wild West-esque landscape that is crypto, we’ve highlighted five of the worst crypto scams, how they work, and tips for avoiding them. 

Familiarise yourself with these common scams so you can stay safe while stacking those coins. 

Giveaway scam

In a giveaway scam, victims are offered an easy way to increase their crypto holdings. All you have to do is to deposit some crypto, and after a period of time, you’ll receive double your crypto back. 

So, deposit 0.5 BTC to get 1 BTC, 5,000 ADA to get 10,000 ADA, and so on and so forth. Obviously, this is too good to be true - it’s a scam that preys on the desire to get rich quick. 

But scammers paper over a veneer of legitimacy by impersonating famous crypto personalities, such as Elon Musk, Cardano founder Charles Hoskinsons, or Bitcoin billionaire Michael Saylor.

This is easier to do than you may think. Using publicly available content, such as video clips, photos and soundbites, these crooks carefully construct an official-looking advertisement pointing to a scam website, which is set up with URLs that closely resemble official ones. 

Next, they flood Internet platforms with the ad, catching the attention of unsuspecting victims. Those who fall for the scam believe the ad to be real, that Elon Musk is really giving away US$1 million in BTC, or something like that.

They click on to the website, send their BTC to the wallet address listed there, and never see their money ever again.

How to avoid this scam

It’s quite simple, really. Depositing crypto and getting double the amount back with no effort whatsoever is simply too good to be true. Also, always remember that once you send your crypto to an address, there’s no way to reverse the transaction. Hence, sending your crypto to unknown addresses on the Internet will almost always end badly.    

Pump and dump 

In a pump and dump scam, the price of a crypto token - which often has no real purpose - is artificially inflated to unreasonable heights. The creator then sells off their share of the tokens for a massive profit, crashing the price and robbing investors of their money.

This is how it works: First, a new cryptocurrency is created (shockingly easy to do) and launched to great fanfare. The scammer pays influencers and celebrities to promote (or ‘shill’) this scam crypto, creating much hype and speculation. 

Giving in to FOMO, victims start buying the token, causing the price to go up. Seeing this, other crypto investors jump on the bandwagon, which drives the price even higher. You should recognise that the price is now being spiked up on pure speculation. 

With the price of the token pumped up nice and high, the pump part of the scheme is accomplished. Next comes the dump. 

What victims don’t know is that the creator of the token is holding a significant majority of the tokens. With the token price inflated by unsuspecting buyers, the creator’s stash of coins is now worth an obscene amount. 

The creator now dumps their entire stash of coins on the market, cashing out their ill-gotten gains. This sudden influx crashes the token’s price in an instant, rendering the tokens bought by the victims worthless, with no chance of recovery.

It must be said that pump and dumps are in no way unique to cryptos, but the ease with which bad actors can launch new coins, and the dishonesty of certain media personalities, make this scam relatively effortless to pull off.

How to avoid this scam

You can vastly reduce your chances of encountering a pump and dump by simply staying away from unknown or unproven coins. Invest only in proven projects with a long history, active community and real-world use cases. 

Also, be discerning about who you listen to when it comes to crypto investments. Evaluate the quality and clarity of the information being shared on their own merits. If you can’t explain why the coin has value (other than “many people are buying it”), you should probably reconsider investing.

Rug pull

A rug pull is as simple as it is devastating - perpetrators target the funds deposited in a crypto project, removing it through unlawful means, and running away with the money. 

Certain types of projects, especially in DeFi (decentralised finance), allows crypto investors to deposit their tokens to support and facilitate financial services. In return, they earn more cryptos as rewards, in effect allowing them to generate yield from their holdings. 

Such DeFi projects are highly popular, and can attract millions, if not billions, of dollars in TVL (total value locked).

A rug pull occurs when bad actors - either hackers seeking out exploits, or the project’s team members themselves - illegally remove the deposited funds, robbing investors of their cryptos. 

How to avoid this scam

Avoid the temptation to go all in when investing in a DeFi project that involves depositing your cryptos. Start with a small amount that you can afford to lose (if it comes down to that), and slowly increase your deposits over time. 

You should also join the official social media channels and pay attention to what other users think and feel about the trustworthiness of the project. Observe how the team members respond to criticism, and take note of any complaints that seem to recur. 

Fake mining scam

It may sound fanciful but cloud mining - using cloud computing processing power to mine Bitcoin or other cryptocurrencies through a remote data centre - is a real service provided by legitimate businesses. 

However, it can be difficult to verify the mining set-up in person, and it is this loophole that opens the door for scammers to sneak in. 

A fake mining scam is a scheme where investors are convinced to sign up for a cloud-mining service that doesn’t actually exist. Victims are encouraged to hand over a large sum of money upfront to rent the computing power necessary for mining, and promised lucrative sums of cryptocurrencies in return. 

When the scammers have collected enough money, or when discovery is threatened, they simply disappear with the money. 

How to avoid this scam

Unless you can be 100% sure of the integrity of the cloud-mining service you are considering, it may be better to stay away. 

Besides, the profitability of cloud mining can depend on many factors, some of which may be beyond your control. Hence, your mileage with cloud mining may vary. 

On top of that, mining isn’t the only way to increase your cryptocurrency holdings, if that’s what you’re after. There are many DeFi protocols and platforms that offer secure, convenient and effective alternatives. Two areas to consider looking into are staking and liquidity mining.  

Customer support scam

When dealing with cryptocurrency, it is common to run into some hiccups or roadblocks. The space, while thriving, can also be quite messy, and some common transactions may require extra steps to be taken. 

While customer service channels are usually widely available, the level of service provided can be lacking - even among market leading platforms.

Crypto users, then, often turn to the Internet for help, posting questions on sub-Reddits, Telegram channels and the like. But doing so can inadvertently garner you the unwelcome attention of scammers. 

When they see your post, these scammers will send you direct messages claiming to be an official customer support team member. They’ll do up their profiles with official logos, and may even steal the profile name and pictures of real customer support staff. 

Their agenda is to direct you to a fraudulent website and capture your sensitive information, including your private keys. Some may also instruct you to download and install malware and fake apps. 

Once they have your information, they can then clean out your cryptocurrency wallet, robbing you of your tokens. 

How to avoid this scam

As a general rule, anyone that DMs you is a scammer, so simply block and report them. Genuine users will reply to your post publicly, or in the main chatroom, where other users can see what they are saying. 

As much as possible, stick to official support channels, even if you find the replies from customer service to be too slow for your liking. If your issue isn’t urgent, having some patience can win you increased safety. 

If the perils of crypto investing is too much for you, consider robo-advisors instead to build a diversified portfolio.

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An ex-Financial Planner with a curiosity about what makes people tick, Alevin’s mission is to help readers understand the psychology of money. He’s also on an ongoing quest to optimise happiness and enjoyment in his life.


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