Crypto Scams: How to Spot Red Flags and Protect Your Assets

Crypto has gone from niche geek obsession to global sensation, with Bitcoin and Ethereum leading the charge. Prices hit jaw-dropping highs this year, and shiny new ETFs brought them to the mainstream like never before. Sounds great, right? But here’s the not-so-shiny side: scams. Lots of them.

In fact, crypto-related fraud skyrocketed in 2023, with the biggest crypto scams racking up a staggering $5.6 billion in losses — 45% more than the year before. Turns out, scammers love the fast, irreversible nature of crypto transactions even more than traders do.

The takeaway? If you want to navigate the crypto world without getting burned, staying informed and alert isn’t just smart — it’s survival.

Why crypto attracts scammers

The crypto world might look like a digital goldmine, but for scammers, it’s more like an all-you-can-eat buffet. Why? Let’s break it down.

1. No rules, no problem
Crypto is decentralized, which is just a fancy way of saying there’s no one in charge. While this freedom is part of its appeal, it also means no regulators are watching scammers’ every move. For fraudsters, that’s as good as an open bar.

2. Anonymity is a double-edged sword
Crypto transactions don’t need names or addresses — just a string of numbers. That’s great for privacy but also perfect for scammers who want to disappear without a trace.

3. Speed and irreversibility
Once you send crypto, it’s gone — no take-backs, no refunds. Scammers thrive on this. They just need you to fall for their tricks once, and they’re off with your money faster than you can say “blockchain.”

4. FOMO: The Fear of Missing Out
The crypto world is driven by hype. When everyone’s talking about the “next big thing,” it’s easy to get caught up in the rush. Scammers count on this—they’re experts at creating fake urgency to get you to act without thinking.

5. Complexity is confusing
Crypto can be intimidating for newcomers, with its jargon, wallets, and smart contracts. This knowledge gap gives scammers a chance to swoop in, pretending to help while lining their own pockets.

Most common crypto scam schemes

Scams come in many shapes and sizes in the crypto world, each more creative than the last. From fake wallets to Ponzi schemes, scammers have mastered the art of deception, exploiting the hype and complexity of the industry. Let’s break down some of the most common traps you need to watch out for.

Pump-and-dump scams

This classic hustle involves inflating the price of a token through hype and fake promises, and then dumping it once the price peaks. Scammers often flood social media with bold claims or outright lies to lure unsuspecting buyers. One infamous example, GIZMOcoin, saw its value soar before crashing spectacularly — leaving everyone but the scammers broke.

Pig butchering scams

A scam straight out of a twisted fairy tale. Here, fraudsters pose as friendly strangers, building relationships with their victims (the “pigs”) over time. Once trust is established, they introduce a “profitable” investment opportunity — usually fake crypto platforms. Victims are tricked into sending money, seeing fake profits, and eventually losing everything. Think of it as grooming… but for financial slaughter. Read more on big butchering in crypto here.

Fake wallets and ICOs

Fake wallets and ICOs (initial coin offerings) are designed to look legit but are nothing more than elaborate traps. Scammers trick users into entering their private keys in fake wallet apps or promising massive returns through fake coin launches. Centra Tech, a fake ICO endorsed by celebrities like Floyd Mayweather, scammed $25 million before it was exposed. Even Trezor users fell victim to a fake wallet app in the Google Play store that siphoned off their funds.

Phishing and social engineering

“Click here to secure your crypto!” If that link sounds familiar, you might’ve encountered a phishing scam. These attacks involve fake emails, websites, or messages pretending to be legitimate services. A slight typo in a URL (e.g., “Bilttrex.com” instead of “Bittrex.com”) can lead you straight into a trap, where scammers steal your login credentials and empty your wallet.

Cryptojacking and cloud mining scams

Cryptojacking sneaks mining software onto your device without your knowledge, using your resources while slowing your system down. Visiting a shady website or downloading fake updates can leave your computer mining crypto for someone else.

Meanwhile, cloud mining scams promise high returns if you pay upfront fees for “mining services.” Scammers like HashOcean had no mining equipment but lured victims with fake bonuses to recruit even more victims in a classic Ponzi twist.

Crypto Ponzi schemes

The crypto version of an old-school con, Ponzi schemes pay early investors with money from newer ones. Bitconnect is a notorious example, promising up to 40% monthly returns on Bitcoin investments. The scam collapsed when new funds ran dry, leaving countless investors in the dust.

Red flags in crypto projects

Not every crypto project is a scam, but some are sketchier than a $5 bill with Monopoly written on it. The challenge is spotting the red flags before you’re left holding the bag. Here’s a rundown of warning signs that should make you think twice.

1. “We got hacked” excuse
While hacks are a legitimate risk in crypto, some projects use them as a convenient cover-up for mismanagement — or outright theft. If a project keeps losing funds to “hacks” without improving security, it’s a sign something fishy is going on.

2. Vague partnerships
“We’re partnered with a major tech company!” Sounds impressive, right? Until you dig deeper and find zero evidence of any real collaboration. Scammers love dropping big names to lure investors, so always verify their claims.

3. Unclear or non-existent point system
Many projects introduce point or token systems as part of their ecosystem, but if the rules for earning, using, or redeeming points are vague—or nonexistent — it’s a clear sign they’re making it up as they go. Without transparency, you’re likely funding someone else’s payday.

4. Second drop announcement without delivering the first
A project announces a second token drop, NFT release, or product launch before completing the first? That’s like selling dessert before serving dinner. This kind of overpromising usually indicates they’re more interested in milking investors than delivering on their promises.

5. Ever-changing focus
Is the project a blockchain-based gaming platform today and a revolutionary DeFi service tomorrow? Constantly shifting goals or buzzwords suggest they’re chasing trends rather than building a solid, long-term product.

6. Unrealistic promises
Guaranteed profits? Massive returns? Zero risk? If a project sounds too good to be true, it probably is. Scammers know greed clouds judgment, so they’ll promise the moon — while planning to disappear with your money.

7. Anonymous or unverified teams
Would you trust your savings to someone you’ve never met? Projects with anonymous or unverified teams offer zero accountability. If the team isn’t willing to stand behind their work, why should you?

5 biggest crypto scams of all time

1. Bitconnect
The poster child for crypto Ponzi schemes, Bitconnect promised investors returns of up to 40% per month. To participate, users had to exchange their Bitcoin for Bitconnect tokens, which scammers claimed would grow exponentially through a mysterious “trading bot.” The scheme collapsed in 2018, wiping out billions of dollars in investor funds.

2. Mt. Gox
Once the largest Bitcoin exchange, Mt. Gox handled over 70% of global Bitcoin transactions at its peak. In 2014, it filed for bankruptcy after “losing” 850,000 Bitcoins (worth around $450 million at the time) due to a combination of hacks and alleged mismanagement. This remains one of the biggest disasters in crypto history.

3. OneCoin
Marketed as the “Bitcoin killer,” OneCoin was a multi-level marketing scheme that duped investors worldwide. It raised over $4 billion by promising a revolutionary new cryptocurrency that didn’t even exist. The scam unraveled in 2017 when founder Ruja Ignatova, known as the “Crypto Queen,” disappeared.

4. PlusToken
This Chinese-based Ponzi scheme promised high returns through a fake crypto wallet and “arbitrage trading.” PlusToken amassed over $2 billion before its operators vanished in 2019, leaving investors high and dry. The scam’s scale even caused temporary disruptions in the crypto market.

5. QuadrigaCX
Canada’s largest crypto exchange collapsed in 2019 after its founder, Gerald Cotten, allegedly died under mysterious circumstances, taking the private keys to $190 million in user funds with him. Investigations revealed poor management, possible fraud, and suspicions that the death might have been faked.

These cases highlight how even the biggest names in crypto can fall prey to — or orchestrate — massive scams. They’re a stark reminder to stay vigilant and never trust blindly in the fast-moving world of digital assets.

How to protect yourself from scammers

When it comes to crypto, staying safe requires more than a strong password and a sprinkle of luck. Scammers are crafty, but with the right habits, you can outsmart them. Here’s how to protect your hard-earned crypto from ending up in the wrong hands.

• Do your research
  Not every shiny new project is a golden opportunity. Before investing, dig into the team, the technology, and the use case. Check for verifiable partnerships, a clear roadmap, and an active community. If the project is a ghost town — or full of fake hype — run the other way.
• Stick to reputable platforms
  Use well-known exchanges and wallets with a proven track record. Sure, a new platform might promise zero fees or exclusive deals, but it’s not worth the risk if it vanishes overnight. Trust matters in crypto, so don’t compromise on security.
• Guard your private keys like treasure
  Your private keys are the keys to your crypto kingdom. Never share them, no matter how convincing someone might sound. Avoid storing them online, and consider using hardware wallets for added security.
• Watch out for unrealistic promises
  If a project guarantees sky-high returns or risk-free investments, it’s probably too good to be true. Scammers love dangling easy money to lure in victims. Stay skeptical and remember: real investments always come with risks.
• Double-check everything
  Before making a transaction, verify wallet addresses, URLs, and email sources. A single typo can send your funds straight to a scammer. When in doubt, take a moment to pause and verify.
• Use two-factor authentication (2FA)
  Enable 2FA on all your crypto accounts. It’s an extra layer of protection that makes it much harder for scammers to break in, even if they get hold of your password.
• Trust your gut
  If something feels off — whether it’s a suspicious email, a pushy salesperson, or an overly complicated investment pitch — listen to your instincts. It’s better to walk away from a potential opportunity than to fall into a scam.

Conclusion

Crypto scams are everywhere, preying on the hype, complexity, and lack of regulation in the industry. From pump-and-dumps to phishing attacks, scammers have endless tricks up their sleeves to separate you from your money.

The key to staying safe? Caution and self-education. Take the time to research, question everything, and never trust anything that seems too good to be true.

Remember, in the fast-paced world of crypto, staying informed isn’t just a smart move — it’s your best defense. Protect your investments, stay alert, and keep your crypto journey scam-free.