Crypto Scam: Everything to Know

By  Beluga Research September 22, 2023

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  • Crypto scams are fraudulent schemes involving digital currencies, deceiving users to steal funds or personal information
  • These scams are deceptive activities that exploit the decentralized nature of cryptocurrencies and their lack of regulation
  • Common types of scams include phishing, Ponzi schemes, fake initial coin offerings (ICOs,) pump-and-dump schemes and malware attacks
  • The unique aspects of crypto scams including their pseudonymity, global nature and rapid technological advancements, making them difficult to combat


Crypto scams are fraudulent schemes involving digital currencies, deceiving users to steal funds or personal information. Crypto scams exploit the decentralized and relatively anonymous nature of cryptocurrencies for illicit gains, and these scams can take various forms.

In crypto scams, perpetrators often promise high returns, guaranteed investments or exclusive opportunities to lure unsuspecting victims into sending cryptocurrency or personal information. Once the scam is executed, victims usually lose funds with little to no recourse for recovery.

A Brief History

Crypto scams have existed since the early days of Bitcoin. The Mt. Gox incident in 2014 was a notable scam wherein a major bitcoin exchange was hacked, resulting in the loss of 850,000 bitcoins. This highlighted the vulnerability of centralized exchanges.

The collapse of BitConnect in 2018 was another significant event, but this time, a Ponzi scheme promised high returns before shutting down, taking investors' funds. This emphasized the importance of due diligence.

Crypto Scam: Everything to Know

  • Phishing Scams . In this scam, scammers pose as trustworthy entities to obtain sensitive information like usernames, passwords or private keys. They create fake websites or send deceptive emails resembling legitimate exchanges or wallets, while unsuspecting individuals who enter credentials on these platforms lose associated funds.
  • Ponzi and Pyramid Schemes . These schemes promise high returns by recruiting new participants and using their funds to pay existing investors. They collapse when new recruits stop joining, causing financial losses. BitConnect is an example of this type of scheme.
  • Fake ICOs and Token Sales . Scammers launch fake initial coin offerings (ICOs) or token sales to deceive investors. They create websites, white papers and marketing campaigns to appear legitimate, however, once they collect funds, they disappear without delivering anything.
  • Pump and Dump Schemes . In this scheme, scammers inflate the price of low-value cryptocurrencies through false statements. They spread positive news, enticing investors to buy, but when the price peaks, they sell, causing losses for others.
  • Malware and Ransomware Attacks . In these attacks, scammers use malware and ransomware to target cryptocurrency holders. Malware steals private keys or login credentials, while ransomware encrypts files and demands payment in cryptocurrency. It is for this reason that robust security measures like antivirus software and hardware wallets are essential.

Getting Started

To understand cryptocurrency scams, it is crucial to grasp the basics of cryptocurrencies themselves. Cryptocurrencies are digital or virtual currencies that use cryptography for secure transactions and control the creation of new units. Unlike traditional fiat currencies, cryptocurrencies operate on decentralized networks called "blockchains," which record and verify transactions across multiple computers.

Unlike traditional currencies issued by governments, cryptocurrencies are typically decentralized, meaning that they are not controlled by any central authority. They enable peer-to-peer (P2P) transactions, offering advantages like increased security, transparency and reduced transaction costs.

Cryptocurrencies have gained popularity as an investment asset and a means of conducting borderless and censorship-resistant transactions on the internet. However, they also come with risks and regulatory challenges, and are, unfortunately, susceptible to scams.

One common type of cryptocurrency scam is the Ponzi scheme. In a Ponzi scheme, scammers promise high returns on investment to early participants using funds from new investors. This unsustainable model collapses when there are no more new investors to sustain the payouts. Ponzi schemes often masquerade as legitimate investment opportunities, enticing individuals with guaranteed profits and minimal risks.

Another prevalent form of cryptocurrency scam is phishing. Phishing scams involve tricking individuals into revealing sensitive information, such as login credentials or private keys, by pretending to be a trustworthy entity. Scammers create fake websites or send fraudulent emails that resemble legitimate cryptocurrency exchanges or wallets. Once victims unknowingly provide this information, scammers can gain unauthorized access to associated funds and manipulate or steal them.

Unique Aspects

Cryptocurrency scams possess several unique aspects that make them appealing to fraudsters and difficult to combat. One such aspect is the pseudonymous nature of cryptocurrencies. While blockchain transactions are transparent and traceable, the identities behind the addresses involved are often anonymous. This anonymity makes it challenging to track down scammers and recover stolen funds, as malicious actors can easily cover tracks and operate under multiple aliases.

Additionally, the global and borderless nature of cryptocurrencies adds complexity to combating scams. Cryptocurrency scams can originate from anywhere in the world, and scammers can target victims across different countries without physical boundaries. This makes it challenging for law enforcement agencies to coordinate efforts and bring scammers to justice. Moreover, the lack of a centralized authority governing cryptocurrencies means that there is no central entity responsible for investigating and resolving scam-related issues.

The rapid pace of technological advancements in the cryptocurrency space provides scammers with new tools and techniques to exploit unsuspecting individuals. For instance, scammers may create sophisticated websites or mobile applications that mimic the user interfaces of legitimate platforms, making it difficult for users to distinguish between genuine services and fraudulent ones. Additionally, scammers may use social engineering tactics to manipulate individuals into making impulsive decisions or revealing sensitive information.


  • Decentralization . Cryptocurrencies operate on decentralized networks, removing the need for intermediaries like banks. This transparency and lack of a single controlling entity reduce the risk of manipulation.
  • Security . Most cryptocurrencies use advanced cryptographic techniques to secure transactions and user funds. Public and private keys, along with encryption algorithms, make it extremely difficult for hackers to compromise the security of well-designed cryptocurrencies.
  • Accessibility . Cryptocurrencies provide financial services to individuals without access to traditional banking systems. With an internet connection, anyone can participate in the cryptocurrency ecosystem and send or receive funds globally.
  • Borderless Transactions . Cryptocurrencies enable seamless cross-border transactions without relying on traditional banking networks. This is particularly beneficial for remittances and international trade, reducing costs and eliminating delays.
  • Financial Inclusion . Cryptocurrencies can provide access to financial services for the unbanked, so individuals without traditional banking infrastructure can securely store, send and receive funds using cryptocurrencies.
  • Innovation . Cryptocurrencies' underlying technology, blockchain, has sparked innovation in various industries, including finance, supply chain management and healthcare.
  • Investment Opportunities . Cryptocurrencies have provided lucrative investment opportunities. The rapid price appreciation of certain cryptocurrencies has resulted in significant returns, attracting more individuals to the market.


  • Volatility . Cryptocurrencies are known for price volatility, which can lead to substantial gains or losses in a short period. Lack of regulation and speculative nature contribute to this volatility, making it risky for unprepared individuals.
  • Lack of Regulation . The decentralized nature of cryptocurrencies makes it challenging for regulators to establish comprehensive frameworks. This lack of clear regulations creates opportunities for scams and fraudulent activities.
  • Security Risks . Despite robust security measures, the risk of hacks and thefts persists. Phishing attacks, malware or vulnerabilities in wallets or exchanges can make individuals vulnerable. As such, precautions like using hardware wallets and practicing good cybersecurity hygiene are crucial for users.
  • Irreversible Transactions . Once a cryptocurrency transaction is confirmed on the blockchain, it is generally irreversible. This lack of a chargeback mechanism can be problematic in the case of fraudulent transactions or of a legitimate transaction accidentally sent to the wrong address.
  • Energy Consumption . Some cryptocurrencies, especially those using proof-of-work (PoW) consensus algorithms, consume significant amounts of energy. This raises concerns about the environmental impact and carbon footprint of cryptocurrencies.
  • Limited Acceptance . Cryptocurrencies are not widely accepted as a form of payment, despite growing acceptance. This limits practical use for everyday transactions, hindering mainstream adoption.
  • Complexity . Understanding cryptocurrencies and the underlying technology can be challenging for non-technical individuals, and complex concepts, technical jargon and managing cryptographic keys can act as barriers to entry.
  • Market Manipulation . Lack of regulations and relatively small market capitalization make certain cryptocurrencies susceptible to market manipulation. Pump-and-dump schemes, which entail artificially inflating and then dumping prices, can result in significant financial losses for unsuspecting investors.