What Is Scam in Cryptocurrency?

Scam in Cryptocurrency: What Is It? 

According to investors’ parlance, a “scam” is a crypto project that stopped (or did not even start) to make the promised payments and ceased to exist.

How does it work? Scammers create an attractive project that has an internal cryptocurrency. To potential investors, they tell a story about the prospects of their idea and offer to invest in it. As a result, people buy tokens that are actually worthless.

Such tactics are usually characteristic of HYIP projects that attract a lot of information noise and offer extra-high returns — up to 40%-50% per month. Fraudsters can also lure investors with an affiliate program, promising “golden mountains” to attract referrals.

We should note that a real project can also fail in case of unforeseen difficulties or mistakes. 

Main Types of Cryptocurrency Scam Projects 

Having found out what is scam in cryptocurrency, let’s discuss the types of such projects. 

Purposeful scam 

The creators know in advance that the idea will never be realized. They are only interested in making a quick buck on user trust. 

Bankrupt startup 

Developers have a viable idea but cannot successfully implement it. Despite the initial positive intentions of the team, investors lose their investments. 

Causes of Crypto Scams 

When it comes to a real crypto-based project, scams most often occur for the following reasons: 

• Hacker attacks;
• Insufficient funding;
• High competition;
• Lack of practical value;
• Low interest in the crypto community.

On fraudulent platforms, crypto scam occurs because it was originally conceived by the developers. When the project stops attracting investors, fraudsters close it and later launch a new one with a different name and website. 

How Scam Projects Make Money 

Having believed the developers’ legend, investors buy internal tokens. A small part of their money is used to pay previous investors, and scammers take the rest. At first, investors can actually receive income, which helps create the illusion of reliability. However, the scammers eventually disappear with the bulk of the funds collected. The stronger the marketing campaign, the longer the project can last. 

The Biggest Cryptocurrency Scams 

Crypto scams are common these days. Let’s take a look at the most high-profile projects and their consequences. 

OneCoin (2014-2017) 

The project called itself a “Bitcoin killer” and offered investors to buy educational packages. The organizers attracted new participants through aggressive marketing and network structure. In 2017, it turned out that OneCoin was a scam. The cryptocurrency wasn’t real and didn’t even have a blockchain. Total investor losses amounted to $4.4 billion.   

BitConnect (2016-2018) 

Investors bought BCC tokens and lent them out, receiving 1% of the amount in return. In 2018, the platform suddenly shut down, and the price of BCC collapsed by 90%. The total losses amounted to about $1 billion. 

PlusToken (2018-2019) 

Investors were promised monthly payouts of up to 30%. A year later, it turned out that PlusToken was a pyramid scheme, and its organizers disappeared with more than $2 billion. 

How to Identify Cryptocurrency Scams? 

Investors should beware of the following signs: 

• Promises of fast and easy money with no risks;
• Anonymous teams and a vague roadmap;
• Lack of detailed tokenomics and White Paper — an official document describing the product;
• Intrusive advertising, multi-tiered referral schemes;
• Low activity in the community;
• Numerous negative reviews;
• Withdrawal problems;
• Primitive and poorly designed website.

How Not to Fall Victim to Scam in the Cryptocurrency World? 

By knowing what is a scam in crypto, you can secure your data and money. We have prepared tips that will help you avoid contact with scammers: 

1. Make sure that the organizers disclose their real identities, find out if they had successful projects.
2. Assess whether the developers’ plans are realistic.
3. See how actively the team communicates with the community on social networks.
4. Ensure that the project complies with the laws and has a license. Previously, we wrote that 14 investment projects in Ukraine were included in the list of dubious.
5. Check the physical address, phone number, and email specified on the site.
6. Enable two-factor authentication on all your crypto accounts.
7. Study expert reviews and opinions, read independent feedback.
8. Do not invest all your money in one project.

Want to buy cryptocurrency securely?
ObmenAT24 has been operating since 2015 and has a positive reputation. With us, you can exchange crypto to fiat and vice versa using bank cards, e-wallets, and cash.