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Crypto Scams

Crypto Scams

What are scam coins and how common are they?

The cryptocurrency market is a relatively new space where blockchain technology has created a gold rush of different digital coins and tokens all vying to be the next big thing. With values fluctuating significantly more than traditional investments, and an underlying technology that is constantly evolving, it can be difficult for potential investors to understand what they’re buying and what their investment strategy should be.

All of this confusion creates the perfect environment for scammers to operate, posing as credible cryptocurrency companies and taking advantage of eager newcomers to the crypto space. This is especially the case with lesser-known cryptocurrencies, often referred to as “altcoins”, which can lure investors in by promising huge rewards if you’re one of the pioneering early adopters.

Thankfully, the majority of cryptocurrencies are legitimate and aren’t simply trying to take your money. These credible cryptos have active development teams, with well-articulated goals and strategies for increasing the viability of their digital currencies, and are generally covered by major financial and crypto publications, making them easier for investors to identify.

With dozens of hyped crypto and NFT projects launched every day with little to no information about its utility or the team behind it, what can we learn from previous crypto scams to avoid getting caught out? To answer this question, we at Traders of Crypto have created a guide to the biggest scams of crypto history, with tips for staying safe and avoiding the scammers’ biggest tricks.

Dead coins: a tour of the crypto graveyard

What is a dead coin?

A cryptocurrency can be considered “dead” when its trade volume falls below $1,000 for the past three months, or when its website is taken down or the developers abandon the project. All of these actions render the cryptocurrency unviable and useless to investors, therefore making it a “dead” coin.

Why do coins die?

Since February 2020, approximately 1,000 cryptocurrencies have been pronounced dead, deceased and no more, with the total death count now standing at about 2400 coins. This equates to an increase of about 71%!

These ex-cryptos will have died for a wide variety of reasons. Sometimes, the cryptocurrency simply becomes outdated, with the developers unable to keep up with the rapid pace of change in the blockchain space, while other coins simply fail to attract enough investors to create a sufficient amount of buzz and community to keep the project going.

However, a sizeable portion of these dead coins are the result of scams and scam coins that take advantage of the volatile crypto market and the complex nature of blockchain technology to fool investors into parting with their cash.

Below you can see a breakdown of the expired cryptocurrencies divided into categories that reflect their cause of death. This snapshot represents the graveyard of cryptocurrencies as of 12th January 2022, though more coins could have fallen by the wayside since then.

How do crypto scams work?

There are many ways in which investors can fall prey to crypto scams. These range from scam ICOs, where money is raised for a non-existent cryptocurrency project, to classic “pump and dump” schemes where the majority of owners of a coin hype up demand for the currency to inflate its value before selling their crypto at an artificially high price.

Another form of crypto scam includes the simple theft of digital currency by either hacking investors’ crypto wallets or setting up fake wallets or exchanges to steal people’s money. The classic Ponzi scheme has also made a comeback, taking advantage of the unregulated market and people’s difficulty keeping up with developments in the crypto and blockchain space.

The biggest scam coins in crypto history

Now that we’ve covered some of the more common types of crypto scams, we’ve put together a list of some of the biggest scams in crypto history. Hopefully, by knowing how scammers duped crypto investors in the past, we can all learn to avoid their fraudulent tactics in the future.

OneCoin - $4 billion

OneCoin is a classic example of a Ponzi scheme in the crypto world. Between 2014 and 2016, OneCoin attracted over $4 billion in investments and purchases from hopeful crypto enthusiasts. Unfortunately, they were destined to be let down when the OneCoin Exchange, the only way of cashing out from the scheme, was shut down in January 2017.

The founder of OneCoin, Ruja Ignatova, went into hiding in 2017 while her co-founder Sebastian Greenwood was arrested in 2018 and is currently serving time in jail in the USA. Ruja’s brother, Konstantin Ignatova, took over the business in her absence and has since also been arrested, pleading guilty to fraud and money laundering.

While OneCoin had a tumultuous history as one of the biggest frauds in recent history, governments and trade bodies had raised concerns about the cryptocurrency being a Ponzi scheme as early as March 2016, when Norway’s Direct Selling Association called out OneCoin as a pyramid scheme.

BitConnect - $2 billion

Another huge pyramid scheme, BitConnect went from hero to zero at top speed. Founded in 2016, prices peaked in December 2017 and BitConnect became one of CoinMarketCap’s best-performing coins of 2017. However, in a matter of months, the hype was over as the founders pulled out, taking their ill-gotten profits and collapsing the scheme.

In September 2021, US regulators sued BitConnect and its founder, Satish Kumbhani, for a $2 billion fraud in which he siphoned off investors’ Bitcoin to himself and other promoters of the scheme, such as Glenn Arcaro, who pleaded guilty in a federal criminal court for defrauding US investors. Meanwhile, the whereabouts of Satish Kumbhani is unknown, though he was believed to have been operating out of India at the time of the fraudulent activity.

Pincoin & iFan - $870 million

The Pincoin and iFan scam was one of the biggest ICO frauds in crypto history, with 32,000 investors losing a total of $870 million to the fraudsters. Pincoin promised investors a 40% monthly return on their investment while Modern Tech, which widely promoted Pincoin in Vietnam, offered an 8% reward to every investor each time they brought a new investor on board.

This reward scheme had all the hallmarks of a Ponzi scheme, while the company’s move to stop rewarding investors in fiat currency, handing out its own “iFan” tokens instead, added to the growing suspicions of the wider crypto community.

The whole scheme came crashing down when the team behind Pincoin suddenly disappeared, leaving investors out in the cold with no way of retrieving their capital. There have so far been no arrests or charges made in relation to this scam.

ACChain - $80 million

ACChain is the archetypal ICO scam, having defrauded initial investors out of $80 million through their highly promising ICO. The company was operating out of offices in Shenzhen, China when suddenly it went dark.

The ACChain offices were pictured completely devoid of any activity, employees or even office equipment, with no representative from the company left to explain where the $80 million dollars in investor’s money ended up.

PlexCoin - $8.27 million

PlexCoin is another example of an ICO scam where the developers disappeared with investors’ money, leaving them with nothing but useless tokens that had no value. Initially offering investors a return of 1,354%, this was not the most subtle scam, but its brazen promises attracted plenty of unfortunate investors.

Having made off with around $8.27 million following their fraudulent ICO in 2017, three Canadians, Dominic Lacroix, Sabrina Paradis-Royer and Yan Ouellet, were found responsible for transferring millions in investor funds to their private accounts. Their promises of high returns and reassurances of an expert development team based in Singapore were given examples of lying to their own investors.

However, in a rare piece of good fortune regarding ICO scams, the United States Securities and Exchange Commission (SEC) provided information on how victims of this scam could claim compensation, although the deadline for such claims has now passed.

PayCoin - Unspecified

The PayCoin scam had several stages in which Homero Joshua Garza and his unscrupulous crypto mining supplies company GAW Miners LLC conned customers and investors out of their hard-earned cash.

GAW Miners sold equipment for budding crypto miners, but when demand seemingly outstripped supply, things began to take an overtly fraudulent turn. GAW introduced a cloud mining service for customers who were waiting to receive their orders, allowing them to purchase “cloud mining contracts” that enabled them to pay for mining and receive the benefits.

However, these contracts did not mine coins but rather paid out proceeds received from new subscribers, making it another crypto Ponzi scheme. The company then released their own cryptocurrency called PayCoin (initially called Hash Coin) for which, following a great deal of fanfare and false claims of major partnerships, they guaranteed a floor price of $20 per coin.

This high valuation made it one of the top five cryptocurrencies at the time and raised suspicions in many parts of the crypto community that PayCoin was a fraudulent token. However, people soon lost faith in the token and the whole system collapsed, with Garza fleeing the United States.

Gemcoin - $147 million

From July 2013 to September 2015, Steve Chen operated a multi-level marketing scheme, a type of pyramid scheme, that rewarded investors in his company, U.S. Fine Investment Arts, with points, and later with Gemcoins.

The idea was that these Gemcoins were backed by physical gemstones extracted by mines owned by Chen’s company, though it turned out that these mines were pure fabrication. The value of these tokens plummeted when this fraud became known, and Chen has since received a 10-year prison sentence for conning 70,000 investors, meaning he won’t be released until he’s 73 years old.

Titanium - Unspecified

Titanium is a cryptocurrency that became mired in controversy before it had even fully launched, with the SEC halting the company’s ICO while it pursued charges against founder Michael Stollery.

According to Robert A. Cohen, Chief of the SEC Enforcement Division’s Cyber Unit, the ICO was based on a social media marketing blitz that misled investors with fictional claims of business prospects and partnerships. Titanium had claimed to have partnered with some big well-known brands such as Boeing, Disney, PayPal and Verizon, though this was all a fabrication and no partnerships had been established.

There were also cases of people raising the issue of the founder working under a pseudonym, as he was also known as Michael Stollaire. However, anyone who raised this issue on the Titanium Telegram channel was swiftly blocked, with the same going for the Titanium subreddit, which was extensively moderated to remove these negative stories.

The company had also been supposedly hit by a hacking attack which resulted in the loss of 16 million BAR tokens, though there is suspicion that this could have been orchestrated by Stollery/Stollaire as a way of extracting value from the phoney cryptocurrency.

Squid Game - $3.38 million

The Squid Game crypto scam is one of the highest-profile scams in recent years. The SQUID token released was supposedly part of a play-to-earn game modelled on the globally popular South Korean hit Netflix show “Squid Game”, but in fact had no ties to the series at all.

Caught up in the popularity of the TV show and the potential for meteoric rises in the crypto market, investors piled in to get a piece of the action. However, as SQUID’s value continued to rise, increasing by 45,000% to a peak of $2,856, users were finding that they were unable to cash out, being told instead that they had to purchase “marbles” to play a game that would allow them to earn their money back.

As panic grew among investors that they had fallen for yet another crypto Ponzi scheme, and people began spotting red-flag signs such as spelling mistakes on the token’s website, the owners pulled the rug out on the project. The value of SQUID collapsed and investors were left with virtually nothing, while someone somewhere made a tidy profit of approximately $3.38 million.

Useless Ethereum Token

This last example is not so much a scam coin as a parody of what a scam coin usually is. Useless Ethereum Token has absolutely zero functionality and is a completely useless digital token. The main selling point for this cryptocurrency is that it is completely honest about its own obsolescence, with the UET website actively encouraging you not to invest.

Useless Ethereum Token even has a “bonus tokens” reward scheme supposedly designed to encourage people to invest by gamifying the token, as well as clearly setting out a textbook Ponzi scheme in its method of token distribution.

Despite guaranteeing a token value of absolute zero, the Useless Ethereum Token has actually attracted investors, mostly crypto enthusiasts who enjoy the obvious satire of this project and have a little too much spare cash.

Either way, if you’re looking for an example of what a crypto scam would look like if they were completely honest about their operation, then check out this project’s website.

How to avoid scams when investing in crypto

With so many crypto scams out there, it’s important to know how to spot a potential scam coin, and how to protect yourself when investing in cryptocurrencies. Here we’ve put together a guide to staying safe while navigating the crypto markets.

1. Beware of gimmick coins

The first warning sign to adhere to is to avoid gimmick cryptocurrencies. These are usually based on popular culture and have no inherent value other than tapping into the hype caused by something completely unrelated.

The biggest example of this is Squid Game Coin, which managed to get thousands of people to part with their own money simply because it had associated itself with the hit Netflix show. The coin had no practical value and the developers ran off investors’ funds when rumours of its illegitimacy began to grow.

Other examples, such as Theresa May Coin, Angela Merkel Coin, PapaFrancescoCoin and “Meowth” all tap into modern culture and, while they might be fun or amusing in the short term, they offer no practical value.

There is, of course, always an exception to the rule. Dogecoin, a meme coin based on the popular “doge” meme, has performed surprisingly well on the crypto market and has built a loyal following of investors and enthusiasts, though this anomaly should not be enough to allay any doubts about these dubious tokens.

2. Extensively research altcoins

Altcoins are cryptocurrencies that are new or are trading at very low volumes. These coins are often raised up as the next big thing in crypto, with investors eager to find the next Bitcoin or Dogecoin that will give them huge returns on their investments.

Unfortunately, not only are many of these coins destined to fail for purely innocent reasons, like market saturation and simple lack of adoption, but this is where the majority of scam coins lie in wait for unsuspecting punters.

To verify the legitimacy of a cryptocurrency, you should always dissect all the information you can find on their website and in the wider crypto community, especially on well-regarded media and review sites. Check out the information on who the developers are, and try to find them on LinkedIn to verify that they’re real people.

You should also confirm that the cryptocurrency has a white paper detailing the token’s applications and the plan for its development. If there is no white paper, or if the information within it is vague and mostly marketing material, then you should avoid investing.

3. Avoid reward schemes and guaranteed returns

If a cryptocurrency is guaranteeing a specific return on your investment then you should be especially wary. The cryptocurrency market is a notoriously volatile place with minimal regulation, so your investments are not protected and prices can rise and fall dramatically. It is simply not feasible for a cryptocurrency to guarantee a return on your money, particularly not a specific figure.

You should also be on the lookout for cryptocurrencies that offer reward schemes for buying their tokens. In these cases, this suggests that the cryptocurrency does not have an intrinsic value, and could depend on building hype among customers who get excited by the prospect of earning rewards.

Similarly to reward schemes, any cryptocurrency that claims the rewards for investors will grow for every new person who invests should be avoided like the plague, as this is a textbook Ponzi scheme. Any returns you do see are likely just going to be the fees taken from new investors, not actual profits that the crypto has made.

4. Keep your crypto assets secure

Regardless of which cryptocurrencies you’re investing in, it’s extremely important to keep your crypto assets safe and secure. To do this, you will need to ensure that your private key and seed phrase are never shared with anyone, and preferably keep them stored offline in a cold wallet, or even keep them written down in a physical analogue format.

Additionally, you should always enable two-factor authentication to add an extra layer of security regardless of what crypto wallet or exchange you are using. This is not a fool-proof method, but it is a step that makes it significantly more difficult for hackers to steal your crypto assets.

5. Use trusted exchanges

There is a growing number of crypto exchanges on which you can buy and sell a wide variety of cryptocurrencies. However, there are now fake exchanges where you might pay for a currency and not receive it, or even expose the security of your crypto wallet.

To avoid these dangerous sites, make sure you only use well-reviewed crypto exchanges that are widely used and recognised by your peers. Legitimate exchanges should have a well-developed social media presence and their employees should be identifiable on LinkedIn.

6. Look out for phishing scams

Phishing scams are a well-established form of online fraud where you will be lured into giving away your personal information and login details. The fraudsters will then be able to access your account and withdraw any funds they can get their hands on.

To avoid falling victim to phishing attacks, always be wary of unsolicited emails, phone calls or direct messages, especially from companies which you have no current dealings with. These communications will often have a point of urgency, such as a limited time offer or even a claim that your account has been compromised, which then compels you to quickly respond, click a link or fill in your details without taking proper precautions.

Even if you do recognise the company in the message, double-check their email address or contact details and cross-reference that with previous legitimate communications to confirm their identity.

However, the best way to avoid these scams is to avoid clicking any link that has been sent to you. Even if the link looks authentic, there may be a single digit that is different from the legitimate website’s address, sending you to a clone website that looks exactly the same but is instead a front for the fraudsters.

If you really must follow up a message from a crypto exchange, then visit their website independently of the communication you received using a search engine. You can then confirm with the real website whether or not the message you received was fraudulent.

Methodology

We wanted to take an in-depth look at crypto scams including what they are, how to avoid them, and examples of some of the biggest scams in crypto history. To do this, we first looked at the number of dead coins on Coinopsy that had been marked as scams. This gave us a good overview of both how many cryptocurrencies are dying, and the prevalence of scams in the crypto market.

We then scoured the internet for examples of the biggest crypto scams, using a variety of authoritative sources. These include Financial Express, Fool, Investopedia, Wall Street Journal, Investing.com, Finance Magnates (1), Finance Magnates (2), Toshi Times, FX News Group, CoinTelegraph (1), Coin Telegraph (2), 1Kosmos, Medium, BBC and Wired.

To put together our guide for avoiding crypto scams, we used data from a range of sources including PCMag, Gemini, Business Insider, Finder, and Constantine Cannon.

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