CryptoCurrency Fraud


What is CryptoCurrency Fraud?

With the growing reach of cryptocurrencies, frauds and scams have also enrolled themselves into the crypto sphere.

Several fraudulent practices, scams have dominated the market. Therefore all must be aware and updated about the ongoing Cryptocurrency fraud, ways to identify and deal with them. The most prominent forms of fraud in the crypto ecosystem are as follows: 


  1. Fraudulent ICOs 

The fraudulent practices taking place in the crypto ecosystem while the introduction of Initial Coin Offerings (ICOs) is the talk of the town.

Since ICOs provide opportunities for great & innovative start-ups; this alternatively creates space for fabricating fake ICOs too. 

The impractical ambition of the investors to earn 100 times huge just by holding worthless tokens leads to ignorance, therefore the frauds.

Hence, it becomes extremely important to give regard to some common signs of fraud like a copied whitepaper, extreme haste in the execution of token sales, absence of roadmap, weak analysis of the token economy, the difference in practicing and promised norms, etc. 

Some majorly highlighted ICOs fraud cases are as follows:

  • The Centra Token was scammed worth $32 million.
  • The disappearance of a token named Confido valued at $375,000.
  • The sudden disappearance of Benebit was worth $2.7 million. 

  2 Shady Exchanges

The common form of scam that can be witnessed in the crypto market is the presence of Shady Exchanges. These exchanges aim to accumulate investor’s money without any intention of providing benefits in return.

They sprang overnight and start bragging about money. At the same time, there can be exchanges that stay in the market for a longer period but are incapable to scale and innovate their market holding as their only aim is to collect money.

There exist some shady exchanges which have been reported by namely 01 cryptos, Ether-invest, Nettocrytpo, Ydconsulant Cryptos. Solutions, Mycrypto24, Good-crypto, etc.

To identify shady & suspicious exchanges, one needs to properly understand and analyze the real-data analytics, historical trade pattern, reviews, etc. of any exchange before investing. 

  1. Fake Wallets

The widespread acceptance of cryptocurrencies has also provided the space for the introduction of unauthorized crypto wallets on the play store. It is highly advised not to download any random wallet from the play store or other application stores without adequate verification of it.

The intensity of Cryptocurrency fraud arising out of fake wallets increases substantially while the coins are forked. During the fork, the wallet seeds the private keys and rips off the coins. 

To escape the fraud done through fake cryptocurrency wallets it’s always safer to check the reviews, description, developer’s name, and downloads.

There exist certain verified crypto applications that are highly recommended to trade, namely Trezor Manager, Ledger Live, Coinomi Wallet, Coinbase, and Mycelium Bitcoin Wallet.

  1. Pyramid or Ponzi Schemes

The Ponzi schemes refer to the scheme that encourages the recruitment of unwanted fresh investors to maximize profits.

This entire system works on scamming the ones who became a part of the system later and tend to promise absurd returns too. The Ponzi scheme can be identified considering the following aspects:

  • The unclear investment portfolio and format.
  • The bogus promises for high and consistent returns.
  • The unregistered investments and securities.
  • The unlicensed advisers and consultancy firms.
  • Inconsistent accounting practices.

The Ponzi schemes and their practices can be reported to the Federal Bureau of Investigation (FBI) and the Securities and Exchange Commission (SEC) for seeking redressal. 

  1. Phishing Scams

Phishing as the word itself suggests is the form of scam that can be witnessed in the crypto sphere more often.

Here, the scammers try to get access to the investor’s credentials which will be required to operate the account/wallet. In general, scammers use the following two methods to achieve their ill targets.

  • Puny code, it is a way of converting words into unreadable and non-written form to give rise to scam on a wider scale.
  • Fake Airdrops 
  1. Pump & Dump Groups

These groups give rise to a fraudulent practice named the Pump and Dump scheme which works on manipulating the value of cryptocurrencies. Since, this is a group of individuals on Telegram, Slack, or IRC. 

Therefore they actively work in circulating fake advertisements and articles to misguide potential investors.

There are several ways to identify such groups/schemes and safeguard the trading but the prominent identification lies in timely observation:

  • If an unknown coin gradually dominates the market, sudden rise in prices, which is viewed in the coin’s price chart.  Then, one should be careful about trading with it.
  • The flooding of paid news articles about any small-cap coin in social media can be intending to sign in into pump and dump scheme 
  • The sudden appearance of cryptocurrency with small market capitalization all over social media is a significant sign of fraud, etc. 
  1. Impersonators

This is the type of fraud where scammers create fake social media accounts by the name of renowned crypto influencers.

This provides the scammers with an opportunity to fraudulently introduce any project through a known person’s fake id and may result in the draining and dumping of investors’ funds on the wrong platform.    

With the growing influence & market cap of cryptocurrencies, it has become extremely important for whistleblowers to contribute actively.

The whistleblowers can serve as a ladder towards better policy formation by the government for preventing fraud.