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How to unearth the different scams in Cryptocurrency Exchanges?

How to unearth the different scams in Cryptocurrency Exchanges?

Tuesday August 04, 2020,

5 min Read

With a rise in the tendency to make a quick buck, Cryptocurrency Exchanges have emerged in different parts of the globe courtesy friendly regulations and crashes in financial markets. As the number of users and volume of trades reaches new heights, it is important to take precautionary measures from scams. Scams rob not only funds but also the reputation of cryptocurrencies. 

Some of the general tips to detect a scam before it is too late are 

  • Verify if the website that executes trades has https. Presence of https indicates that the data sent to the site is secure. 

  •  If the company’s URL has a lot of spelling mistakes, its offerings could be fake. 

  • There are some cases where websites promise an abnormal rate of return that is above the expectations of normal investors. This indicates a sure chance of a scam. 

  • An absence of a list of team members who execute the projects and lack of details about the company’s address and registration can lead to the possibility of a scam. 

  •  Look out for posts in discussion forums as the cryptocurrency community is quick in spreading the news about scams. 

  •  Check if the company claims any celebrity endorsements. There has been an increasing number of incidents where fake exchanges have been discovered duping people with tall claims. 

  •  Do not disclose your personal or financial information without doing due diligence. 

Some of the common kinds of scams are 

  • Phishing - It is executed when users open an unsolicited email in their inbox which has been claimed to be sent from the bank. After the account details have been entered unsuspectedly by the user, scammers would sign in to the account and swindle the funds in no time. Investors can avoid such incidents by not clicking on dubious links and never disclosing their private keys.

  •  Fraudulent exchanges and wallets -  Out of the blue, certain Bitcoin exchanges with similar offerings as reputed platforms emerge in the market. They cleverly offer believable promotional offers and give attractive bonuses to receive large deposits from gullible investors. Once the user signs up and deposits a specific amount, the fake exchanges impose high fees on withdrawals which will make an investor ultimately lose his entire deposit altogether. Dubious wallet apps are also in the news as they steal the valuable account details of users through smartphones. 

  • Unsolicited phone calls - The classic IRS (Internal Revenue Service) scam is still continuing where scammers call certain individuals and warn them to pay off their dues or face legal action. Lots of genuine users are also reporting calls made from overseas countries regarding the transfer of funds in exchange for a sizable portion of digital currency. 

  • Fraudulent ICO’s - Since Initial Coin Offering (ICO) has emerged as one of the cost-effective methods of fund-raising, scammers are preying on its vulnerabilities too. With hyped marketing efforts, many fake ICO’s are prevalent in the market today. Earning high returns through ICO takes a lot of time, and it is better to invest in credible companies who have completed several projects beforehand. Undertake basic research by studying the whitepaper, experience of the team members, benefits provided to investors, legal implications, and distribution plan for tokens. 

  • Blackmailing - Hackers claiming to have incriminating evidence of a user’s personal activity can blackmail users to send a huge amount of cryptocurrency. If the users do not compromise, the hackers will threaten to leak the footage to many emails or social media accounts. They send similar emails to thousands of users simultaneously. Innocent and unsuspicious users send cryptocurrency and get tricked. 

  • Impersonation scams - Scammers impersonate well-known celebrities and publish content regarding promises of free cryptocurrency on social networks such as Youtube and Twitter. A large number of bots and fake accounts will be used to deceive investors. Though Twitter has blue-checkmarks to verify genuine accounts, hackers take over verified accounts and execute impersonation scams. 

  • Ponzi scheme -  These schemes promise small investors of unusually high returns. It is also known as a pyramid scheme. The promised returns paid out to existing investors are made from the deposits received from new investors. All of a sudden, the promoter who is the brains behind the scam takes away all the money and goes into hiding. These types of schemes can be found out by identifying projects that hire new investors for higher profits. 

  • Malware - It refers to a malicious program that creates havoc via a virus, trojan horse or  spyware. Malware can inject itself into wallets draining funds by replacing legitimate cryptocurrency addresses with the spammer’s address. Investors must utilize anti-virus software and never open suspicious attachments that come through emails.

  • Mining scams -  Some scammers offer cloud mining services promising huge returns. They do not disclose their fees transparently and steal the deposited funds quickly. Users can trust the normal method of buying cryptocurrencies for a certain amount instead of trusting cloud mining services. Rental schemes offering mining facilities should also be avoided. 


  • Pump and Dump schemes - It shoots up the value of digital currency with a smaller market cap by sharing false recommendations. This attracts funds from investors as they fear missing out on a viable opportunity. Several online groups and forums are executing this scam by circulating fake news on social media. They dump the asset by selling it off for a handsome profit after it has reached a certain limit. 

Investors can avoid the above scams and stay safe by installing top-notch security features in their respective accounts. Taking steps such as two-factor authentication, reserving funds in cold wallets, double-checking cryptocurrency addresses before finalizing deals, and keeping their private keys safely with themselves will go a long way in preventing the occurrence of such dangerous scams.