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These are the Common Cryptocurrency Scams and How to Avoid Them

In May, the Securities and Exchange created the HoweyCoin, a mock cryptocurrency to educate and warn investors against rogue ICO’s. One of its many outlandish promises include 1% daily returns “with DOUBLE 2% returns on Tier 1 investors in pre-ICO stage secured purchases.”

Not surprisingly this is how many ICO projects are presented to the public – with returns that are just too good to be true. Sadly, many people fall for these schemes despite the obvious red flags.


This is in part because cryptocurrencies literally exploded in value in 2017 creating new billionaires. Ripple for example added 36,018% to its value and so it’s easy to see why people might still expect such mind boggling returns.

Unfortunately, a good number of ICO projects are outright scams and stand no chance of success in the real world; their creators do not expect them to go anywhere either. Many have since fallen by thee wayside down with millions of investors’ funds. Cryptocurrency scams come in various shades, whether they be fake exchanges, dubious ICOs or Ponzi schemes.

If you are new in the space, it is important to take a few precautions before committing money for that mouth-watering ICO or investment scheme.

Here are few things to have in mind before diving in. For many investors, the fear of missing out can be so strong. It is this behaviour that many scammers depend on to swindle money.

Initial Coin Offerings

There are now more than 1700 cryptocurrencies according to data from CoinMarketCap. Although a number of these are legitimate projects, most of them were dead on arrival.

Before buying into an ICO, take some time to look at their whitepaper and you might discover these projects offer no real solution.


The team might not have the requisite skills and experience to undertake the said blockchain projects. If you dig deeper, you will probably discover they have fake profiles. Worse still, the whitepaper might be a copy and paste job. US authorities have in the past charged a few individuals behind some of these dubious ICO’s.

The key is to do your own due diligence before investing in an ICO. There are several online forums where you can gauge the authenticity of a project.

Dubious Exchanges

It does not often cross people’s mind that their money can be stolen in an exchange. Theft through exchanges happens more often than you think. Some exchanges will charge exorbitant fees and make withdrawals almost impossible. The industry is largely unregulated but there are many legitimate cryptocurrency exchanges with strong track record out there.

Contract for Difference is an excellent alternative if you are looking to speculate on cryptocurrencies. The advantage with CFDs is that they are operated by licensed brokers like eToro. This gives you the necessary protection in case of insolvency for instance.

On top of that, CFDs have clearly spelt out trading fees and you can enjoy a variety of risk management tools like stop losses.

Automated Trading Systems

Automated trading systems are all over the place vying for your attention. Not all of them are genuine and few deliver according to their marketing hype. They promise to arbitrage prices between different exchanges. This may sound convincing but in reality high withdrawal fees can erase any profits. Settlements can also be very slow.

Ponzi Schemes

It is usually easy to spot Ponzi schemes but greed often blinds people. Any project whose primary purpose is to recruit new members to maximize profits is a scam.

You can think of the bitconnect scam which promised investors a humongous 40% return per month. The company even claimed it had a proprietary trading bot to turn in a huge profit.

Bitconnect Ponzi Scheme

Behind the bitconnect scam was a well-orchestrated marketing strategy involving thousands of affiliate marketers trying to work their way up by recruiting new members. Predictably, Bitconnect shut down in January 2016.

Phishing Scams

This trick which is common with emails has been used to great effect in the cryptocurrency space. Users are tricked to divulge their personal information like passwords and personally identifying information including seed keys.

On this note, you should particularly be careful with airdrops.


Scams are everywhere and particularly more pronounced for the new cryptocurrency industry. Self-education is always your best defence against scams. Learn as much as you can about the industry and be sure to conduct your own due diligence before jumping into a subject.

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