The number of cryptocurrency frauds has reached record levels in recent years. The crypto market is becoming more and more of a scam, and criminals are using more and more devious schemes to defraud investors and steal their money. Knowing how to spot fraudulent crypto projects and what precautions to take when trading cryptocurrency will minimize the risks.

In our article, we will look at the most common types of cryptocurrency scams, how to spot them, and the most effective ways to protect yourself from cryptocurrency fraud, as recommended by industry experts. 

Cryptocurrency Phishing: How to Avoid Being a Victim 

Phishing is the fraudulent practice of creating fake websites or sending emails to steal users’ personal information. Victims who fall for the bait enter their passwords or private keys on the fake sites, resulting in the theft of funds.

The most common cases are

• Fake cryptocurrency exchanges and wallet apps masquerading as popular services. For example, in 2019, fraudsters created a fake exchange called BitKRX, which pretended to be a division of South Korea’s KRX, causing users to lose millions of dollars. Another example is cryptocurrency wallet fraud, where a fake “Trezor” app on the App Store stole more than $1.6 million in cryptocurrency from users.
• Emails with malicious links to fraudulent websites. For example, in 2020, attackers sent emails on behalf of Ledger support, encouraging users to click on a link and enter their CID phrases, leading to massive cryptocurrency thefts.

Fake wallet apps, malicious emails and false cryptocurrency exchanges: ways to avoid them 

• Check URLs: Fraudulent sites often use domains similar to the original. There is usually an unnoticeable substitution of one/few characters or the domain zone address.
• Don’t open suspicious emails and links: if an offer seems too good to be true, it’s probably a scam. For example, there was a high-profile precedent in 2021 when hackers sent out emails purportedly from Binance offering to win cryptocurrency. When users clicked on the link, they entered their credentials and their accounts were hacked.

Cryptocurrency scam projects: signs and warnings 

Fraudulent ICOs and scam projects are fake investment opportunities that promise huge profits but end up disappearing with investors’ money.

In order to recognize such schemes, it is necessary to apply basic advice when investing in cryptocurrencies, which experts in the market of digital assets never tire of repeating — check the reliability of cryptocurrency projects. That is, it is necessary to conduct a thorough fundamental analysis before making a decision to invest. The following signs serve as clear signals and warnings that you are at risk of investing in cryptocurrency scams:

• Lack of White Papers or their amateurish presentation. 
• Closed or questionable information about developers and founders.
• Promises of unreasonable profits. If it looks too tempting, your expected millions are unlikely to materialize. The offer of fixed returns should also be alarming — it is almost impossible to get, based on general statistics of profitability rates of young projects in the highly volatile cryptocurrency market. 

Therefore, fundamental analysis is one of the most effective ways to reduce the risks of investing in cryptocurrencies and related projects. At a minimum, it is worth studying the development team, the presence of active profiles in LinkedIn and GitHub, WhitePaper and the presence of reactions in the crypto community: real startups are always discussed. Also analyze the economic model of the project: if the profitability looks unrealistic, you are probably dealing with scammers.

Pyramids and Ponzi schemes in the crypto industry 

These schemes are based on attracting new investors to pay profits to old participants. Once the influx of new investments dries up, the scheme collapses. 

One of the most famous examples is the BitConnect platform, which offered users astronomical interest rates for storing cryptocurrency. Then the project shut down, leaving investors with millions of dollars in losses. Another case is PlusToken, a Chinese fraud scheme that managed to collect more than $2 billion from gullible investors before its organizers were arrested.

To avoid becoming a victim of such criminal networks, in addition to studying the available documentation, team personalities and online reviews, it is necessary to analyze the project’s sources of income in detail: if it depends mainly on new investors, it is likely to be a pyramid or Ponzi scheme.

Social engineering in the crypto world 

Attackers manipulate people by forcing them to reveal confidential information. For example, in 2022, scammers posing as MetaMask support staff contacted users and convinced them to provide a CID phrase to “verify” a wallet. A year earlier, attackers created fake Binance support accounts on social media and contacted users with an offer to help resolve issues by providing private keys or cid phrases. 

Another classic case is the attack on Twitter users, where attackers pretended to be well-known crypto investors and offered to send a small amount of money to the wallet for a “bonus distribution,” then disappeared with the received funds. Creating fake accounts of famous personalities or deepfakes on social networks has recently become a common tool for scammers to make money.

How to Avoid Being a Victim of Social Engineering and Prevent Cryptocurrency Asset Theft 

• Never share your personal information and passwords with anyone under any circumstances.
• Do not get emotionally involved in messages or calls from people trying to access your personal information from your cryptocurrency wallet. Scammers using social engineering techniques always play on emotions, pretending to be celebrities or experts, government officials, or acquaintances of your relatives who are supposedly in trouble. 
• Always verify the authenticity of the interlocutor by contacting the official support team through the company’s website.

How to protect your cryptocurrency wallets from hackers 

Far from always, people become victims of theft due to their carelessness, indiscretion or failure to follow the rules for safe storage of cryptocurrency assets. Reviews of the most famous cryptocurrency scams involving unimaginable sums of money tell us that even the most reputable cybersecurity experts could not have predicted them. For example, we are talking about collapses or hacks of the largest crypto exchanges. 

Such was the case in 2022, when the FTX platform collapsed due to the machinations of its management. According to Chainalysis, fraudsters stole more than $14 billion in cryptocurrency that year, a record amount. Most of the growth came from Ponzi schemes, DeFi platform hacks, and phishing attacks. At the time, fraudsters demonstrated unprecedented scale, virtuosity, and ruthlessness in deceiving investors to steal personal information and cryptocurrency funds. According to SlowMist, more than 1,500 phishing attacks on crypto users were recorded in the first half of 2023.

According to PeckShield, the value of stolen cryptocurrency increased by 15% in 2024 compared to 2023. Of these funds, 71% were stolen through hacks and hacker attacks, and 29% were stolen through fraudulent schemes. Analysts note that fraudsters’ revenue from schemes using social engineering techniques has increased by almost 40%(!) since last year. Unfortunately, this tells us that users have not become more responsible and cautious over time. 

In addition, there has been an increase in attacks on cryptocurrency platforms in 2024. According to a report by Chainalysis, the total amount of losses from hacks reached $2.2 billion, an increase of 21% compared to 2023. The main targets of hackers were centralized services, which accounted for about 45% of all thefts. As centralized trading platforms are legal entities liable to the state and the user under applicable laws, the role of regulators in combating cryptocurrency fraud in this market segment increases significantly. Within the legal framework of the jurisdictions where trading platforms are registered, decisions are made to compensate investors for their financial losses. For example, in 2023, the South Korean government allocated compensation payments to affected users of the V Global exchange, and in 2024, U.S. regulators required Binance and FTX to create special funds to compensate customers.

In any case, cryptocurrency owners should be informed of their rights, follow regulations on the safe storage of cryptocurrencies, and be aware of potential threats. But what should you do if the rainy day has already arrived and you have been ripped off by crypto scammers?

What to do if your cryptocurrency is stolen 

1. Immediately record the incident.

Write down all the details: amount, date, time, transaction data (TxID), addresses of the fraudsters’ wallets. Take screenshots of correspondence if you have been scammed via social networks or messengers.

1. Report to the platform where the theft occurred.

Contact support immediately — some operators may freeze suspicious transfers. If wallet funds are stolen, see if there is an option to reverse the transaction (usually not possible in blockchain, but there are exceptions).

1. Contact law enforcement.

In some countries, cryptocurrency theft is already considered a crime. File a report with the cyber police or financial regulator. In the U.S., you can contact the FBI’s Internet Crime Complaint Center (IC3); in Europe, you can contact Europol or national cyber police.

1. Use services to trace stolen funds.

Platforms such as Chainalysis, Elliptic, and TRM Labs can help you track the movement of stolen funds. You can also create a public report on the blockchain (such as with Etherscan or Bitcoin Explorer) so other users can see that funds have been stolen.

1. Find out if a refund is available.

Some exchanges (e.g. Binance, Kraken) have compensation funds (SAFU, Insurance Fund). Find out if you can get a refund. 

1. Alert the community.

Write to the crypto community (Reddit, Twitter, Telegram) to warn other users. Report fraudulent addresses to sites like Whale Alert’s Scam Alert.

Conclusion 

No one is immune to the actions of scammers. Be aware of the necessary protection measures, follow them at all times, and remain vigilant. Use hardware wallets to store large sums of money, always enable multi-factor authentication, never store private keys in cloud storage or as notes on your smartphone, carefully check recipient addresses before sending money — and then you can avoid financial losses.

Thank you for your attention. Invest safely and profitably!

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