How to navigate the most common crypto scams

Avoid losing your hard-earned money in crypto by applying these practical tips.

8 min readJul 21, 2022

Welcome to the second installment of our crypto scam series, where we walk you through ways to avoid crypto scams, list helpful tips, and provide you with resources that will keep you aware of possible crypto scams.

We want all of our users and the crypto community to be safe and secure. After all, we're all in this together, and we're here to make the crypto space a better place for everyone. In case you missed part one of the series, where we discussed different types of scams, you can read the whole article here.

Let's dive right in!

According to the Federal Trade Commission, people have been scammed for over $1 Billion in 2021 alone; that doesn't even account for the past two months.

So what can you do to avoid falling victim to one of these scams?

Research, Research, Research

Always do your due diligence and proper fundamental research before investing in a project. This is one of the most essential tips for anyone in crypto, and you've probably heard phrases like "Do your own research" that's because it's important to investigate any project you are planning to invest in. It's not foolproof, but doing your research will take a long way in avoiding different types of scams.

Here are some things to look for when researching a crypto project

What are the tokenomics of the token?
What is the vesting schedule of the token?
What are the long-term visions/plans for the project?
What is the market cap of the token?
What is the fully diluted market cap of the token?
Who are the project's founders, and do they have a proven track record as entrepreneurs?
What is the value of the token? (e.g., is it used to make transactions or pay for fees? etc.)

Read the whitepaper in detail and pay particular attention to the abovementioned points. The majority of the people in crypto get lured in by fancy marketing and fake promises and don't do enough research to spot a scam. Doing in-depth research sets you apart from the majority, and you're more likely to spot a scam project.

Scammers rarely draft a practicable whitepaper and are more likely to expose themselves and many flaws in the project. The underlying technology of a project and how it is expected to behave over time is meant to be provided within the documentation. The absence of it or the presence of irregularities are potential red flags.

Learn about the team

It's not uncommon to come across a project in crypto where the team prefers to remain anonymous. After all, the crypto space was founded on the ideals of decentralization and anonymity. This is very convenient for scammers, who can create a scam project without revealing their identity.

More often than not, this should be a potential red flag you should look to avoid. In most of these cases, founders and team members choose to remain anonymous to avoid liability should the project engage in malicious activity.

One way to determine if the anonymous team is legit is to look at the project's backers and investors. These companies wouldn't back a project that is a scam and usually meet the founders. But again, this method is not foolproof as even well-established companies and investors can fall victim to elaborate scams.

The scammers may also falsely claim to be backed by an established investor. In case you have doubts, you can check if the investor has ever made an official statement about investing in said company, or you can even reach out and inquire whether their backing is legitimate.

If the team is not anonymous, we recommend you thoroughly research the founders and employees. Get to know the founders and understand their vision for the project. One way to check if founders are legit is to check their Linkedin profiles and see what kind of companies they have worked for in the past. Even then, be critical as people can add whatever type of information they see on their Linkedin profile.

Conduct solid Google searches and see if any core team members have a history of malpractice, participated in a previous scam, or have been sued or declared bankruptcy.

Investigate social channels

The main reason for checking the social media platforms is to see if the project has a decent amount of followers compared to its competitors. Additionally, you may want to verify that most of the followers are not fake and that the community genuinely engages with the project's team.

You can use a tool like Socialblade to track statistics from social media accounts.

Just type in the username of the specific crypto project and analyze their social media presence with a click of a button.

Monitor authenticity by participating in the community and keep a watchful eye to see if the project adopted a regular posting schedule with meaningful content to the community. Red flags should be things like 'bot-like' generic conversations, lack of input from the team, and a massive following with very little engagement.

If it seems too good to be true, it probably is

Be extremely careful when a crypto project, whether centralized or decentralized in nature, is providing guaranteed returns of more than 10%+ APY. Keep in mind that the current yield on your savings account with most western banks is around 1%.

In essence, the higher the APY, the higher the risk. Take the events of the past weeks, for example; centralized lending and borrowing platforms like Voyager and Celsius have both filed for Chapter 11 bankruptcy.

Please be aware that guarantees cannot be made regarding investing and trading. Don't fall for empty promises.

Here are a few ideas that might help you spot if something is too good to be true.

Watch out for online recommendations regarding false, misleading, and highly exaggerated news to boost the price of an asset as high as possible.

When participating in yield farming or staking strategies, take out your rewards daily, weekly, or monthly to realize those yields.

Using sites like Defillama.com help give an overview of all DeFi blockchains, DeFi companies, and much more. Use the site to find the top lending and borrowing protocols with the highest market capitalization. Check the average yield rates on these platforms and compare these rates with the crypto project you think could be interesting to invest in.

Stakingrewards.com is another place where you can get an overview of yields across crypto projects.

Use the blockchain explorer of the protocol on which the project is being launched to track the list of wallets that hold the token (e.g., Etherscan). Use this to create a short list of holders that own the majority of the token supply. If a few addresses hold the allocation, be aware that they could very quickly dump it, devaluing the token.

You're not the first one looking for ways to avoid these scams. People around the crypto space have created helpful websites and tools to assist in identifying scams. Websites such as tokensniffer.com allow you to track the latest hacks and scams in the crypto world.

Avoid getting phished

Phishing attempts are becoming more prevalent in crypto, so you must know how to spot a phishing scam. You might have heard these tips before, but we'll say it again to be sure.

Never give your private keys/seed phrase or your hardware wallet(s) to any other party besides yourself or one family member you can fully trust, in case you have no access to your seed phrase and/or hardware wallets for whatever reason.

Next to that, employees of crypto exchanges and projects have no business asking you what your seed phrase is. Always keep this information private.

Never give out your 2FA (2-Factor Authentication) security codes or passwords. Crypto employees of exchanges and so forth will never ask you to share sensitive authentication credentials.

Where possible, make sure you activate a phishing code within your crypto exchange so that when a crypto exchange or provider sends you an email, you will see the phishing code you have chosen, which means that the specific email is authentic and from the actual sender.

Example of an anti-phishing code in an email sent out by Binance

Never click on links in emails that you cannot fully trust. Always verify with customer support of the project if you're unsure or suspect something fishy is going on.

Always make sure that you type in the correct URL website address. And that it consists of the HTTPS at the beginning.

HTTPS stands for HyperText Transfer Protocol Secure and uses an SSL security certificate. This certificate encrypts the communication between the website and its visitors. This means that the information you enter on the website is processed securely so cybercriminals cannot intercept the data.

Check if the domain is verified. If you want to verify its authenticity, use a tool like whois.com.

Final takeaway

In general, falling for a crypto scam is not unheard of, and it happens more often than you'd think.

Identifying crypto scams can be difficult as they get more elaborate each time. It is essential for anyone in crypto to be able to spot a scam and avoid it.

Use the tips we've outlined above, and your chances of falling victim to a scam should be much lower. Feel free also to share them with your crypto buddies.

Finally, we'd like to leave you with a few more valuable resources that might come in handy on your crypto journey.

Check existing crypto scam blacklists to keep up to date with latest scams.
Have a look at the list of fraudulent crypto websites.
Read reviews of existing crypto scams so you can avoid making the same.

A constant reminder to our community to stay vigilant at all times!

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