Crypto Scams Part 2: Understanding and Avoiding Them

With today’s blog post, we continue to explore how to protect yourself from scams in the crypto industry. The first article covered fake wallets, shady exchanges, pump & dump groups, fraudulent initial coin offerings (ICOs), phishing scams and pyramid/Ponzi schemes. With this article, we will go over how to identify and avoid scammers, as well as what to do in the event you are a victim of a scam.

How to identify cryptocurrency scammers

Identifying scammers can be tricky for crypto novices, but if you spend time researching the space and developing certain axioms on which behaviors can and can not be trusted, then the industry becomes a little easier to navigate.

Let’s start off by identifying the easiest types of scammers to avoid. Strangers on the internet who message you with investment or business opportunities are to be ignored and blocked. It should be immediately recognized that anything they communicate to you is an attempt to get your money into their pockets. Unfortunately, these types of scams are quite prevalent on social media platforms and through junk emails, but they are relatively easy to ignore.

A more insidious way of being scammed is through links to fake apps/wallets/exchanges. On the frontend, these may look very similar to a base service and have a similar URL, but they are attempts to scam users. In order to avoid fake links and websites for wallets and exchanges, be sure to confirm URLs from reliable sources. By taking the time to consult a respective project's community twitter and/or discord, you gain peace of mind that you are accessing trustworthy links. Also, make sure to double-check a URL and ensure that it is spelled correctly with the proper domain.

How to avoid crypto currency scams

The best way to avoid cryptocurrency scams is to do due diligence and research any and all projects before investing. Try not to invest in fads, hyped-up marketing campaigns, or because you are experiencing FOMO (fear of missing out). Invest in cryptocurrency protocols because you like the underlying product and believe that there is innovation and technology that makes it unique amongst its competitors.

Many cryptocurrency projects have communities built around them, each with their own unique cultures. These communities are a good way to initially assess projects, especially by how much community participation there is and how long they have been active. Older projects with consistent growth frequently develop a healthy and vibrant culture, and they tend to gain a strong sense of trust from their communities. Projects that demonstrate sustainable growth over a longer period of time are often safer than new projects with non-existent communities.

Bitcoin is the oldest cryptocurrency and single-handedly launched the entire industry from within its grassroots community. Over time, the protocol was able to prove its value and security, and that history makes it a trustworthy blockchain. Ergo is a much younger and smaller cryptocurrency project, but it has a similar foundational ideology to that of Bitcoin. Ergo also has a vibrant and keen developer community that is incredibly active at attempting to improve on the technological innovations of Bitcoin. If you are curious to know more about this community, you can join the conversation across several social media platforms, including Twitter, Reddit, Telegram and Discord.

It is also important to research the team members of a project before investing in a cryptocurrency. Protocols with anonymous creators are not necessarily scams. After all, Bitcoin’s Satoshi is a pseudonym for the unknown creator of the cryptocurrency, and it has proven to be a legitimate project. That being said, knowing who the creators are of a cryptocurrency can be an easy way to access the legitimacy of a project. If the creators have taken part in scams in the past, it is probably wise not to invest in their current project. For example, the project Terra, with Do Kwon at the forefront, was built on shaky foundations and lost billions in value in a matter of hours. As a result, it may be wise not to invest in any future projects that Do Kwon is strongly associated with.

Another important metric to look at when evaluating a cryptocurrency is how the initial supply of a coin is distributed. Far too often, new projects have initial coin supplies that are distributed mostly among insiders and VC (venture capital) firms. Historically, many of these projects have been revealed to be less fair (and unsafe) than projects that have equitable token launches, such as Ergo and Bitcoin. Projects that have VC firm support may seem safe, but they are less decentralized, and VC firms will look at their bottom line first. Try to avoid buying into a protocol where you risk being a VC firm’s exit liquidity.

How to report cryptocurrency scams

At this moment, there is no official agency or platform for reporting cryptocurrency scams. Depending on the jurisdiction you live in, there may be very few laws in place that offer protections for crypto investors. Even though there are no ‘official’ avenues for reporting scams, there are many things crypto investors can do to help others from falling victim to crypto scams. If you are aware of a scam, take a few moments to share that info with the community via social media channels. Everyone, especially the victims, should strive to educate the community and help build a safer space for everyone.

DISCLAIMER: If you do post about a potential scam, be sure to provide detailed proof and probable cause so that you are not accused of spreading FUD (fear, uncertainty, and doubt). Baseless accusations should be avoided.

How to get money back from crypto scams

Getting money back from scammers can be difficult, but it is not impossible. With most blockchain technologies, transactions can be tracked. For instance, if scammers want to convert stolen assets into fiat, they must go through centralized exchanges. If you have been scammed, you can keep an eye on the wallet that committed the crime and track the future activity of that wallet. If a scammer ever moves the assets to an exchange, you can attempt to contact the exchange and have the exchange lock the scammers funds. Depending on the protocol and the scammer’s skill level, this may not always be possible - especially for privacy-based cryptocurrencies and protocols that have mixers.

Conclusion

The crypto industry is just over a decade old and is still quite young. There are numerous projects and opportunities available to retail investors, but there is very little institutional infrastructure to protect people from scammers. The best way to protect yourself from scams is by taking part in the community and educating yourself on the fundamentals of the industry. Learn about behavior patterns that are common to scammers and always pay attention to what is being sold. If a technology lacks innovation, and the respective community seems primarily focused on when the coin will pump to the moon, then it’s probably wise to be wary.

Remember the following:

1. Keep your seed phrase as secret as possible, and never share it with anyone.
2. Be wary of investing in projects where a large fraction of the supply is owned by insiders and venture capitalists. These cryptocurrencies often lack the essence of what this industry was built on: decentralization.

Stay safe out there, Ergonauts!