Investor’s Guide to Crypto Scam Prevention (2024)

Cryptocurrency has helped thousands of investors reach financial freedom. 

Unfortunately, it’s also been used by bad actors to scam unsuspecting investors. According to the FBI, Americans lost $5.6 billion to crypto scams in 2023. 

In this guide, we’ll break down three essentials to avoid falling for a cryptocurrency scam — and tell you what you need to do if you’ve been a victim. 

The three essentials of crypto scam prevention

Let’s start off by going through the three essentials of crypto scam prevention. 

Do not share private keys/account passwords in any scenario: Your private keys and account passwords are the only way to access your crypto holdings. If someone asks for this information, it's a scam—no legitimate entity will ever require this to process transactions or offer support.

Read every transaction request: If you’re using a hot wallet like MetaMask or Coinbase Wallet, always take the time to carefully review the details of any transaction before confirming it. Scammers often try to trick you into approving fraudulent transactions by disguising them as legitimate requests.

Be cautious of advice and promotions: Always approach any investment opportunity with skepticism, especially if it comes from influencers or individuals promoting new projects with unrealistic promises. Even well-known figures can promote questionable ventures, so do your own research before committing.

The most common types of cryptocurrency scams 

To protect yourself from cryptocurrency scams, you should be able to recognize the most common types of scams, along with common warning signs for each scam:

Phishing/Social Engineering Scams

The scam: Scammers use deceptive tactics to trick individuals into revealing sensitive information, such as private keys or account login details. This can be done through fake websites, emails, or messages posing as legitimate companies, exchanges, customer support, or even a loved one. 

The warning signs: Messages claiming urgent action is needed, links to a website that looks similar to a legitimate exchange but with slight differences in the URL, requests for sensitive information such as passwords, private keys, or two-factor authentication (2FA) codes

Ponzi Schemes

The scam: Scammers promise high returns on investments but pay those returns using funds from new investors rather than profits from legitimate business activities. When new investments stop coming in, the scheme collapses and investors are left with worthless assets. 

The warning signs: Promises of high returns with low risk, lack of transparency about the project’s operations, difficulty receiving payouts 

Pump and Dump Schemes/ Rug Pulls 

The scam: Scammers promote a seemingly legitimate cryptocurrency/NFT project, inflate its price through misleading claims, and then sell off their holdings, leaving other investors with near-worthless assets.

The warning signs: Aggressive social media promotion, exaggerated claims about a cryptocurrency’s potential and partnerships, typically focused on an unknown cryptocurrency/NFT, pressure to invest quickly before a limited time offer ends

Pig Butchering Scams

The scam: Scammers build trust with their victims, often through social media or dating platforms, before convincing them to invest in fake cryptocurrency projects. 

The warning signs: Unsolicited messages on social media and dating apps, attempts to build a relationship quickly, pressure to invest in various cryptocurrencies 

AI-Enhanced Scams

The scam: Scammers use AI to engage potential victims, providing fraudulent investment advice and even generating deep fake endorsements from celebrities. AI-enhanced scams may also take the form of AI chatbots mimicking customer support or phishing using AI-generated content. 

The warning signs: Videos/content from an account that seems like a celebrity, messages mimicking legitimate customer support and requesting access to your accounts.

How do I make sure my crypto investment is not a scam? 

Interested in a cryptocurrency project/platform? Here are a few tactics that can help you: 

1. Research Thoroughly
   Investigate the project, team, and technology behind the cryptocurrency. Look for detailed whitepapers, a transparent roadmap, and an active community on platforms like Reddit, Discord, or Telegram. If the project seems rushed or lacks transparency, it's likely a scam.
2. Use Reputable Platforms
   Stick to well-established exchanges with a history of security and regulatory compliance. Read third-party reviews and look out for sites that mimic popular exchanges. 
3. Check Community Engagement
   Legitimate projects typically have active communities with genuine discussions. Be cautious if the project’s community seems overly promotional or lacks meaningful discussions about the project's goals or roadmap.
4. Look for Red Flags
   Be cautious of unrealistic promises and high-pressure tactics. If something sounds too good to be true, it likely is. A legitimate investment would give you time to research and evaluate.
5. Be Skeptical of Unsolicited Offers
   Ignore unsolicited messages about crypto investments or opportunities—especially through social media, dating apps, or cold calls.
6. Secure Your Assets
   To protect yourself from hacks, use hardware wallets for offline storage, enable two-factor authentication (2FA), and never share your private keys or recovery phrases with anyone, no matter the reason.
7. Stay Informed
   Keep up-to-date with the latest news about cryptocurrency scams and fraud warnings from trusted sources like the DFPI’s Crypto Scam Tracker.
8. Guaranteed Returns
   No one can guarantee profits in the volatile world of cryptocurrency. Be suspicious of anyone who claims they can provide high returns with limited risk. 
9. Requests for Cryptocurrency Payments
   Be cautious if someone asks for payment in cryptocurrency, especially if they direct you to use specific payment methods like a Bitcoin ATM. Legitimate businesses typically accept multiple forms of payment.

Can I trace a crypto scammer? 

Tracing crypto scammers is possible, though it’s often challenging. 

investigators often use blockchain analysis techniques, transaction mapping, and cluster analysis to follow the trail of stolen funds.

Most exchanges now require Know Your Customer (KYC) information, which can help authorities identify scammers when they try to convert crypto into fiat currency.

Unfortunately, blockchain transactions are irreversible, and average investors do not have access to sophisticated investigation tools. This means there’s often limited recourse after falling for a scam. 

How do I report a crypto scam? 

If you believe you’ve encountered a crypto scam, you should act quickly to report it. Here’s what you can do: 

File a Police Report
Contact your local law enforcement and provide all relevant details, including transaction IDs, wallet addresses, and any communication you had with the scammer.

Notify the Exchange or Platform
Report the scam to any exchanges or platforms involved in the transaction. They may be able to freeze accounts or trace transactions, especially if the scammer tries to cash out.

Contact Regulators
File reports with the FBI’s Internet Crime Complaint Center (IC3). The FBI tracks and investigates crypto fraud.

Seek Legal Help
Consider hiring a lawyer specializing in cryptocurrency recovery to explore your legal options. They can help you navigate complex legal processes and increase your chances of recovery.

In conclusion 

Always remember: if an investment opportunity seems too good to be true, it probably is. Stay safe and follow the steps in this guide to protect your cryptocurrency from scammers.