Digital assets open up numerous earning opportunities for investors, but at the same time, they serve as fertile ground for various fraudulent schemes. One of the most dangerous forms of fraud is financial pyramids disguised as promising blockchain projects. Their creators use sophisticated marketing tactics, aggressive advertising, and promises of quick wealth to lure unsuspecting investors.

If you are new to the cryptocurrency world, it is crucial to understand how such schemes work to avoid becoming a victim. In this article, we will explore the key signs of a fraudulent crypto project and how to steer clear of risky investments.

Why are fraudulent schemes so common in cryptocurrencies?

The cryptocurrency market is constantly evolving, and along with it, the number of fraudulent projects is growing. One of the main reasons is weak regulation. Many countries lack clear laws regarding cryptocurrencies, allowing fraudsters to create projects, collect money, and disappear without consequences.

We previously wrote in more detail about cryptocurrency regulation in the EU.

Another reason is anonymity. Blockchain technology allows creators to hide their identities, making it difficult for law enforcement to track them down. At the same time, many newcomers to the crypto space lack sufficient knowledge about blockchain and easily fall for enticing promises.

Adding to this is the widespread idea of "getting rich quickly." Many influencers and public figures promote cryptocurrencies as an easy way to make money without understanding the risks. This creates a perfect environment for scammers who offer "unique" investment opportunities with high returns.

How to identify a fraudulent crypto project?

Guaranteed high returns

No legitimate crypto project can guarantee a stable income. If you are promised fixed returns of 10-30% per month or more, it's a red flag. Such an approach is typical for financial pyramids, which pay early investors using funds from new participants before eventually collapsing. This was the case with Bitconnect and PlusToken, which left investors with huge losses.

Lack of a real product

Before investing, check whether the project has real value. Legitimate crypto projects create exchanges, DeFi platforms, NFT marketplaces, or other useful services. If the only way to earn money is by attracting new investors, you are dealing with a pyramid scheme. Review the whitepaper and roadmap: if they contain only vague statements without concrete details, it's best to stay away.

Aggressive advertising and hype

Scammers often spend large sums on advertising. They promise unbelievable profits, use famous influencers, and flood social media with posts about how the project is “about to skyrocket.” If comments under posts are disabled or negative reviews are quickly deleted, that’s another warning sign.

Unknown or anonymous founders

Legitimate crypto projects usually have a transparent team, and information about the founders can be easily found on LinkedIn or GitHub. If a project hides its team or provides fake-looking profiles, the risk of losing your money is significantly higher. For example, the Squid Game Token scam—its developers remained anonymous, then vanished, leaving investors with millions in losses.

Referral system as the main source of earnings

Many fraudulent projects encourage users to invite friends by offering bonuses for attracting new investors. This is a classic sign of a pyramid scheme. Legitimate projects, on the other hand, may have affiliate programs, but they are never the primary source of revenue.

Liquidity manipulation and token circulation

Scammers often use the Pump & Dump tactic—artificially inflating a token’s price and then suddenly dumping it. Another common scheme involves the project team holding the majority of tokens, allowing them to manipulate the market price. This happened with OneCoin, where participants simply couldn’t sell their assets.

How to verify a crypto project before investing?

Before investing money, always conduct due diligence.

Check who is behind the project. Find the founders’ profiles on LinkedIn and see if they were involved in other successful projects.

Read the whitepaper. If it lacks specifics about the business model, technology, and token economics, that’s a bad sign.

Verify the smart contract code on Etherscan or BSCScan. If the project truly operates on blockchain, its contract should be publicly accessible.

Examine social media. Check if there is active engagement with the community, whether the team responds to questions, and if negative comments are being deleted.

Look at the token’s liquidity on CoinGecko or CoinMarketCap. If liquidity is low or data is missing, you may struggle to sell your asset.

Check reviews on BitcoinTalk, Reddit, and specialized resources like ScamAdviser or CryptoScamDB. If the project has already been accused of fraud, it’s best to avoid it.

What to do if you fall victim to a scam?

If you invested in a suspicious project and can’t withdraw your funds, first try contacting customer support (if available). If there is no response, post about it on social media and specialized forums to warn other users.

Contact regulatory authorities in your country if applicable. While cryptocurrencies are often unregulated, some scams can be investigated as financial fraud.

Advice from Kursoff: do not try to recover your losses by investing even more money. This will only increase your financial damage.

Conclusion

Scammers are constantly coming up with new schemes, but their methods remain the same. Do not fall for promises of quick profits, thoroughly research every project, and avoid making emotional decisions. Your money depends on your awareness and critical thinking.

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