The evolution of crypto scams

Crypto scams… again? Yes. We’ll never stop talking about crypto scams, because bad actors never stop trying to abuse crypto. As promising as this technology might be, unfortunately robust regulations are still underway, and sometimes this means we’re responsible for our own financial safety when navigating the crypto space.

Understanding how scams evolve can help you understand how bad actors think. Not only can you avoid older scam tactics, but you can also potentially heighten your intuition for avoiding future scams. Don’t skip the last part!

Early crypto scams out in the open

Before the days of memecoins and initial coin offerings (ICOs), crypto scams worked in broad daylight. They were sophisticated schemes conjured up mostly by registered businesses. Many financial authorities around the world have already learned about them, so there is a good chance that these types of scams won’t happen again*. 

You may have heard about Bitconnect. In 2016, many people have already experienced its explosive price growth, which had brought Bitcoin’s price from $200 up to $1200 before crashing again. Naturally driven by fear of missing out (FOMO), investors threw money at Bitconnect.

Central to its tactic was the promise of high investment returns by encouraging victims to lend their Bitcoin to the organisation, which claimed to use an “algorithmic trading system” to trade on behalf of the victims. Of course, it didn’t deliver as promised, as Bitconnect syphoned away US$3 billion worth of Bitcoin into off-shore wallets. 

Following an investigation into their scheme, they were revealed to pay out early investors with Bitcoin that were received from later investors — so in essence a Ponzi scheme. Their operation was under scrutiny partly because they were somewhat easy to catch as legal trouble brewed over their lack of regulatory compliance (e.g. they did not register their offerings to the U.S. Securities and Exchange Commission). 

* Actually, in a recent case, a now-bankrupt Celsius Network offered “passive income” opportunities with staggering yields of up to 18% annualised.  While the company denied allegations of running a Ponzi scheme, their business model was deemed unsustainable, which caused investors to lose more than $5 billion from this high-yield scheme. Remember the old adage, if things sounds too good to be true that’s typically because they are.

Moving into the shadows of anonymity

The year 2017 saw a boom in initial coin offerings (ICOs). Unlike traditional IPOs, which typically involve a registered legal entity facilitating the investor transactions, the Ethereum network has allowed projects to raise funds purely on the blockchain (bypassing regulated financial systems), and optionally, anonymously. 

A 2023 research paper examined a sample of more than 5800 ICOs, and found that almost half of them are very likely scams. The researchers show how scammers liked to use a particular tactic to filter out experienced investors by delivering ads with inconsistent information on the token offering. However, näive investors can still fall for scams this way. And to further entice näive investors, scammers still use the oldest trick in the crypto scam book — the promise of high returns. You can see how this is a recurring tactic, from Bitconnect’s days to the recent collapse of Celsius.

Only this time, scammers have a few additional tactics. 

The first is smart contract loopholes. These are programmes within the scam smart contract that allows the issuer to prevent the token from being sold. One example of this is the Mini Basketball token scam in 2024.  The token attracted over 3500 buyers who later discovered that they could not transfer the token to anyone. Around $2 million were lost. Inexperienced investors who don’t yet fully understand smart contract technology may not consider how important it is to check for third-party audits of the smart contract. You can use a free-to-use auditor like TokenSniffer to independently check for any red flags.

The second tactic is project abandonment, or “rug pull“. This is effectively done on scam projects that do not reveal the true identities of the token issuers and project owners. A high-profile rug pull was done by the creators of the LIBRA token. It was unknowingly promoted by Argentine President Javier Milei in early 2025. Due to the heightened interest, many investors flocked to buy the token, only to discover its price crashing when the token’s developers suddenly withdrew their funds and disappeared.

The third tactic is the pump-and-dump scheme. Here’s how it works. The project promises that the investment is safe, because the founding members claim to have no way of immediately selling off the tokens in one go (aka “dumping” them). Of course, without any proof from a smart contract audit, this is all just a lie. 

While the scammers artificially inflate the token price by creating hype around the project, they hold a significant amount of the total supply. When the price is sufficiently high, they’ll sell all of their tokens at a profit, flooding the market with the token until it is practically worthless. Notable examples include Verge Coin, SaveTheKids, and NexFundAI.

Blurring the lines between fun and danger

Starting in 2021, crypto scammers saw a new opportunity. Having seen how social media could influence mass trading behaviours as seen from the GameStop mania and the rise of memecoins, scammers began working around meme content.

What’s tricky about memecoins is that even if they were not issued by malicious intent, they could still pose financial harm. Putting money into them should be likened to gambling at a casino. However, there is a big difference between losing money due to mistiming the market, and losing money to a malicious actor — with the latter being avoidable.

The most common tactic of memecoin scammers is fake celebrity endorsement. They could assign an army of bot social media accounts to spread misinformation (e.g. using generative AI to produce deepfakes of the celebrity talking about a token). This is particularly effective when the scammer employs the classic promise / guarantees of high return, for example “Send me 1 ETH and I’ll send you 5 ETH”. But this is still the bare minimum. Sophisticated scammers can go their way to hack celebrity accounts and promote the token on their actual accounts. 

At other times, scammers can hijack a trend and pull off scams around something popular like TV shows and memes. For example in late 2021, the SQUID token instantly gained traction among fans of the popular Netflix series, Squid Game. However the show was never affiliated with the token, and the scammers disappeared with US$3.38 million of investor money in a classic rug pull scam.

Top crypto red flags 🚩

Did you catch all the red flags? If not, don’t worry. Here’s a list that you can print out and stick on the wall.

1. Promises or guarantees high returns

If it looks too good to be true, it probably is.

2. Third-party smart contract auditors don’t like it

When they spot something fishy, they’ll tell the truth. You can verify with multiple auditors.

3. Anonymous founding members

If the project is as world-changing and serious as they tell you, there’s no need for them to hide behind a fake name.

4. A famous person heavily promotes it

Run away from it, even if the intention was genuine, as it could be another LIBRA incident.

The takeaways

As with any nascent technology, crypto is often rife with scams. This is because it exists in a new and emerging industry where robust regulations are still in development. That being said, while it can potentially be rewarding to use these new offerings of financial technologies, especially in the early stages, it pays to be knowledgeable about crypto scams and their tactics.  

Now that you’ve learned how crypto scams evolved, we hope that you’ll remember the above red flags and not fall into the most avoidable crypto scams out there. Good luck!