Types of Cryptocurrency Scams

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Sources:

• https://www.newsweek.com/vault/investing/cryptocurrency-scams/
• https://cncintel.com/crypto-ico-scams/

Fake Initial Coin Offerings

An initial coin offering (ICO) is a process by which developers of a crypto project launch their coins. You can buy the coins during the offering in the hopes that the project will be successful, the crypto token will increase in value and you’ll make a tidy profit.

Fake ICO scams purport to have a project launch to raise money. But the project they tout usually doesn’t exist. The scammers take all the money made and either don’t provide coins or offer worthless tokens that never increase in value or that no one will trade for.

Types of ICOs relevant for us

• Exit scams: Exit scams occur when the people behind an ICO disappear with the funds they raise, leaving everyone involved high and dry.
• Exchange scams: Criminals use fraudulent exchanges to launch their ICOs. Eventually, they make off with the funds they raise.
• Pump and dumps: The price of a coin is raised on a specific exchange with enough buying and the scamers sell there coins shortly after. In the mean time other uninformed people "jump on the hype train" and loose there money, as they buy at a high price and the coin will drop again shortly after. The informed traders will win money if they do it well and the uninformed will loose money as they buy high and whenever they sell there coins in the future, the price will be lower. There are insiders, which know not only the exchange and time in advance, but the coin in question as well and there are outsiders which are informed, which are signaled about which coin to pump and dump only just in time. The insiders have higher profit and the outsiders may make money or even loose money if they are not quick enough or the exchange has not enough buying requests on the dump part. There are some people between insider and outsider which get signaler earlier and have a higher chance of winning money instead of loosing. They probably pay for this early information from the insiders.
• Pre-mine scams: Unsavory crypto developers may keep a disproportionately large share of tokens following an ICO instead of burning them. By inflating the supply, they steal value from other token holders.

Ponzi Schemes

Cryptocurrencies aren’t immune to Ponzi schemes. In these cases, cryptocurrency exchanges or others might take money and prop up the value of their own coins with money from other investors or other areas of the business. The hope is that enough people will buy in to keep the scheme going until it’s actually profitable or until it all collapses. Unfortunately, it all usually collapses, leaving most of the investors stuck with losses.