John Wu


How to Avoid Crypto Related Scams

September 19th, 2018
San Francisco, CA

Blockchain from its inception has been touted as a transparent, trustless technology that decreases the friction around peer-to-peer transactions. Ironically, its most famous application, cryptocurrency has become notorious for fraud and scams of all kinds. This is in the form of either identity theft or fraudulent ICOs.

The few projects that have wreaked havoc through sensationalist stories around lavish spending of ICO proceeds or listing of fake advisors do warrant a reaction that produces preventive measures. Con artists are obviously aware that the average crypto investor is looking to make a quick buck and take advantage of that desire. There are a couple of things that newcomers to the space can look out for as red flags.

Initial Coin Offerings (ICOs)

ICOs emerge as the clear winner as the easiest way for companies to take advantage of unwary retail investors. There are a great variety of coins that have raised millions of dollars with just a whitepaper and no product. It goes without saying that a decent portion of these projects lack real business plans and are a way for entrepreneurs to raise cash quickly and easily from an international audience of investors who may perform less due diligence than your average early stage venture capitalist. Countries including China have found that the overwhelming amount of projects that have duped retail investors does not warrant the cost and risk associated with regulating such an industry and have placed a blanket ban on ICOs.

Social Media

There are many fraudsters who have created fake Twitter profiles, fake email addresses, LinkedIn addresses, Telegram profiles and even fake websites that appear on the first of Google Search results via Google Adwords that solicit ETH or BTC from unwitting retail investors. That is why many Twitter accounts now have (Not Giving Away ETH) or (Not Asking for ETH) as their Middle Name on their Twitter profiles. Many companies will explicitly state that they will never ask for money via Direct Message on social media.

Fraudulent Statements of Employees and Advisors

Companies may choose to raise money by falsely stating celebrated individuals as advisors and even making up LinkedIn profiles of engineers. Companies may also list people as CTO, CMO that are part-time contractors who do not devote time or attention to the project. Chief executives may also fabricate the companies that they have worked for in the past, their positions at these companies or even the degrees which they received from prestigious universities.

Although ICO’s offer access to international projects, retail investors must do their individual research on the management team, especially since ICO projects have products that are very early in their development phase and adoption cycle and mainly rely on the ability for management to execute on their promises.

Safety measures

The first rule that comes to mind with regards to ICO’s is to never allocate more capital than you can afford to lose. This is because it is not a stretch to compare investments in this sector to a gamble on the ability of the management team’s ability to execute on their promises and build out their products in the way they were outlined in product roadmaps. Scam or no scam, you never know how quickly the team will be able to deliver its product and market it to a mainstream audience. The Company can also be affected by trends in the wider cryptocurrency market around Bitcoin and Ethereum price fluctuations.

Research is the difference between success and falling victim to the aforementioned perils. You can avoid fraudulent ICOs if for instance you study up on the development team, the white paper, Github, and other related information. Credibility is very important.

If a project or giveaway sounds “too good to be true,” consumers should be on guard and verify with others in the community via Reddit, BitcoinTalk, Telegram, etc. on their thoughts as well, especially around the key areas of doubt. Users should be on guard as to fake profiles and ask the person they are conversing with on social media to verify their identity through other methods be it an email from a company email account, etc.


Disclaimer: These opinions are solely my own and do not represent the opinions of Sharespost or any companies that I may advise or invest in.

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