What is a scam? Ways to protect yourself from crypto fraud

In 2017, the Bitconnect project made history—but not in a positive way. With a market cap reaching $2 billion and a token price around $320, the token’s value crashed to $6 in less than 24 hours. This is a classic example of a large-scale scam in the crypto market—also known as a “scam.” But what exactly is a scam, and why do you need to understand it now?

According to data from Chainalysis, while damages from crypto scams have decreased significantly in recent years, the total still amounts to billions of dollars. This means scammers never stop changing their tactics, and you must stay vigilant.

What is a scam? A definition you need to know

A scam is a fraudulent act aimed at stealing assets or personal information from victims. Scammers don’t just steal—they use sophisticated tricks to manipulate psychology, create false trust, and ultimately make you lose money without realizing it.

In the world of cryptocurrencies, crypto scams have reached a new level of complexity. The forms of deception include not only simple attacks but also market manipulation, account impersonation, and even sophisticated cyberattacks. Exit scams, rug pulls, pump and dump—these are terms you’ll often hear if you stay active in the crypto community.

From Bitconnect to Confio - Lessons from historic scams

To better understand what a scam is, look at real cases. The Bitconnect case is a textbook example of a Ponzi scheme—using money from new investors to pay earlier investors until the system collapses entirely.

Confio, another project, used an exit scam—an especially trust-targeted deception. After raising $375,000 in an ICO in 2017, the developers suddenly disappeared. The token price plummeted from $0.6 to $0.1 within hours.

Centra is another example—raising $32 million with backing from celebrities like Floyd Mayweather and DJ Khaled. However, in 2018, the founders were arrested, and the token lost nearly all its value. These incidents not only cost investors their money—they also teach a lesson: what is a scam if not a combination of greed, lack of transparency, and inadequate due diligence?

How many types of scams are there? A guide to recognizing each

Not all scams are the same. Here are some common types you should know:

Phishing Scam: Attackers impersonate emails, websites, or messages from reputable services to steal personal information. This is the most common scam because it exploits user negligence.

Pump and Dump Scam: Developers manipulate token prices, create FOMO (Fear Of Missing Out), then sell off when prices spike, leaving investors with worthless tokens.

OTC/P2P Scam: In these transactions, scammers ask for payment upfront but then disappear or send incorrect amounts. That’s why it’s crucial to use trusted third-party escrow services.

Impersonating Celebrities or Community Groups: Scammers create fake accounts to lure victims into investing in “phantom” projects. They leverage the reputation of celebrities to build trust.

Fake Apps/Wallets/Exchanges: Hackers create counterfeit versions of reputable apps. A famous case involved fake Ledger apps appearing on Microsoft Store.

Exit Scam: The development team withdraws all liquidity from a new project. This is one of the most damaging scams because it occurs after building community trust.

Rug Pull: Similar to exit scams but usually faster—developers “pull the rug” by draining liquidity and disappearing.

Fake Tokens: Creating counterfeit tokens to deceive users into buying the wrong ones, especially common in DeFi. Always verify contract addresses on CoinGecko or CoinMarketCap before purchasing.

Ponzi Scheme: Attracts investors with promises of high returns but uses new investors’ funds to pay earlier ones—until no new investors remain.

Effective tools and strategies to prevent scams

So, how can you protect yourself from these scams? The most important thing is to understand what a scam is and how to recognize it.

Research before investing: Use trusted sites like CoinMarketCap and CoinGecko for project info. Scam alert platforms like ScamAdviser, CryptoScamDB, or Coinopsy can help identify if a project is flagged as a scam.

Revoke permissions: After interacting with DeFi apps (even popular ones like Uniswap, Balancer), revoke your wallet’s permissions to prevent future exploits.

Use Anti-Phishing Codes: Many exchanges offer this feature, adding a layer of security against phishing emails or voice scams.

Enable Two-Factor Authentication (2FA): A simple but crucial step to secure your accounts from hacking.

Never share sensitive info: Private keys or seed phrases should never be shared—even with trusted friends. Scammers can impersonate anyone.

Check domain names and logos: Scammers often use similar-looking characters in URLs (e.g., replacing “n” with “m”, “o” with “0”) to deceive careless users. They also run Google ads to direct you to fake sites.

Use secure wallets: Only use reputable, well-reviewed wallets from official sources. Avoid unknown or unverified wallets.

Keep software updated: Always run the latest versions of your crypto wallets and tools to patch security vulnerabilities.

Diversify investments: Don’t put all your funds into one project—spread across multiple to reduce risk.

Why is protecting yourself so important?

The LayerZero incident in July 2023 is a recent reminder. The CEO Bryan Pellegrino’s Discord account was hacked, and the attacker shared a scam link titled “claim ZRO tokens.” Many airdrop hunters fell victim, believing it was legitimate.

This shows even big projects are vulnerable. DNS hacks are also a major threat—accessing the correct URL but being redirected to a scam site without realizing it. Sites like MyEtherWallet and MyCrypto have been targeted in such attacks.

What is a scam if not the constant adaptation of fraudsters? They always find new ways to deceive, and you must stay alert.

Conclusion

Understanding what a scam is and recognizing different types of fraud is the first step to protecting your assets. From historic cases like Bitconnect and Confio to recent attacks like LayerZero, the lessons are clear: knowledge and vigilance are your best tools.

Research thoroughly before investing, regularly verify project info, use recommended security tools, and remember—if something seems too good to be true, it probably is a scam. Equipping yourself with this knowledge will help you avoid falling victim to scams in the crypto market.