Scam Projects

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My name is Nikolay Krasheninnikov, I am a Backend Developer at Platinum, the biggest crypto market player in the league. We provide STO and ICO marketing strategies and help startups and big companies to become more and more successful. Follow the link to know more about our services and successful campaigns:

Today I want to tell you about our unique project — the University of Blockchain and Investing. It is the first online institution providing practical education in blockchain sphere. Let’s say you are willing to know, what a “Scam Project” is, with real-world examples of fraudulent projects. Now you can follow the link and read the first part of the UBAI lesson about scam projects:

Find out more about Scam!

Lesson Objectives

By the end of this lesson you will have learned the following:

  • What a “Scam Project” is, with real world examples of fraudulent projects.
  • How to distinguish common signposts and indicators of both good and bad projects and the periods along their timelines when key stress points occur.
  • The virtually complete lack of protection for scammed customers; the limited degree of any kind of recourse.
Lesson Objectives
  • The effect scammed customers have on the market considering the increasing importance of reputation as a driving force in the ICO market.


Pre-sale: is the sale of tokens before the main ICO at a price typically lower than the ICO price, to reward early supporters and cornerstone investors.

Tokenmetrics/Tokenomics: refers to the financial framework and design of an ICO’s token.1.


The current condition of the cryptocurrency sphere has often been compared to the early days of the internet, because of both its potential for world-changing advances in business and human interaction, and because the “anything goes” nature of crypto seems a lot like the early internet too. Though this laissez-faire attitude has allowed new business unprecedented freedom to grow and develop their vision; hackers, fraudsters, scammers and all varieties of unscrupulous individuals have also been drawn to crypto like moths to a flame.

1.1 Introduction

It is important to remember, even if the intentions of the project leaders are pure, the odds of the project exceeding are remote. A study by Satis Group LLC found that only 8% of projects obtain an exchange listing.

In this lesson we focus on both scam projects at ICO stage, i.e. “exit scams”; as well as projects that obtained a listing and then operated as Ponzi schemes, or pump and dumps.

In the slipstream of $5.6 billion being raised through Initial Coin Offerings in 2017, there was an almost inevitable explosion of scam ICOs. Sometimes all it took to part investors from their money in that ICO mania, was a semi-plausible idea, a buzz-word infused white paper and a serviceable website. Teams of scammers made a coin or token that would never function as promised, simply intending to pump and dump upon listing, all to the loss of the unfortunate investors in that token.

Perhaps the most damaging scams are those that attempt to operate for as long as possible as Ponzi schemes, like BitConnect, Davorcoin, or Proof of Weak Hands. The usually anonymous teams of scurrilous individuals operating such projects will attempt to keep the pyramid scheme going for as long as possible. They want to extract maximum value from investors who have not done sufficient research, or investors who for whatever reason, are not equipped with the tools needed to ascertain whether an ICO or cryptocurrency venture is a scam project, or not.

We will take a deeper look at past scams in this lesson.

Key figure: Charles Ponzi, an Italian swindler after whom the Ponzi Scheme is named. He promised investors a 50% profit in in 45 days, or a 100% profit in 90 days, through his business buying postal reply coupons in other countries and redeeming them in the USA. Ponzi was in fact paying off previous investors with cash from newer investors for over a year, until the scheme collapsed.

That particular Ponzi scheme cost investors over $20 million in 1920. Though Mr. Ponzi was not the originator of this method of scam, he has become synonymous with it due to the high profile nature of that case. Bitconnect is the most famous example of a Ponzi scheme in the cryptocurrency world.

Before we go into a selection of scam ICO examples and crypto Ponzi schemes, there is a list of questions you should keep in mind as you evaluate each case.

What level of doubt do you assign to the project’s potential success?

This is a basic and broad question that tries to quantify your “gut feeling” regarding a particular project or cryptocurrency. After you research the team’s social media profiles and the project whitepaper and social media accounts,

how do you feel about giving them your money to help make this project grow?

Does this project need a Blockchain solution?

The team promoting the project will always be ready to tell you how great their particular Blockchain solution is. And they will eagerly explain the feasibility of implementing their solution to solve a very important problem. Of course, things are not quite as simple as they sound. Vast sums of money are flowing in cryptocurrencies every day. Most of that money is speculative, in search of fast gains. If you are trying to invest on fundamentals in a solid project with real and significant long-term potential for success, you need to think more. Is there an actual real-world need for this Blockchain solution? In which area, for example, can this solution be applied? Fintech? Supply chain? International remittances? Who will want to use this Blockchain technology in a valuable way?

Is the project price being manipulated?

If you see a promising project in which you want to invest, and it otherwise looks good, you also need to consider the level of price manipulation that might be happening:1

How many wallets are there? Are there a significant number of massive wallets possessed by whales? The project may not be a scam, but you could still find yourself at a distinct disadvantage when the whales dump their holdings after the project gets listed on a major exchange, as with Raiblocks/Nano and its Binance listing.2

Which exchange is listing the project? The experience of XRB on the low volume BitGrail exchange showed that it is very easy for whales to manipulate the price on a smaller exchange. The price was artificially pumped by BitGrail whales from 30 cents at the start of December to over $34 dollars on the 4th of January!

What is the token release schedule? If a project has a circulating supply far lower than its maximum supply, you need to know when the tokens are due to be released. as If the market is suddenly flooded with double the amount of tokens, that will have a severe impact on the price. You should expect a serious project, with a team that believes in its long term success, to have team member tokens locked up for a period of 18 months or more.

Does the project appear to be too good to be true?

What could be simpler? What could be more common sense? Are you about to invest in something claiming to be “the next bitcoin” or offering you a guaranteed huge return on your investment?

If the whitepaper reads like it was written through rose-tinted glasses, giving no consideration to non-blockchain solutions or other market rivals, you just can’t trust it.

Similarly, if the sub-reddit or Telegram group appear to be too evangelical in their praise of the project, and no criticism is allowed, you should be careful.

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1.1 Scam Projects Real World Examples

Multinational accounting firm Ernst and Young found that $400 million of the $3.7 billion USD raised from ICOs (as of 22nd January 2018) had been stolen. That is, up to 10% of all ICO funding is virtually being stolen from investors. Though ICO scams are the most common method of theft in the crypto world, some projects will actually operate for a period of time before disappearing with the money. Like in a Ponzi scheme, an exit scam may be planned for later, sometime after a manipulated pump; or some other time the team believes is most opportune to take the money and run.

1.1 Scam Projects Real World Examples

Scam ICOs:

Giza: Giza marketed itself as a platform within which different cryptocurrencies could be stored securely. But after raising $2.4 million in one month, the team deleted the website and stopped replying to emails. Investors were duped by a very convincing whitepaper, and

actors had been hired to appear in photographs promoting the project.

No investor funds have ever been recovered.

1.1 Scam Projects Real World Examples

The SEC put an end to fundraising for the Centra ICO and charged the founders Robert Farkas and Sohrab Sharma with orchestrating a fraudulent ICO, after they raised $32 million USD. They were promoting the ability to develop financial products backed by VISA and Mastercard, though it was later found that neither partnership was real.

One of the major red flags in the Centra project was the use of celebrity endorsements for publicity, reportedly paying champion boxer Floyd Mayweather a significant sum to promote their project. Who wants to leave their Blockchain investment decisions up to Floyd Mayweather, regardless of his unbelievable skill as a boxer and regardless of his own financial success? He should still not influence where you invest your money!


One of the least successful scams that have used the ICO method of crowdfunding to dupe investors, Prodeum managed to raise only a handful of Ethereum instead of the $6.5 million it was attempting to raise. The idea consisted essentially of a supply chain cryptocurrency project that sought to make a database of fresh produce on the Ethereum Blockchain.

After their meagre heist, the team’s slick looking website disappeared, was replaced the word “penis”, and the reasoning behind the “project’s” name being eerily similar to the urinary tract medication “Prodium” became apparent.

Yes, truth is often stranger than fiction.

Ponzi Schemes:


This is the most infamous Ponzi scheme in the history of cryptocurrency, and certainly the most damaging. Bitconnect was a Bitcoin-based project that rose to an all-time high of $463 per token on the back of a fictitious trading bot. The Bitconnect scam operated by paying dividends to users, proportional to the amount of tokens they held and the amount of referrals they made. The BCC tokens were exchanged for the users’ Bitcoin, and the highly sophisticated and wildly successful trading bot would trade BTC for them and distribute profits as dividends.

The value of the dividends offered was approximately 1% of the initial investment per day. In other words, that is approximately 3,780% per year in cumulative gain! The referral system was capitalized upon most heavily by many of the biggest crypto Youtube channels, including CryptoNick and Trevon James, both of whom are now under investigation by the Federal Bureau of Investigation.

Shortly after the Bitconnect Token reached its all-time high, they received cease and desist orders from the security regulators of Texas and North Carolina, which caused the owners of the Bitconnect exchange to shut down operations, and the price to plummet.

Bitconnect price graphic

Davorcoin was a lending platform very similar to Bitconnect. And Davorcoin was farcically promoted by the same Trevon James crypto Youtuber who promoted Bitconnect, and is currently under investigation by the FBI for promoting Ponzi schemes.

The Texas State Securities Board, in likening Davor to Bitconnect, stated that “DavorCoin is telling investors they can earn lucrative profits by investing in a lending program based on a new cryptocurrency known as davorcoin. Investors allegedly purchase davorcoin and then lend it to DavorCoin”.

Davorcoin promptly plunged from an all-time high of $180 to very close to zero after a cease and desist order was made against them on the 2nd of February 2018.

Useless Ethereum Token:

Despite brazenly stating in the name of the project that the token has no use, the UET managed to raise $340,000 in its crowdsale, and saw a significant pump of over 300% on the HitBTC exchange in February of 2018.

The scam was an obvious case of “pump and dump”, with the total trading volume for UET crashing back down to as low as $3 per day, after reaching as high as $350,000 per day during the pump.2.

Indications of Scam Projects

It is currently an unfortunate consequence of the decentralized nature of cryptocurrency, but there is a distinct lack of recourse for scammed investors. It is wise to become as well-acquainted with the various indicators of good and bad ICOs as you possibly can.

In weighing the factors that will allow you to avoid expensive mistakes, ask yourself in whose favor are the terms of the ICO slanted, yours or the teams. To what extent are you actually likely to profit from this investment? Cryptocurrency is inherently a grey area, whether you are investing in it or not. Investing is another inherently grey area, no matter what the area or object of investing might be. Laws and regulations are not always able to keep up. Trying to define and prove what was or was not a scam is not likely to be as simple as the scammed investor would want it to be. A project can be set up in certain ways to avoid being technically classified or provable as a scam, but the unprepared investor can still be burnt or scammed just as badly.

1.1 Indications of Scam Projects

Now we look at more individual indicators that can help you form a valid impression whether or not an ICO or even a fully-fledged exchange-listed coin is a scam or a bona fide investment opportunity.

Anatomy of a cryptocurrency scam image:

1.1 Indications of Scam Projects
Presale Bonus/Token Release

If the ICO allots massive bonuses to team members, you may leave yourself open to getting “dumped” on by presale investors if you buy when the project tokens are listed on an exchange. Likewise, if the project has a short lock-up period for developers and founders, you run the risk of them selling as soon as the token is listed on a major exchange.

The token release schedule for the founders of a worthwhile project should show long-term team commitment to that project. The Jibrel Network team tokens will be locked up for 5 years before release, and they had no “early investor” bonus in the main sale. Both of these factors instilled confidence in the JNT ICO investors, and the tokens were sold out weeks before the ICO was due to end.

No Presale lock up

If Presale investor tokens are not locked up at all for any period after listing, that could easily be a set up for an exit scam after the initial listing. No presale lockup for early investor tokens is a crystal clear warning, the project may be fatally rigged toward those in the inner circle, with little commitment to the long term health or success of that project.

Contrasting Scam & Legitimate Projects

Unsolicited Offers or Unasked for Additions to Groups

Characters running scam projects will often add you to Telegram groups out of the blue or send you unsolicited emails with information about their project.

Telegram is the most widely used messaging app in the cryptocurrency community and you should familiarize yourself with it to keep yourself in the loop for specific projects in which you invest as well as all kinds of other relevant crypto info.

You can adjust the settings on the Telegram app to disallow anonymous additions to cryptocurrency projects if you find yourself bombarded with offers by scammers.

Reputable projects at the ICO stage will spread by word of mouth, or by eloquent and meaningful articles posted on their Medium page. A project with serious potential does not need to actively seek participants for their ICO like that. They will often be able to fill their ICO hard cap in a matter of hours, or even just minutes!

Contrasting Scam & Legitimate Projects

Anonymous Team

Alarm bells, again, immediately, if the project has minimal online presence. The individual team members could be mere fabrications. The entire project could be a farce by utterly inexperienced characters.

What if the project leaders are simply unaware of the importance of a strong social media profile? That in itself would be too strange to ignore. Top-level projects will have team members with experience in crypto and the Linkedin accounts for those members will be easily accessible right there on the project website. You should be able to easily see and evaluate each individual’s experience in their field and ascertain what they bring to the project team.

Bitconnect’s anonymous team should have been the only deterrent prospective investors needed to discourage them from putting money into that doomed project. Ethhorse, a current project with anonymous founders and operators should be steered clear of at all costs for the same reasons.

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