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Exuberance and ignorance: A lethal combination

The excitement around bitcoin and other cryptocurrencies is a scammers paradise.

If you have heard of bitcoin and Ethereum you are also likely to be aware that these cryptocurrencies have been reaching record highs. Since the start of the year, the value of a single bitcoin has risen from $968 to a peak of over $3 000.

At the same time, Ethereum has experienced an over 5 000% rise. It has climbed from $7.98 on January 1 to its current price of over $400.

The excitement that this has caused has not been unlike a 19th century gold rush. There has been a wave of people drawn to the promise of potential fortunes to be made.

A common feature of any gold rush, however, is that it also attracts a great deal of unsavoury characters. Thieves, conmen and all manner of scoundrels see their opportunity as well.

The rising interest in these cryptocurrencies has inevitably brought with it an upsurge in related scams. The unfortunate reality is that the buzz around bitcoin and Ethereum has created the perfect environment for crooks to thrive.

What’s made it even more appealing for them is that few people really understand how cryptocurrencies work. Together, over-exuberance and ignorance are a lethal combination.

Bye bye bitcoin

These scams broadly take two forms – they either try to separate people from their bitcoins, or they separate people from their money using bitcoins as the lure.

In the former category, the simplest kind of scam is phishing. Crooks using the bitcoin brand to appear legitimate get people to share their private bitcoin keys and then make off with their currency.

One of the key features of the blockchain on which cryptocurrencies work is that transactions are irreversible. So if you give someone else your private key and they use it to steal your currency, you are unfortunately never going to get it back.

A more sophisticated scam is to hide malware in fake bitcoin wallets or even in fake bitcoin user surveys. Often these will be posted on social media to draw people in, and once they click on the link a virus will be downloaded that steals their private bitcoin information allowing the crooks to steal their currency.

Get rich quick

Of perhaps greater concern, however, are those scams that exploit the stunning rise in bitcoin’s value to lure people in with promises of quick and spectacular returns on their money. Often these are nothing more than pyramid or Ponzi schemes.

It’s easy to sell someone bitcion or Ethereum by pointing to the huge growth in their prices in just a few months. If they don’t know any better, it’s simple to make it seem like there is certain money to be made.

However, never forget the truth that past performance is never an indication of future returns, and particularly not when you’re dealing with something as speculative as cryptocurrencies. Just this week the price of bitcoin fell 10% in a single hour.

Cryptocurrencies remain highly volatile and there cannot be any guarantees as to their future growth. Anyone offering any kind of guaranteed return by ‘investing’ in them is therefore undoubtedly a scammer.

Beware of ‘bitcoin investment schemes’ that pay out regular returns. These may seem to work for a while, but like any Ponzi scheme they will inevitably collapse and the scammer will have disappeared with the money.

One website brought to Moneyweb’s attention claims to pay out 0.3% hourly, without any indication of where this return comes from. Compounded that is over 7% a day, which is beyond any reasonable possibility.

Also be cautious about bitcoin mining. This is trickier as there are legitimate bitcoin cloud mining operations that charge users a fee and pay out rewards, but there are also a large number scams in this space that are nothing more than Ponzi schemes.

If you are really interested in bitcoin mining, make sure you do thorough research to identify legitimate operations managed by properly established businesses and run by identifiable people. You’re probably better off steering away from anything that employs direct marketing or hard-selling tactics, or makes use of seminars where the opportunity is presented as a sure thing.

Finally, remember the simple adage that if you don’t understand something, don’t invest in it. Of course there are people who have made a fortune on bitcoin. Just as there were a few gold diggers who struck it lucky.

They are however a significant minority, and they were the ones who really knew what they were doing.

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During the tulip mania the “investors” also believed that the supply was controlled, and that tulips would be a great store of wealth. A single tulip bulb traded for R420 000 during 1635. Two years later the value returned to it’s intrinsic value, which was less than the price of an onion.

Now people believe that some formula they don’t understand will keep supply under control and that a virtual currency(something you can’t touch or see) is a great store of value.
At least the investors in tulips could touch the bulbs and enjoy the flowers. Who are the bigger fools?

Just a huge Ponzi scheme by con artists supported by gullible fools & millennials who confuse their virtual lives on cellphones with real life.Waiting to crash. Good luck.

The very real question people should be asking (but aren’t) is what is it that gives bitcoin its value?

lol, value? They just want to be part of something cool. It was fine when it was just technology folk, but since the Bankers and Marketers got involved we’re in for a proper rollercoaster ride…

The question of value is valid, according to Bitcoin related material, their reason for the rise in value is the limited supply. There is a limit on the number of new Bitcoins minted (or mined) daily, therefore driving the price due to demand. The demand is largely due to the enormous hype that has been created around it. And then there is the darker side of things, there are features in Bitcoin that make it popular for fraudsters, like the fact that transactions cannot be reversed and it is not very easy to track (due to things like Bitcoin tumbling, that obscure the origin of Bitcoins). In this case, buyer beware.

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