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How cryptocurrency scams work

Both traditional and new technological tactics are used to swindle crypto investors.
The cryptocurrency market can be highly complex and often confusing even to those long in the game, newcomers especially, should be wary of the scams. Picture: Shutterstock

Millions of cryptocurrency investors have been scammed out of massive sums of real money. In 2018, losses from cryptocurrency-related crimes amounted to US$1.7 billion. The criminals use both old-fashioned and new-technology tactics to swindle their marks in schemes based on digital currencies exchanged through online databases called blockchains.

From researching blockchain, cryptocurrency and cybercrime, I can see that some cryptocurrency fraudsters rely on tried-and-true Ponzi schemes that use income from new participants to pay out returns to earlier investors.

Others use highly automatised and sophisticated processes, including automated software that interacts with Telegram, an internet-based instant-messaging system popular among people interested in cryptocurrencies. Even when a cryptocurrency plan is legitimate, fraudsters can still manipulate its price in the marketplace.

An even more basic question arises, though: How are unsuspecting investors attracted to cryptocurrency frauds in the first place?

Fast-talking swindlers

Some cryptocurrency fraudsters appeal to people’s greed, promising big returns. For example, an unknown group of entrepreneurs runs the scam bot iCenter, which is a Ponzi scheme for bitcoin and litecoin. It doesn’t provide information on investment strategies, but somehow promises investors 1.2% daily returns.

The iCenter scheme operates through a group chat on Telegram. It starts with a small group of scammers who are in on the racket. They get a referral code that they share with others, in blogs and on social media, hoping to get them to join the chat. Once there, the newcomers see encouraging and exciting messages from the original scammers. Some newcomers decide to invest, at which point they are assigned an individual bitcoin wallet, into which they can deposit bitcoins. They agree to wait some period of time – 99 or 120 days – to receive a significant return.

During that time, the newcomers often use social media to share their own referral codes with friends and contacts, bringing more people into the group chat and into the investment scheme. There’s no actual investment of the funds in any legitimate business. Instead, when new people join, the person who recruited them gets a percentage of the new funds, and the cycle continues, paying out to earlier participants from each round of newer investors.

Some members work especially hard to bring in new funds, posting tutorial videos and pictures of themselves holding large amounts of money as enticements to join the scam.

Lies and more lies

Some scammers go for straight-up deception. The founders of scam cryptocurrency OneCoin defrauded investors of $3.8 billion by convincing people their nonexistent cryptocurrency was real.

Other scams are based on impressing potential victims with jargon or claims of specialised knowledge. The Global Trading scammers claimed they took advantage of price differences on various cryptocurrency exchanges to profit from what is called arbitrage – simply buying cheaply and selling at higher prices. Really they just took investors’ money.

Global Trading used a bot on Telegram, too – investors could send a balance inquiry message and get a response with false information about how much was in their account, sometimes even seeing balances climb by 1% in an hour. With returns looking like that, who could blame people for sharing the scheme with their friends and family on social media?

Exploiting friends and family

Once a scheme has started, it stays alive – at least for a while – through social media. One person gets taken in by the promise of big returns on cryptocurrency investments and spreads the word to friends and family members.

Sometimes big names get involved. For instance, the kingpin behind GainBitcoin and other alleged scams in India convinced a number of Bollywood celebrities to promote his book, “Cryptocurrency for Beginners.” He even tried to make himself a bit of a celebrity, proclaiming himself a “cryptocurrency guru,” as he led efforts that cost investors between $769 million and $2 billion.

Not all the celebrities know they’re involved. In one blog post, iCenter featured a video that purported to be an endorsement by Dwayne “The Rock” Johnson, holding a sign featuring iCenter’s logo. Videos of Justin Timberlake and Christopher Walken were deceptively edited so they appeared to praise iCenter, too.

Dwayne ‘The Rock’ Johnson does not actually endorse this cryptocurrency scam.

Fraudulent initial coin offerings

Another popular scam technique is called an “initial coin offering.” A potentially legitimate investment opportunity, an initial coin offering essentially is a way for a startup cryptocurrency company to raise money from its future users: In exchange for sending active cryptocurrencies like bitcoin and ethereum, customers are promised a discount on the new cryptocoins.

Many initial coin offerings have turned out to be scams, with organisers engaging in cunning plots, even renting fake offices and creating fancy-looking marketing materials. In 2017, a lot of hype and media coverage about cryptocurrencies fed a huge wave of initial coin offering fraud. In 2018, about 1 000 initial coin offering efforts collapsed, costing backers at least $100 million. Many of these projects had no original ideas – more than 15% of them had copied ideas from other cryptocurrency efforts, or even plagiarised supporting documentation.

Investors looking for returns in a new technology sector are still interested in blockchains and cryptocurrencies – but should beware that they are complex systems that are new even to those who are selling them. Newcomers and relative experts alike have fallen prey to scams.

In an environment like the current cryptocurrency market, potential investors should be very careful to research what they’re putting their money into and be sure to find out who is involved as well as what the actual plan is for making real money – without defrauding others.The Conversation

Nir Kshetri, professor of management, University of North Carolina – Greensboro.

This article is republished from The Conversation under a Creative Commons license. Read the original article.


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Blame it on Ponzi. Fact. It is not a coin but software. Sold by makers on the hunt for real ones. The way done is highly professional. Media, from nature not the brightest, did support and advertised the coin as a new miracle. Endless the explanations of its working. Scared to be called stupid, most viewers did understand. Fake news is family of the Bit or whatever software coin.

I find it amusing that it is highly probable that the value of stolen crypto in all likelihood exceeds the value of commercial transactions with crypto (goods and services procured excluding the procurement of crypto itself). and yet, crypto is supposedly secure. :/

Digital Kubus

The reason why the amounts do not match is because of the nature of a Ponzi scheme. It uses Peter to pay Paul and do not necessarily buy anything with the money they get from investors.

Stick to bitcoin, and do everything yourself. Do not trust anyone else to do anything for you. If you trust strangers on the internet with your money, they will take it every time, dont be that stupid.

To invest in bitcoin, you buy it, and when you sell it, you will make a profit if it has appreciated in value. That is all there is to it. Consider it a long term investment that you can add to monthly or whenever you want to increase your position.

There is no interest or daily earnings from your invstment. It is the same when you invest in gold or property, you just buy it, nothing more.
You do not get more bitcoin every day, just like if you invest in gold you dont get more gold every day, or if you invest in property, you dont earn more property.

Any platform or scheme that is promising you a high return if you deposit your money, is most likely a scam. This is true with Dollars, Rand, and bitcoin or other cryptocurrencies. Do not trust strangers on the internet with your money, the moment you give it to them its gone. There is no incentive for them to give it back.

Stocks and shares are just software too! You could therefor also look at Stock exchanges as Ponzi schemes. They are both based on sentiment and a transaction that takes place between a willing buyer from a willing seller. No different to a bitcoin transaction except bitcoin bases the transaction on blockchain and algorithms which are highly sophisticated and at arms length from human intervention. Sounds the same as taking the risk but letting someone else make the decisions on your investments.

End of comments.




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