Scams in cryptocurrency space, leading fear in new investors
By: Crypto Mang
Tags: Bitcoin, Cryptocurrency, Bitcoin News, ICO, Cryptocurrency News

one of the reasons that crypto can be so daunting for newcomers is the number of scams that currently infest the space. Now while some are pretty obvious others are more subtle and damn near convincing scams have to evolve to keep their business profitable. So they’re adapting and have also been able to con users, who may have thought they were immune to it are any of these scams just waiting for you around the corner. I’ll also give you some best ideas to avoid falling for scams hacks and other dirty tricks.

Ponzi Scheme

Ok, Let’s discuss the world of crypto scams the first and perhaps most pervasive scam I would like to mention the “Ponzi” scheme. This is older than crypto itself goes back to the 1920s. It was named after Charles Ponzi an Italian who defrauded investors using the method that bears his namesake. The basic premise of a Ponzi scheme is pretty simple an operator will usually pay out existing investors with money that’s been brought in from new investors basically, the business is not making any legitimate income it creates the illusion of income. This may convince many of those who have invested that it could be legit this will continue for as long as there are always new investors to bring in capital oftentimes these schemes will also ask the user to refer people. This is why it’s sometimes referred to as a pyramid scheme now although the basis of a Ponzi scheme is pretty straightforward. Some of them can be hard to identify some Ponzi schemes can last for years, and dupe even the most sophisticated investors case in point Bernie Madoff ran one of the longest-running and most deceptive Ponzi schemes ever. His victims were not your average retail investor but sophisticated hedge funds, mutual funds, and high net worth individuals everyone thought the same thing. Bernie’s in high demand there are waiting lists to invest with his look at all those other rich folks who trust Bernie -the emperor does have no clothes.

Crypto lending platforms

Bitconnect

There have been a lot of such schemes in the crypto space. This is because they are generally easier to set up an exit scam than with a fiat Ponzi scheme due to its decentralization. They also take on a whole host of different guises or fake business operations that allow them to justify those returns they often try and choose seemingly believable methods in order not to raise too many questions. In the Bitconnect heyday, they were paying out a monthly interest that exceeded 40%. This seemed ridiculous and unsustainable particularly for a project as opaque as it was of course we all know what happened to Bitconnect.

Bit club network

Another typical crypto Ponzi mo is cloud mining. The scheme will tell you that the money you invest is earning a steady return by mining cryptocurrency of course the money that you invest does not go towards any sort of mining equipment. But just to sustain the scheme there have been a couple of these in the past but perhaps one of the most well known is the “bit club network”. They ran for over five years and were able to take over 720 million dollars from investors. Many people suspected them of being a Ponzi but at the time it was quite hard to prove definitively. They were not investing the cash into mining equipment. The FBI had access to personal communication and eventually sank that ship. Some sort of an investment scheme either they will claim that they can trade the crypto markets or that they have some sort of trading bot that can generate regular returns. These are the kind of Ponzi schemes that are pretty easy to avoid the reality is that any service that claims to have some amazing trading strategy or trading bot would not need your money they could Just make money with their trading strategies.

Amfeix

It’s just a ploy to get money from you to pay out earlier investors there have been quite a few of these in the crypto space as well one of the most recent examples is Amfeix. They managed to take in almost 60 million dollars by the middle of this year that was until they pulled an exit scam with the money. So now that you have a vague idea of how crypto Ponzi schemes work how do you avoid them well the first and most important red flag, that you can identify if some scheme is guaranteeing you a certain amount of returns. Nothing is guaranteed and these sorts of statements should have your alarm ringing and I know what you’re thinking your mate says that he got his regular stream of said income month after month. And he most likely did this is the whole mo of a Ponzi scheme to convince the investor that they actually work and hence want to commit more capital. Heck, the investor may even decide to refer our friends and family, oh and while we’re on this topic you can usually use this as another Ponzi red flag if the scheme offers you bonuses and perks to refer others and tiers those referral levels.

You should steer clear this is multi-level marketing and it is dubious best nearly every crypto Ponzi scheme in the past. Use some sort variant of this you would have high profile promoters, who would be at the top of the pyramid and make money off of those below them. Don’t be deceived by advertisements or publicity for a particular platform like bitconnect advertised on coin desk, Amfeix advertised on coin market cap, and a whole host of other sites. They even took out billboards Ponzi schemes read buyers just like any other sort of project they’re probably spending more on ads than legitimate businesses. As they need new victims in many cases advertising platforms media sites and influencers don’t take the time to analyze the product being promoted. So yeah think of a Ponzi scheme as an empty drum. Empty drums usually make the most sound.

Giveaway

Now heading to our next scam and this one is also pretty damn common the infamous giveaway scam. Quite simply the scammer is trying to convince you to send them money for them to send back your money multiplied, send us one ease and we’ll send you back 10 times. Now despite how silly that sounds these scams are pretty effective they usually frame the promotion as a giveaway by a project influencer or famous person of some type they use popular social media platforms. To push these scams most of the time this is through impersonation although they do sometimes manage to hack accounts, for example, no doubt you’ll have seen that high-profile Twitter hack earlier this year. where scammers managed to get into the accounts of joe Biden, Elon musk, Kim Kardashian, etc. They tweeted the giveaway scam and were able to make almost $150000 and if you think that was a lot of money. it’s chump change compared to what some of the earlier iterations of these scams were able to generate before twitter started. Clamping down on the bot manipulation tactics scammers were making more than a million dollars in a string of these giveaway promotions.

The Elon musk ones were my personal favorite they were sometimes so convincing that large news organizations would fall for them. The Twitter giveaway scams have become less common though as Twitter has cracked down on them. However scammers have found fertile ground over here on youtube, I’m sure you folks will no doubt have seen all of those live stream giveaways. Where they’re featuring an interview of some sort encouraging users to participate users are directed to a website. That website gives some instructions about where to send funds and how their funds will be multiplied these have been quite effective and more recently. They’ve even started using youtube ads to serve these videos.

Phishing

Here is the next is about phishing scam. Now, this is another attack vector that can be used in multiple different ways. The end goal of a phishing scam is to get you to hand over sensitive data so that a hacker can use said data to get access to your crypto. Phishing scams are also not unique to crypto and have also been used to get into people’s online bank accounts, email accounts, and other password-protected accounts. The usual tactic with a crypto phishing scheme is for them to get you to visit a website that you think maybe a legitimate service they could be in exchange for an online wallet or some other service that requires a password to access.

The scammers will usually try and use a domain address that looks very close to the official address of the site that you’re looking for either they will move a letter around place a hash, alter the spelling or use a different domain extension like .net, .info. The real sneaky ones will even do things like replacing a letter with a number for example here is ledger.com with the letter L and here is ledger.com with the L replaced with a capital I. Pretty convincing right the real sophisticated hackers will use what are called homograph attacks these use Unicode characters from non-Latin writing systems like Cyrillic or greek. They can make a domain look the same as the intended. Anyways these domains will usually host sites that look nearly identical to the site you’re thinking of visiting.

Private key phishing

You can be a victim of private key phishing, if you’re using a web wallet then this is pretty easy for the scammer. However, if you have a software wallet they’re going to have to get you to download a malicious wallet. Often the scammer will use a phishing technique to get you to download a malicious wallet. Once you’ve done so they’ll ask you to decrypt the wallet with the private key.

Which then of course means they have access to all your crypto perhaps the most devastating hack that I heard about this year was a poor boy who lost 1400 bitcoin, that’s over 18 million dollars. It was basically because the user was fooled into downloading a faulty version of the wallet. Once a malware-infected wallet was installed the hackers had a remote control and stole the guy’s bitcoin. You can read more about the exploit below essentially if you’re using a wallet on your pc, make sure that you download it from the official site, make sure it is on the exact domain that applies to the said wallet. Don’t fall for those fake domain attacks, for example, a few weeks ago I saw fake exodus domains that were being presented as ads by google. These would have been malicious downloads. However, there is one more layer of security you can employ when downloading these wallet files and that is what is called a checksum. This is where you can confirm the digital signatures the developer has uploaded with the software this is for the more technical users though who are comfortable with the command line.

Initial coin offering (ICO)

This is another doozy-rug pulls and exit scams are not restricted to Ponzi schemes but they have been used with great effect through fraudulent ICOs. How these scams operate is not that hard to understand. They try to convince a user to buy a cryptocurrency in an initial coin offering, once they’ve done this they hope that it builds momentum and sucks in more users eventually. Once they’ve pulled in enough users they’ll cut and run leaving everyone else holding the bag the ICO variants of these were pretty damn pervasive. During the 2017 ICO mania, there were several high-profile ICOs that managed to pull off daring exit scams. However as the interest in ICOs has recently waned, so the scammers have chosen a new target given the craze that we’ve seen in the DEFI space. Recently scammers have migrated their tactics to these waters. They’ll launch a new protocol usually a fork of a well-known one, they’ll then offer their token as a yield farming incentive to convince people to supply their capital to the protocol.

once they’ve reached critical mass, the developers dump the token and escape with some of the locked capital. Now being able to avoid these types of scams is also pretty simple don’t get involved in the first place there is a lot more junk out there than strong projects. With good prospects even if an ICO or Defi protocol is not a scam there’s also a strong chance that there is a smart contract bug one that either leaves the protocol open to a hack or some other catastrophic failure. As an investor, I am extremely selective when it comes to choosing the right kind of projects to invest in or the type of protocols to yield farm ICO over.