How to spot a Cryptocurrency Scam
Like most industries that make profit there is an opportunity for detailed and eloquent scams to flourish. The Cryptocurrency is no different and has had its fair share of stories to date - including the most recent one with PlusToken. But let’s go back a step or two and discuss the signs to spot and hopefully minimise the chances of these scam artists to profit from a fledgling industry.
The background
Not wanting to draw blood from a stone here but for the uninitiated let me quickly run through Crypto, for those who are a little longer in the tooth please skip this section.
Cryptocurrency simply means a digitalised asset i.e. currency that can be used as a medium of exchange to make transactions digitally secured by cryptography (best to look this one up yourself).
Cryptocurrency is a concept that was first introduced to the world by David Chaum, an American Cryptographer in 1983 through his ecash. Then later in 1995 he implemented it through Digicash which was an early form of cryptographic electronic payments. Fast forward 26 years later and Bitcoin appears out of almost nowhere. The infamous and still anonymous Satoshi Nakamoto (no it’s not Craig Wright) released Bitcoins whitepaper in 2009 and the rest is history, as they say.
So why are these scams happening?
For those who had their head stuck under a boulder the crypto market took the world by storm when Bitcoin went from $750 in January 2017 - $19,783.06 in December 2017 which is a cool 2600% increase in price (give or take a few %’s). The market overall is now currently in the 100’s of Billions of pounds market cap. There is money to be made and like any industry with money to be made, someone out there is willing to make a quick buck through immoral methods, in most cases through Ponzi type Schemes.
Morgan, what the hell is a Ponzi?
I don’t actually know who invented that term and with a little research probably could find out but I’ll leave that for another time. A Ponzi Scheme is a fraudulent investing scam which makes promises of high and in some cases absurd rates of return with next to no risk for investors, sounds too good to be true doesn’t it, that’s because it is. The scheme is similar to that of a Pyramid scheme.
How does it work?
Well at the beginning of a Ponzi scheme you have the early investors, they will pay for example $1000, they expect to get there returns within the agreed time by the company and low and behold, as new investors join, the earliest investors get there returns. But the key thing here is the money that is being used to pay the early investors is in fact from the latest poor unfortunates yet to realise the mistake. “In 1920, Charles Ponzi ran a scam promising New Englanders a 50 percent rate of return in 45 days for a convoluted investment involving international mail coupons Ponzi ended up collecting $10 million and paying back $8 million, leaving a cool $2 million for himself.”
How do we spot a Ponzi scheme or similar scams?
High profits or guaranteed returns
The cryptocurrency space is volatile, that much is obvious, so when we talk about making 100’s-1000’s% increases this isn’t as unrealistic as it might sound. However it goes without saying, if a company is offering these high level promises or guaranteed returns on investment, immediately, these should sound alarm bells. If a company is unable to substantially explain its methods to make money then it’s likely they don’t intend on actually making money for its investors. Below is the offering by Bitconnect to its investors. 1% daily from $1000 would make $50million in 3 years.
Fake employees/profiles
Another thing to look out for is the staff of the company, whether that is on LinkedIn, their respective website or companies house. In the case of Goxtrade, employees on the website were using fake photos sourced from the internet. It’s always worth looking at the social media profiles of employees; LinkedIn (do they have a number of contacts outside of the organisation? Do they have any recommendations? Are they posting content on LinkedIn?), Twitter (again do they have followers? Are they active?) And so on so forth. If you start seeing “employees” with no digital footprint that should raise some concerns.
Big marketing campaigns
Most of us are aware of the Microsoft launch in 95, if you haven’t seen it click here for your enjoyment
Whitepaper
All cryptocurrency should have a whitepaper that you can access, especially prior to making any investment. The whitepaper will tell you how the project has been designed, its plans for growth and perhaps most importantly, how it intends on making money!
Articles to read
For a bit of light reading take a look at this article for an interesting story behind the PlusToken exit.
Also more detail about Bitconnect can be found here
https://thenextweb.com/hardfork/2018/01/17/bitconnect-bitcoin-scam-cryptocurrency/
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