For a market that’s barely ten years old, cryptocurrencies have caused quite a stir by disrupting systems that have existed for decades. With a market cap of close to $370 billion, cryptocurrencies aren’t slowing down anytime soon. While the new technology gives investors limitless and lucrative opportunities, crypto has also provided fertile ground for scams to thrive.
From fake Initial Coin Offerings (ICOs) to High Yield Investment Programs (HYIPs), thousands of people have fallen victim to crypto-related scams. While some of the scams have outright red flags, others are an intricate web of raw deals that take time to uncover. People are easily lured into promises made by ‘get-rich’ schemes and end up losing their hard-earned cash as a result.
A recent report by blockchain analytics firm, Whale Alert, revealed that investors had lost over $38 million worth of Bitcoin in the last four years, of which $24 million was lost in the first six months of 2020. The pseudonymous nature of crypto and lack of adequate knowledge about crypto has allowed these scams to thrive.
Are tech giants such as Facebook and Google to blame for the rise in crypto scams? How can one spot a crypto scam? Who’s to blame for the increased number of crypto scams? Let’s dive into the details and explore ways of staying safe from malicious and heartless scammers.
Common Types of Crypto Scams
While there’s no exhaustive list of the number of crypto scams on the web today, there are a few of them that fall into the classic description of fraud. As you read this, there’s a tech-savvy individual out there cooking up the next big crypto heist.
The FBI in a press release about crypto scams stated,
“There are not only numerous virtual asset service providers online but also thousands of cryptocurrency kiosks located throughout the world which are exploited by criminals to facilitate their schemes. Many traditional financial crimes and money laundering schemes are now orchestrated via cryptocurrencies.”
The following are the common types of crypto scams that have hit the space and left investors in dismay and tears.
Ponzi – like Schemes
The Securities Exchange Commission (SEC) issued an investor alert warning people of Ponzi scheme organizers who were preying on victims using virtual currencies. The alert noted,
“In a recent case, SEC v. Shavers, the organizer of an alleged Ponzi scheme advertised a Bitcoin “investment opportunity” in an online Bitcoin forum. Investors were allegedly promised up to 7% interest per week and that the invested funds would be used for Bitcoin arbitrage activities in order to generate the returns. Instead, invested Bitcoins were allegedly used to pay existing investors and exchanged into U.s. dollars to pay the organizer’s personal expenses.”
Such scams often promise fantastic returns to people who get in at the ground level of a growing investment opportunity. After a while, the scammers disappear with no trace leaving investors stranded, bitter, and wondering just where their cash went.
Recently, a YouTube channel impersonating Elon Musk’s SpaceX channel got away with $150,000 worth of Bitcoin. The scammers broadcasted footage of Elon from a past event and asked the over 80,000 viewers to send BTC. In February, Elon tweeted,
“The crypto scam level on Twitter is reaching new levels”
In a different con job, a YouTube video of Ripple’s CEO, Brad Garlinghouse, popped up, which was promoting a fake 50 million XRP airdrop. Images of celebrities are also commonly used to promote scams on social media channels such as Facebook and Twitter.
Most likely, you have received one of these emails asking you to be part of a supposed high return investment scheme. Most of these emails come complete with a logo and headers with legit-looking addresses and social media handles.
Others may take the shape of classic phishing, where scammers will ask for your username and passwords to wallets. The emails may even entice you with a free airdrop where you are asked to send a certain amount of crypto to a malicious MyEtherWallet.
During the impressive crypto bull market witnessed in 2017/2018, Initial Coin Offerings (ICOs) were the order of the day
While these crowdfunding vehicles provide an opportunity to invest in start-ups and promising companies, they have also been misused by scammers to rip off investors. According to a report by Bloomberg, 80% of ICOs were a fraud where only 8% of them reached out to investors.
So deep is the fakeness of ICOs that organizers go to the extent of renting out fake offices, branding them, and investing in serious marketing campaigns to sell the hype.
Advancement of Crypto Scams in 2020
Crypto scams have come a long way since the infamous Mt. Gox bitcoin scam that made away with $460 million worth of BTC from investors.
As each year goes by, crypto scams are becoming more sophisticated and complicated, where fraud is executed through a complex infrastructure. Recently, Group-IB, a Singapore-based intelligence company, revealed how fraudulent crypto websites had acquired hundreds of thousands of personal records in an intricate Bitcoin scam.
Kommersant, while quoting cybersecurity firm, Kaspersky Labs, reported that Russia was experiencing an exponentially sharp rise in crypto scams in 2020, where the number almost tripled in the first six months.
In China, there’s been an increased occurrence of crypto scams as the government rolls out pilot tests for its digital yuan. Scammers were impersonating ‘test groups’ for China’s CBDC, where they promised investors returns of upwards of $1,430.
Red Flags of a Cryptocurrency Scam
Most crypto scams share similar characteristics, and an investor can look out for these red flags to avoid getting duped. The typical warning signs for crypto scams include:
Promises of high returns with low risk
While every investment carries a certain degree of risk, every investor should be skeptical about an investment that promises high profits with zero to no risk. No one can guarantee a 100% return on investment.
Complex payout structures
An investor should be cautious of investments where one is told to roll over their initial investment to gain access to even more returns. Difficulty in cashing out from an investment is a crypto scam red flag.
Often, scams will display a fake executive team and even maliciously use pictures of famous people to sell their idea. In some cases, critical information may be lacking about the venture, such as the address, contacts, and organizational structure of the company.
If a project only allows a digital currency to be exchanged internally, most likely, it’s a scam. Genuine cryptocurrencies can be readily converted into fiat on most exchanges.
Are tech giants to blame for the rise in crypto scams?
Famous YouTuber and crypto influencer BitBoy, recently called out Google and tagged them on their Twitter handles, blaming them for putting UNISWAP investors at risk.
“Google you should be ashamed. Whoever runs GoogleAds is FAILING MISERABLY. On YouTube where scammers get ads through and now on your own platform.”
In a separate war with Facebook and Google, JPB Liberty, a law firm in Australia, has filed a class-action suit against the two tech giants. In the lawsuit, JPB Liberty targets the two for banning cryptocurrency advertising on their platforms, which may have contributed to the death of ICOs.
Andrew Hamilton, the CEO of JPB Liberty, claims that the ban was a pretext of protecting investors. He stated,
“There are impersonation scams of crypto all over YouTube — impersonating the Ripple CEO, the Binance CEO.”
In April, Ripple’s CTO, Brad Garlinghouse, sued YouTube for their complacency in allowing crypto scams to flourish and failing to stop repeated XRP scams. In an official blog post, Ripple stated that enough was enough and that it was time to protect the crypto community.
That’s not all either, as In July, Apple’s co-founder, Steve Wozniak, sued YouTube too, alleging that cryptocurrency fraudsters lurked on the video-sharing platform. However, a spokesperson for YouTube told CBS that the platform had removed 2.3 million videos and closed close to 1.7 million accounts that were implicated in scams. The spokesperson didn’t disclose how many of these were related to crypto.
There’s no denying that social media has played a significant role in the rise of crypto scams due to their vast following and ‘complacent’ rules when it comes to crypto-related advertising. On the other hand, had it not been for Google, YouTube, and Facebook, most people wouldn’t have heard of cryptocurrencies and ICOs in the first place.
No end in sight for crypto scams
Unfortunately, there’s no clear end in sight for crypto scams.
As the industry grows, so do the scammers refine their plots and make them more advanced. Government protection is limited since most of them haven’t designed a regulatory framework on crypto and blockchain.
The best thing is for investors to stay alert and carry out thorough research before putting money into a crypto-related venture. Social media tech giants also need to become more vigilant and shield their consumers from these malicious fraudsters.