Cryptocurrency scams explained

During the bull market, the scammers come out of hiding. In this article we will arm the crypto investor with the needed knowledge to avoid them. 

Since all the transactions on the blockchain are irreversible, in 90% of the time people lose their coins due to ignorance and negligence. In the other 10% of the times there are swarms of well organised scammers who help to separate the new investors from their money. Scams have been around since the dawn of time. From phishing and sim-swapping to MLM groups, these modern scams are as diverse as they are creative. Let’s get prepared as crypto-investors to counter all of these attempts on the sanctity of your coins. 

Bitconnect and other ponzi schemes. 

 

 

 

In classic finance, the infamous Charles Ponzi has solidified his place in history as being the most famous user of the pyramid scheme carrying his name. Off course since then he has been outdone by Bernie Madoff. The idea behind the ponzi scheme is very simple. The owner of the pyramid structure pays out certain financial gains to the current investors using the money that was gathered from new investors that join this scheme. It’s a classic example of borrowing from Peter to pay Paul and this scam is as old as time. 

Usually ponzi schemes are very common in classic finance and can sometimes run for years while duping even the most sophisticated investors. For example Bernie Madoff’s ponzi fund actually used a waiting list for new clients, as well as an intricate web of fake accountancy to cover his tracks. This way even the large institutions fell prey to his charm. 

In crypto space there are many ponzi schemes and there will be many more as we move along. Mostly they play on human greed and psychology, promising irresistible ( and oftentimes impossible ) gains. Therefore the thick dense cloud of pure bullshit usually ends up canceling any logic. The crypto space is inherently risky, therefore whenever someone is waving a flag of “guarantee” in front of your eyes, it’s usually a trap. Also keep in mind that ponzi schemes feed on the continuous flood of new money from new unsuspecting victims. If you HAVE TO refer people into a certain “investment”, or if the whole point of this investment is to lure new people into it ( because you will then get into a higher tier inside the system, while you build your “downline” ), be advised you have a ponzi infestation on your hands. Let’s examine out the most famous examples. 

The iconic face of Carlos Matos yelling “Wassa wassa wassup!” has become a globally recognisable meme since 2017. Bitconnect ( and Onecoin ) are great examples of a pure ponzi scheme in action. Not only did these so-called “Lending platforms” promised their investors outrageous returns ( oftentimes of 40% monthly income ), but they also used an army of advertisers and youtube influencers to promote their operation. Influencers such as Trevon James and Crypto Nick have become so infamous, that nowadays people even use their faces to create non fungible tokens. Ironically they are selling like hot cakes. 

Another great example of ponzi schemes are the so called “cloud mining” and “bot trading” platforms. The story goes like this; invest with us, because we use your money to invest in cryptocurrency mining hardware and trading bots that generate a guaranteed ( that word again! ) income on a monthly basis. Oh yeah and if you sign up your brother, sister, friend, mom, dad, aunt Becky and your dog, you will rise in the levels and will receive even more guaranteed monthly income! What’s not to like right? 

For starters any cryptocurrency miner ( and trader ) can tell you that if they are successful in their operation, they will never need outside funding from anyone, let alone a swarm of new investors to feed their machine. Aside from creating a bureaucratic nightmare ( who wants to manage an army of customer service reps? ) it also distracts them from the primary goal of mining and trading. When we analyse the Tycoon platform, we will see that it actually started out as a tool for internal use. Only upon the realization that this tool didn’t yet exist in the crypto space, the long 3 year work has begun in order to build and develop the project ( using own private capital ). 

As long as there is human greed, there will be ponzi schemes. Always remember that if the project is forcing their clients to bring in new people into the machine and guarantees steady monthly income, it’s usually a trap. Sadly the people who participate in ponzi schemes are so brainwashed, that it’s impossible to reason with them when you present them with the truth. Only way to crack them is by examining their knowledge of cryptocurrency fundamentals. Trevon James and Crypto Nick never even knew what a private key is, therefore knowledge of your power. Educate yourself and study historic examples. They do tend to repeat. 

Giveaway scams 

 

 

 

Did you ever wonder why Barack Obama or Elon Musk suddenly became overjoyed by philanthropy and started to just give away free Bitcoin and Ethereum to anyone who sends them a tiny amount of coins? The answer is; They off course don’t do it! This is how a crypto giveaway scam usually works. Some famous person tweets out a message saying that he’s going to multiply any Bitcoin you send him. Of course you have to FIRST send them a tiny amount of coins. By now you off course know that all transactions that are done on-chain are irreversible, so gullible people time and time again end up waving goodbye to their coins by sending off aboard a digital Titanic. 

While giveaway scams have become less of a “hot” thing as they used to be, there are still people who actually fall for them. The key here is that the message has to originate from a credible source. Scammers even went to great lengths ( such as hacking social media accounts of famous people ) to be perceived as legitimate. Nowadays big social media networks try to crack down on these scams, but time and time again they do pop up. 

Just remember that in the cryptocurrency space there is no such thing as a free lunch. Yes there are legitimate airdrops and crypto faucets around, but these projects exist in order to reward early users for their effort. The users on their part must do the grunt work of self study and utilisation of the platform in order to receive the reward ( that is often never mentioned and ends up arriving as a nice unexpected surprise ). Most famous cases of this are off course the Uniswap and 1INCH token airdrops. But even these platforms never claimed that they would “multiply” the coins that are sent to them. They are decentralised exchanges that provide a valuable service. Love comes from both sides in this equation and reciprocity is mutual. Anyone claiming that they can simply multiply the coins you send them are off course scammers. 

Phishing scams and their variants

 

 

Knowledge is power and in the cryptocurrency space that knowledge is so valuable that not only will it help you to find that next 10 to 50x gem, it will also help you to avoid phishing scams. This is why a lazy investor is the favourite prey of this infamously effective scheme. The purpose of the phishing scam is to obtain sensitive information from the cryptocurrency investor in order to plunder his/her wallets or accounts. Phishing scams originate from the classic finance where anything that is secured or password protected can ( and has been ) cracked successfully. 

Imagine you receive an email from Binance claiming that you just won a 50 000 usd prize. All you have to do is log in and claim it. This is where overjoyed new crypto investors often fall victim to attacks. They usually fail to notice that the email address looks a bit “odd” ( because the letters actually contain what’s called homograph characters and not real legitimate letters ) The user then logs into a fake version of Binance and happily surrenders all of his/her personal information. Again logic is the key here. Never just trust a random email and always verify the email address that sent it. Also bookmark your important pages, because phishing attackers oftentimes advertise their domains in order to become visible on the first page of Google. Last but not least use your 2FA verification religiously and as often as possible. 

Another popular phishing attack that has stirred up trouble is called a “Private key” attack. The space of decentralised finance is becoming hot and bustling with a flood of daily newcomers, therefore many new crypto users ( who don’t know that you absolutely must never show your private key to anyone ) fall for this attack. People can either download a malicious wallet or be led to a malicious website ( copying My Ether Wallet for example ) where they will be asked to enter their private key. Once this is done, the attacker can off course drain the REAL wallet in the process. One unlucky user lost 1400 Bitcoin in a similar attack. Therefore it’s important to always be sure you are downloading the official software and never use google ads on the top of your search results. Technical users can certainly use a digital signature of the official software that they have just downloaded. Remember knowledge is power.

The last ( but definitely not final ) variant of a phishing scam is currently rampant on social media platforms. This scam involves impersonation of a group admin ( usually on Telegram ). An official looking impersonator would copy all the details from the support admin including a picture and will start to contact newcomers. This way people can be fooled into giving away their sensitive information in order for the attacker to access the official account or wallet. This is why most admins on Telegram actually state in their name that they will “Never DM you first”: meaning that they never will contact anyone directly. It is often the impatient crypto investors who fall prey to this attack. Therefore it’s important to use only the official email provided by the support staff of the crypto project that you are following on social media. Again it’s always important to realize that there is no such thing as a free lunch and as we move through this bustling bull market, more and more phishing scams will come to light. 

Fake wallets and Sim swapping

 

 

 A while back Ledger ( one of the most popular cold storage wallets on the market ) has suffered an attack on the database containing the contact information of their clients. Naturally that information has already fetched a pretty penny after being sold on the darknet markets. This is why it’s important to know about the “spear phishing” attacks. 

When a user of a cryptocurrency wallet receives an unsuspecting email prompting them to download the “latest version” of their wallet in order to update it, rest assured that this is a spear phishing attempt on your funds. You see any respectable hot or cold storage wallet ALWAYS pushes the updates internally via the wallet application itself. Never from the outside world and definitely not via email. These attacks have claimed many victims and will continue to wreak havoc upon the unsuspecting newcomer to crypto space. 

Just when you thought you might secure your wallet account with a text message authentication, think again! There are hordes of social manipulation masters who specialise into conning phone company employees into reprogramming a phone’s sim card onto a new malicious one that’s being controlled by the attacker.  The phone numbers can originate from hacked data stolen from databases like the Ledger. This is why 2FA authentication must only be used via google’s authentication app or similar software. 

Again this leads us to the matter of exercising caution whenever you browse through your emails, text messages and hell, even comments from social media posts. Many of these are smeared with honey luring potential victims into the scammer’s traps. The further we move ahead developing the current trends like DEFI and NFT’s, the more we will have to deal with scams. One of the most notorious, is off course the Rug pull. Let’s take a closer look. 

Flying carpet – The Rug Pull 

 

 

Aside from the incredibly restrictive global lockdowns, the summer of 2020 has given us the rise of DEFI ( decentralised finance ) and off course Yield farming. This is why the Rug-pulling scam can be compared to the fraudulent ICO’s of the 2017. The idea here is very simple. 

People are enticed to provide liquidity for a decentralised finance project with an intentionally malicious code baked into it. Usually people lock up liquidity ( their coins ) in order to “farm” rewards that are paid out to the participants in return for their help in the process called market making. All nice and dandy, but when the project is fraudulent, things tend to take a turn for the worse. When the locked up liquidity becomes quite substantial, the owners of the project just “pull the plug” and steal everyone’s funds. This has happened before on Ethereum ( back in 2020 ) and it’s currently running rampant on the Binance Smart Chain. People truly never learn! 

The best way to protect yourself from a “Rug Pull” is actually by never participating in those schemes in the first place. The ever prudent granny holding only 5 conservative coins is off course free from this scam, while the nosy and uncareful “Chad” runs into it time and time again. Whenever you see astronomic returns ranging in 3 to 4 digits in percentage profits, think again. This is the same as Bitconnect on steroids! 

It’s usually not that easy to spot a potential rug pull, but here are a few things to keep in mind. If a potential project has “anonymous developers”, this is definitely a huge red flag. If a project promises a high percentage of returns in a short period of time ( think Bitconnect ), just run. If a project solely exists in order to “farm” those potential rewards, instead of building a valuable ecosystem, this should definitely set off alarms inside your head. Moving through the DEFI trend will be a totally different ball game than the 2017 ICO craze. This is exactly why it helps to sit down and calmly learn about the ins and outs of the space and how the tech actually works. Only by doing so you will limit your risk in this highly competitive and combustive space. 

Mind games  

 

 

 

While it’s definitely impossible to describe all the scams and potential attacks in only one article, it’s still easy to distil the basics. Any type of scam or attack eventually plagues the human mind first. It’s all a play on our emotions and our greed. It’s a way of bating us into fast, risky and irrational action. This is why time and time again millions of people will end up losing their money. What can a newcomer do in this space? 

First of all the best cause of action would be to relax, have a coffee and think for just one moment. Is the information presented to you too good to be true? Are you being rushed into something that you should definitely think about first? Is your friend trying to sign you up in order to reap some benefits for himself? When you keep in mind that there is no such thing as a free lunch, things suddenly become very clear. This is why you must slow down your mind and “sleep” on any potential emotions that you might be feeling momentarily. 

Your best asset perhaps, will be the people you surround yourself with. This space is not for the faint of hearted, but the majority of people dabbling in crypto currency are actually decent and respectful. So it absolutely helps to make plenty of new friends. If you know someone who has been in this space for years, take him/her out to dinner and listen to what they have to say. Take notes and ask plenty of stupid questions. Learn from them and learn from their mistakes. 

Aside from this it’s actually of vital importance to educate yourself on a daily basis. Try to rediscover the love of reading and hunger for learning new stuff. Our schools are doing a wonderful job at producing “consumers” and armies of keyboard banging office plankton instead of creators and entrepreneurs. This is why it’s only up to you to educate yourself about the crypto space. Sometimes you might feel lonely, but always remember, even the most diehard veterans were noobs at some point. They also fell victim to scams. They learned and got back on their horses. So shall you. Most important point is to have fun

along the way. There is nothing more wild, immature and unpredictable than the crypto space that’s dominated by memes, own slang and culture. Even if you don’t end up becoming a millionaire during this bull cycle, never forget that they repeat every 4 years! Armed with this new knowledge, skills and experience, you definitely have a shot.