We tried to understand why Cryptos are observed quite suspiciously from many potential users even if more and more operators are getting engaged and more and more businesses are using blockchain technology.
Summarizing, for more details look our previous post, many financial products offer high revenues, especially when the “product” is at its early stage. At the same time, when we look to young products like Cryptos, there is an high risk of scam. What does that mean exactly? Is the Crypto generating the scam? is it the blockchain? Neither one, nor the other.
Usually we have a middle man, who takes advantage of something new to “bait” users without enough knowledge. Let’s see the most known and used tricks that are casting bad light onto a profitable and useful technology.
One of the most known is the Automated Trading, namely financial trading autonomy managed by an algorytm “capable of perfect forecast, predicting swings of the assets, in order to have a very high profit”.
As it is presented it looks like the perfect formula, but as already said, financial products in general are everything but certain and perfectly predictable. Investors, attracted by “safe” revenues, do not hesitate to dive into an adventure that rarely ends as expected. Especially when the trader, or the broker, is not licensed for such operations. Obviously there are plenty of official and safe online traders, operating in a transparent and responsible manner, but it is also true that it is really easy to step into a platform interested just in getting your money, without delivering the expected results.
To this method we can include NON LICENSED WALLETS and BROKER. Simply your investment, once submitted, could disappear a while after, or, best case, see huge charges to get your money back.
PHISHING. This is an old fashioned method, but still it does a lot of damage. You receive on your mail box a link to a platform very similar to your bank’s or your trader’s page. The link directs you on a page designed specifically to get your personal data allowing other people to manage your accounts, and we doubt it is for good purposes. There have been cases of mails form the IRS too, with the same purpose: take your personal data for fraudulent management. So, watch out what you click on.
PONZI-SCHEME. Very common scam, seen many times in classic finance, we find it again in the Crypto environment. How does it work? A financial advisor will try to make his investment plan very attractive, promising incredible revenues. First investors will see something back, but from the money invested by later investors instead from wise and fruitful investments. it does not end here. Being a pyramidal system, provisions are proposed to investors that can bring new people into the system which increase the possibility of falling into such fraud.
So far we had a look at the classic frauds, but considering the new environment we also have new kinds of scam, such as MALWARE and MINING DECEIT. With the first we define a software designed to enter in your wallet and manage and take away the funds. In this case a good antivirus and a little care should be enough to not be scammed.
The second case is a bit different, since it is difficult today to equip ourselves with the necessary software and hardware for mining, on the web there are plenty of Mining Pools, which allow you to take part in the business without owning the necessary instruments. The licensed pools are 100% trustable, but you can easily face a fake one, where super revenues are promised, without mentioning the expenses, equally unbelievable, that will be charged on your account.
This quick overview shows us that, mostly is not the product itself to be a scam, but the middle operator using it to generate a fraud to the multiple users available in the marketplace. At the end, and we will never stop saying, any financial product is a risky product by definition, reason why often operators propose a package of investment to spread and minimize the risk of losing everything, and this risk is part of the game. Cryptos aren’t different, you bet on a less or more successful project.
Let’s have a final look at the largest scam that happened under the crypto and the blockchain umbrella. Hopefully this will explain why it is always better to get some more info from a third party, info that for instance Confidence can provide, saving you from a bankrupt investment.
Just in the 2019, scams reached 4.26 USD Billions in the blockchain compartment according to Business Insider and some cases are listed in the link. In any case, all these frauds have nothing to do with the blockchain technology itself, but they are all related to few main schemes mentioned above:
– Exchange hacking: namely an IT attack to those platforms that behave as brokers for their customers, investenting the funds in the best possible way. Obviously the liability isn’t in the blockchain logic, but in the story between hacking and cybersecurity. A story old as the relationship between locks and burglary.
– Phishing: already seen, liability within the investors IT behavior. Don’t click to whatever link you receive by email could be an easy way to reduce the risk of scam.
– Typosquatting: a fake exchange disappears as fast as they collect the money pushing on FOMO (Fear Of Missing Out) of the investors. A third party could provide the necessary information to make wiser choices for instance and reduce the risk of scam again.
If we clarified that technology is neutral, on the other hand, the Token emission itself could be seen as a scam sometimes, and again this is about the reputation of the project’s founders. Let’s see some of these cases:
– ONECOIN: it has never been a true crypto, despite presenting as it was. The first CEO disappeared in 2017 and her replacement was arrested for fraud and money laundering, but the scam went ahead for a while anyhow. Tokens were sold, but as valueless education packages, promising large revenues. The value of such scam is questionable but it seems we are talking of something between 5 and 20 Billions on 3 Million users, numbers that make ONECOIN one of the largest scam ever seen since the blockchain was born.
– BITCONNECT: crypto issued in 2016 that through the standar Ponzi’s and some YOUTUBERS, pulled investments for 3 Million USD. Beginning 2019, the Texas State Securities Board opened investigations that within 10 days killed the value of 92%, damped to zero quickly after. Today it is one of the most known memes as the story ended up. We are anyhow talking of 2.5-3.5 USD billion fraud to 1.5 Million users.
– PLUSTOKEN: another Ponzi scheme, with incredible revenue promises. Mostly addressed to Asia, the scam was based on physical meeting vowing return of 9-18% every month. Yet in 2019 something goes wrong: investors can’t pull their investments and responsibility is given to Miners. In reality the scam was already over, with an exit with 3 Bilions in BTC, ETH and EOS. For analysts the BTC drop seen in 2019, was consistently due to the PLUSTOKEN action, with huge injection of BTC to the market. 3 USD Billion scam towards 100.000 users.
– PINCOIN e iFAN: ICO from Modern Tech. 48% month revenues and return of the investment after 4 months were their main claim. Just to not miss anything, an 8% provision when new investors were introduced. Short time passed before the true emerged: another Ponzi, with founders gaining 660 USD Million, damaging 32.000 users
So, scams are out there in the blockchain environment, we can’t deny it, but are not related to the technology, but to the investors’ poor knowledge of the subject and the high revenues claimed that attract the money before flying away, full bags, asap. Nevertheless tools to avoid such frauds exist and Confidence has such role: provide more and more info about the investment you are planning, in order to not be attracted only by incredible profits, absolutely doable, but always sustained from a clear picture of each player.