Scams in the World of Cryptocurrency

For the last couple of weeks I’ve been fascinated by the variety of scams in the crypto world.

I wrote about a couple of different scams I came across recently here and here, but decided to create a more comprehensive list.

So, without further ado, here’s my list of crypto-related scams types I’ve found to date:

Fake versions of real sites:

This is an really old school scam that been around for eons. Not much effort is needed, either. It’s literally a 3 step process:

1. Register one or more domains that look similar to the real domain (e.g. coinbsae.com).
2. Scrape or otherwise duplicate the content of the real site.
3. Set up minimal required functionality to capture data (usually credentials).

After that, it’s just a matter of sitting back and waiting for people to fat-finger the URL and hope they don’t check the address bar once the fake site loads.

To add a little sophistication, some sites might even take the step of forwarding the unsuspecting user to the real site to complete the process, thus reducing the chance of the ruse being discovered.

As Inc. reported recently, some of the fake URLs being registered can be very hard to spot as such because they use cedillas and other character modifiers that exist in other languages.

The “Give-a-Little-Get-a-Lot” Family of Scams

After looking at the various type of scams, it became apparent that there is at least 1 family of scams under which a number of variations exist: the give-a-little-get-a-lot scam.

And this approach has been around for ages, too.

The variations operate under the same basic premise and feed on get-rich-quick greed.

They sound too good to be true. And they are.

Here are 2 that I've found:

Social Media Impersonation

This is the first scam type I wrote about.

I first noticed this while reading through some of the comments on John McAfee’s Twitter feed.

Since then it seems that the number of scam attempts of this nature have been increasing.

Not only does it appear that bots are making the initial posts, but it seems that there’s often a small army of bots ready to make “just got my BTC”-type comments in an attempt to add legitimacy.

Crypto "Generators" or “Multipliers”

This scam is the 2nd type I wrote about and they seem to be popping up more (or maybe I’m just noticing them more).

The idea is that the site “generates” or otherwise acquires crypto (usually Bitcoin or Ether) for you and all you need to do to gain access is to first send them a little crypto to “pay for miner fees”.

Of course, it’s not clear why your “winnings” from the site can’t themselves cover the mining fees.

File under #thingsthatmakeyougohmm.

Pyramid / Ponzi / HYIP Schemes

Another old-timey set of scams that have made their way into the crypto space are the tried-and-true pyramid / Ponzi / HYIP (High-Yield Investment Program) schemes.

The most famous example, one that’s since collapsed, ruining numerous lives in the process, is BitConnect.

I’m not going to go through the details of the BitConnect ordeal (a quick search on Google will bring up more than you’d ever want to know), suffice it to say that it was highly successful in taking in numerous people and massive amounts of money, despite all of the warnings others were screaming from the rooftops.

There’s a handy list of Ponzi schemes, along with a list of YouTubers who were promoting them, on this Reddit post.

If you’re not sure if something is a Ponzi scheme, here’s the easiest way to tell: does it’s business/revenue/payout model continually require new people to be recruited into the system?

If you need to tell 2 friends who then need to tell 2 friends who then need to tell… It’s a Ponzi scheme. Stay away.

Pump & Dump / Pump & Hold & Dump

This is straight up market manipulation.

Doing this with traditional asset classes would likely land you in prison.

In the world of crypto, however, it happens on a regular. And as far as I know it’s not illegal.

There are PD/PHD groups all over the place on Twitter and Telegram (and I have to assume they congregate in other places, too). Like many of the other scams, these groups seem to be increasing in number, so you’ll likely trip over one of them in your regular crypto travels.

The basic idea is to get a whole pile of people on the same exchange to buy the same coin (usually using BTC as the base currency) at the same time. Then, go on social media and shill the hell out of it to encourage unsuspecting people to invest.

At the designated time (upwards of 30 minutes or longer in the PHD groups), the original buyers (the ones who “pumped”) will now commence the “dump” phase where they sell off their coins in batches.

The people who bought in due to hype are left holding the bag, as it were (hence the use of the somewhat derogatory term “bagholder”), as they were never told about the dump. If they’re watching the market at the moment the dump starts, some might get lucky and exit without too much damage. Most won’t escape unharmed.

Interestingly, many of those participating in the PD/PHD itself will themselves be left holding.

The thing that most people aren’t aware of is that PD/PHD operations aren’t as simple as they appear.

Many (most?) are multi-layered. And most of the people participating are in the outer layers and may or may not make any gains.

Here’s a great breakdown of how a crypto PD/PHD operation works:

https://bitfalls.com/2018/01/12/anatomy-pump-dump-group/

ICOs

Unlike the other scams listed here, ICOs are unique to the cryptocurrency world. Coupled with the fact that they are (currently) unregulated makes them fairly easy to perpetrate.

To start, not all ICOs are scams. (disclaimer: I’ve invested a tiny amount into a couple of ICOs.)

Indeed, I believe that some are 100% legit and the projects behind them will go on to do great things.

But that’s not the vast majority. No, many of them are great places to burn your crypto.

Not necessarily even because they are scams, either. Many just couldn’t execute. (If you're interested, Steemit user @trizle put together a list of failed ICOs from 2017.)

But we’re talking about scams here, not ICOs generally. And yes, there are absolutely scam ICOs around.

One of the most recent (and humorous if you ask me) is the Prodeum project. Looking at their Ethereum address, it looks like they raised approximately 1 ETH (mind-blowing, I know).

Having done so, they promptly disappeared, replacing their website simply with the word “penis”.

Steemit user @moonjelly has put together a tongue-in-cheek guide to creating your own scam ICO. While it’s meant as a joke, it’s not far off the mark.

Cloud Mining

Like ICOs, not all cloud mining operations are scams. (disclaimer: I have a small cloud mining contract with Genesis Mining).

However, there are some scam mining sites out there, so, it pays to beware and know how to identify a potential scam. There’s a great article on The Merkle that lists 5 telltale signs of a scam cloud mining operation.

https://themerkle.com/how-to-avoid-being-scammed-by-an-illegal-bitcoin-cloud-mining-company/

Impersonating the Tax Man

I’ve already written about legitimate tax implications of cryptocurrency here (USA) and here (Canada), but this is something different.

This scam involves the IRS (Internal Revenue Service, for residents of the USA) or the CRA (Canada Revenue Agency for us Canucks).

Well, it’s not really the IRS calling or anyone from the CRA on the phone, of course. It’s someone calling up impersonating a government agent who then demands that payment for an outstanding tax bill be delivered in Bitcoin.

As you might imagine, there’s no outstanding bill. Not to mention that neither country’s government accepts Bitcoin as a method of payment (heck, they don’t even recognise it as a currency).

So, if you get a call from someone claiming to be from the IRS or from the CRA asking for payment it Bitcoin, you might consider simply hanging up. Just my opinion, though. YMMV.

 

Did I miss a type of scam?

Have you or someone you know been scammed?

Have your say in the comments!

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