Crypto Academy Season 3: Week 6. Homework Post for @yohan2on; CRYPTO SCAMS.
- What are Crypto scams?
Make your research on any Cryptocurrency scam. (Attach a few references to the news surrounding that scam crypto project) - To what extent have Crypto scams affected the Crypto space?
- Will regulations in Crypto add value to the Crypto space?
Introduction
Scammers are always finding new ways to steal money using cryptocurrency and every day new techniques crop up. However, one sure way of identifying a scam is when a person or site says you have to pay by cryptocurrency. This should be a red alert!! As a matter of fact, anyone who tells you to pay by any means such as wire transfer, cryptocurrency, or gift cards and more is a scammer as there will be no way to get that money back
Scams come in many forms. It can be a get-rich-quick scheme or the ever enticing promise of romance for many looking for partners. For those who have been victim to these scams, life can change drastically, sometimes for good. However, for those who haven't been victim yet, you could think it'll never happen to you, but the reality is anyone can be targeted and anyone can be tricked.
It is therefore advisable that before you use or invest in cryptocurrency, you know how to spot cryptocurrency scams or detect cryptocurrency accounts that may be compromised.
What are crypto scams?
Crypto Scams are fraudulent activities intended to rob Cryptocurrency holders (buyers and sellers) of their assets leaving them broke. They are cleverly plotted schemes that are intended to trick the asset holder into giving up their control over their own assets through either sharing passwords or giving out the asset willingly after coarsion.
In cryptocurrency trade, one usually exchanges cryptocurrency with another person online, with a phone or computer, without using an intermediary like a bank. Many different cryptocurrency brands such as Bitcoin and Ether are well-known and new ones are being created everyday. As these currencies crop up, so do scammers who want to rip users of their hard earned money. The risk of fraud with Cryptocurrency comes because;
- Cryptocurrency payments do not come with legal protections.
- Cryptocurrency payments typically are not reversible.
- Some information about your transactions is public despite some anominity due to encryption.
As of June 17th, CBS NEWS reported that Cryptocurrency Scams had soared by over 1000% since October last years as the popularity and price of the Cryptocurrencies like Bitcoin, Ethereum and Dogecoin also increased.
Case in Point; American Scams
More than $80 Million in Cryptocurrency scams has been lost in America alone with 1000% increase of fraud cases over the period covering August 2019 to June 2021 according to Federal Trade Commission (FTC) data, with people aged 20 to 39 being the hardest hit recording a whooping 44% in overall reported cases.
It is evident that as more and more Americans try to understand what cryptocurrency trade is all about, many especially the overzealous youths, have paid the price and learnt the hard way.
It's not only the youth in America who are affected. BBC NEWS shared a story in business news only four days ago (29th July 2021) about a one Joseph (not real names) who is in his 70s who was scammed of all his retirement money, when he thought he could make a profitable investment.
He assumed he would make profits and have enough left off for health and a home. He however ended up losing over $250,000 in life savings.
Another American user scammed was reported by The Guardian (click link to see story) where an online user was scammed of £20,000 on an online dating site Grindr.
The man (James Evans) met another named David in May 2021 who offered to teach him about cryptocurrency trade, which he agreed to impromptu. Within one week of WhatsApp and learning how to invest on an exchange, he had been scammed of £20,000, after persuasion to transfer the money.
Such online dating scams have increased especially in the lockdown period where people are desperate to work from home or have alot of idle time to get involved at deeper interaction levels. Grindr however, cannot take full responsibility for Evan's losses as they have a scam awareness guide for users and a disclaimer on their website. It therefore looks like Evans has lost his money for good.
Research on a Cryptocurrency Scam.
One of the biggest all time historical cryptocurrency scams is the One Coin scam that was made popular by the BBC’s 'Missing Cryptoqueen' podcast series that documented this scam. Onecoin is considered to be the biggest crypto scam of all time.
It is believed that the Onecoin scam - a huge Ponzi scheme – made off with a whooping estimate of $25 billion. Although the scam was shut down by authorities in 2017 and it’s co- founders arrested (well, apart from Dr Ruja, its founder who disappeared, on the run or dead!), the scam is, very surprisingly still going.
The biggest shocker of all is that Onecoin never even had a cryptocurrency to begin with!! It was a hoax from start to date. It's founder is Ruja Ignatova.
The self proclaimed "crypto queen" disappeared with over $13 Billion after building a cyber empire by convincing more than 1 million people worldwide to invest in what she called "The Bitcoin Killer".
Her co-founder Sebastian Greenwood is in jail in the U.S while her brother Konstantin Ignatov pleaded guilty to fraud and money laundering in connection with the scheme in 2019.
Link to story is HERE
Many people speculate that she could be hiding in Germany, Bulgaria, Russia or could be dead but the fact remains that she has never be brought to book since four years ago. Dr Ruja must however be very smart to have outwitted over 175 countries into parting with such large sums of money.
Find other versions of her story HERE and HERE
What is a Ponzi scheme?
A Ponzi scheme is a form of fraud that entices more investors while paying profits to earlier investors with funds from more recent investors. As the scheme grows victims are led to believe that profits are coming from legitimate business activity, and they remain unaware that other investors are the source of funds. This in turn helps the scammers to gain trust from the investors and with this trust comes more investment. After currency is amassed widely, the project is dumped and the goes defunct.
Below is an illustration of how the Ponzi scheme works.
To what extent have Crypto scams affected the Crypto space?
In my personal view, it is to a large extent that crypto scams have affected the Crypto space and this is in the negative slope. Some of the effects include the following;
Regulations
Though they work on a decentralized blockchain based system, cryptocurrency are now being regulated by bodies such as Securities and Exchange Commission (SEC), Commodities and Futures Trading Commission (CFTC), Federal Trade Commission (FTC), Internal Revenue Service (IRS), Comptroller of the Currency (OCC), Financial Crimes etc to avoid more scams. Bitcoin is now under strict regulation starting with the fiat onramps and adherence to strict KYC & AML laws.More Scams
As more and more cryptocurrency coins get on the market, more scammers come on board while emulating successful fraud stars like Dr Ruja of one coin who has never been caught to answer for her crimes. The successes of such Scams gives confidence to new technique for scammers to get rich, and with majority of naive crypto investors, alot is at stake!Demand vs Adoption
When scammers get a success, news quickly spreads and this can have a toll on the trading as well as market psychology in crypto trade. This makes adoption for new currency harder and long. Huge losses also can mean less investment, low liquidity and low volumes in trade.Trend Manipulation
Blockchain technology is meant to be a trustless system. However, manipulation of the investors can affect the trends to a bearish trend that could last a long period of time.
To a smaller extent however, the scams have a positive effect on the crypto space in such a way that they act as reality checkers. Once a scammer gets what they want, we the victims learn a valuable lesson that we need to be extra careful. As they say, if you have ever been bitten by a snake, even if you saw a rope, you would jump. This creates cautious trading and less losses in the long run.
Will regulations in Crypto add value to the Crypto space?
The Global Legal Insights Reports shows that a number of federal agencies such as Securities and Exchange Commission (SEC), Commodities and Futures Trading Commission (CFTC), Federal Trade Commission (FTC), Internal Revenue Service (IRS), Comptroller of the Currency (OCC), Financial Crimes Enforcement Network (FinCEN) have been formed to prevent market manipulation although not many regulations have so far been put in place.
As seen in the short term, regulations can suppress the trading values of cryptocurrency but in the long term, regulations if handled properly, can stabilize the market and make crypto investments safer. All these regulatory bodies are looking to crack down on fraud and add value to the crypto space by focusing on;
• The break even point of cryptocurrency and the traditional financial system
• consumer protection
• financial stability
• public security that can be got through controlling money laundering, counter attacking financing of terrorist groups, and drug trafficking.
Conclusion
Fraudulent activities are a huge blockage to many people today and scammers will always find a way to break through the barriers to reap where they did not sow. Regulations come with their ups and downs but, the safest option is always the one that saves the investor from big losses. Thank you so much professor @yohan2on for this amazing lesson.
Hi @amazing-grace
Thanks for participating in the Steemit Crypto Academy
Feedback
This is excellent work. Well researched and referenced. Onecoin is indeed the biggest crypto scam project. Many people in Uganda and all over the world have lost their life savings to that scam. Keep it up!
Thank you professor!