Scambook: The Art Of Fraud

Dominik Olech
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We all probably agree that the crypto industry isn’t made only by people with noble goals in their minds. Malicious activity is, unfortunately, a common thing for crypto followers. But it is also an exciting topic to talk about.

After all, who among us has never encountered any crypto-related activity which at least could be considered suspicious? Whether while browsing Reddit or BitcoinTalk or while checking our email box, we may find content that bothers users who are aware of scams. However, many fewer alert users may be fooled by such malicious baits. What are the techniques used by scammers?

Initial Coin Stealing

Let’s start with a topic which we have recently raised in one of our articles. Initial coin offerings are an essential aspect of the cryptocurrency industry, allowing for gathering funds for the further development of the project. The base of this fundraising scheme is the trust given by contributors for a supported project. Unfortunately, this faith might be easily used in not such noble ways.

Using ICO to take advantage of unaware supporters requires the preparation of an effective project which would resemble an actual ICO. There were plenty of such scams worth being mentioned here, but I’ve decided to bring you closer to an example that deserves more attention. TydeCoyn may seem the preparation of an effective project ICO as many others, giving a chance to invest in promising “cryptocurrency token that marries tourism promotion and environmental activism.”

But if we decided to support the project, we were redirected to the website of the Canadian Financial and Consumer Services Commission. That’s right – TydeCoyn was a fake, but made by the government to teach users how to avoid scammers. It set some major “red flags,” which should serve as a warning to inventors: limited transparency, the guaranteed return, and time pressure.

The creation of a “real fake” ICO dedicated exclusively to stealing money is a serious threat. Currently, more and more regulations are limiting this practice. But still, it is good to stay cautious and double-check every project that we are going to support – just as our Canadian friends advise us.

Bitcoin princes

I’m sure you know an already legendary advance-fee scam, mostly known under the name of Nigerian Prince scam. This infamous way of extorting money became very popular with the development of the Internet (but its roots go back to the 18th or 19th century, in the form of “Spanish Prisoner scam”). Probably all of us at least once got a message from a mysterious prince from an exotic country who wants to share his ridiculous riches in exchange for a little help. All we need to do is to transfer some money to get access to a said fortune.

Of course, there is no fortune, and the scammer takes the victim’s money for himself. There are plenty of possible variations of this scam, for example, phishing through a dating website (but this particular example has a surprisingly positive ending). But the introduction of a completly new payment method such as Bitcoin was a significant game-changer for this technique.

Probably the most popular places where such scammers prey are social media platforms, especially Twitter, which is a common space for crypto followers. And the attempts to deceive this significant group are actually easy to spot. All you need is to check some Tweets of well-known people related to the cryptocurrency industry. John McAffe, Vitalik Buterin, or Changpeng Zhao, but people related to the broader technological world, like Elon Musk, will also work.

If you’re (un)lucky, you’ll find a thread under one of their posts, encouraging to transfer some coins on a given address to acquire additional coins from the giveaway. The account has the same display name and picture, but its Twitter username will be slightly different – because it’s a fake account, made only for this particular action.

But some scammers went even further. In July 2018, hackers managed to get access to an account of canceled FOX television series called “Almost Human.” They changed the whole account to look like the one belonging to Justin Sun, the CEO of TRON. The only thing that remained untouched was the username – because if you change it, you lose your “verified” badge.

Pyramid builders

Our next step is also well-known outside the cryptocurrency industry. It’s based on multi-level marketing, more commonly known as pyramid schemes. The first noticeable example of such a business model was used by Charles Ponzi in the 1920s – which brought another name for it: the “Ponzi scheme.” Although there are some small differences between Ponzi and pyramid scheme, the overall mode of action is very similar. And since both are similarly dangerous, let’s skip unnecessary divagations about their specific differences.

A multi-level investment scheme lures investors with high, guaranteed payouts. When they are already in, they need to bring fresh blood to the project. And they are motivated to do so because their payouts come from the newcomers’ payments. Then, the pattern repeats itself until no other people are willing to participate. The pyramid collapse, but its owners are usually already away with inventors’ money.

Among the various blockchain scams of this kind, probably the most memorable ones are Bitconnect and Dascoin. The first one was a textbook example of a Ponzi scheme, which was promising an unbelievable high return. It’s mostly resembled now with Carlos Matos, Bitconnect promoter, and his miserable attempts to encourage people to the project. DasCoin, on the other hand, aimed for crypto newcomers. So-called NetLeaders was meant to educate people about cryptocurrencies, additionally encouraging to buy DasCoin. Such an approach is actually prevalent among crypto scammers, with whole call centers employed to act as specialists offering a lucrative crypto offer – as reported by The Times of Israel.

Crypto Ponzi and pyramid schemes are probably the most dangerous of all other scams because of this social and psychological element. People who have been influenced by such entities retain faith in the institution they have decided to support.  Moreover, they drag other people in, adding another block to the pyramid. And only in the back of their mind, there is a thought, “what if this project doesn’t succeed?” But it is quickly driven out because of the fear of losing the invested money.

Why is it work?

All examples described in this article may seem obvious for experienced traders and crypto followers. But still, many people fall into such scams every day. Where the reason for scammers’ success lies, especially when many people warn against it?

Crypto scams are similar to gambling addiction. When we get dragged into the Ponzi scheme or another scam, we try to convince ourselves about the good sides of our investment. We assure ourselves that our money is well invested, and all voices of reason are just false accusations. Moreover, even if the said project comes out as a scam, we will be looking for new ones to recoup lost money quickly. It is therefore important to raise awareness of this issue.

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