One of the biggest problems in the crypto and blockchain industry preventing mass investment today are rampant scams. These scams entice investors with false promises of “getting rich quick”, tricking investors to give up passwords, credentials, and seed phrases, and use other nefarious methods for profit.
Table of Contents
What are some of the most common crypto scams?
Pump and Dump
Phishing
Ponzi and Pyramid Schemes
ICO Scams
Rug Pulls
Pump and Dump
Pump and dump scams are coordinated crypto market manipulations that attempt to boost the price of a crypto through misleading recommendations. These recommendations are typically based on false, misleading, or greatly exaggerated statements. The perpetrators of a pump-and-dump scheme have a pre-established position in the crypto and sell their positions after the hype has led to a higher coin price.
Pump and Dump Example
Dogecoin (DOGE) – Cryptocurrency with no special use cases, utilities, or features. No limit on how many coins can be created, celebrity endorsements, internet memes, and hype about prices skyrocketing. In early 2021 DOGE quickly became a top 10 crypto, prices surged from less than 1 cent, peaking at $0.73 before tanking (dumping) below $0.20.
Rug Pull
A rug pull is a fraud scheme that tricks people into investing money in a fraudulent crypto product then the project developers abandon the project, taking their investors’ money, and leaving little to no trace. Typically, these types of scams offer an “incredible deal” or promise unusually high returns on investment.
Rug Pull Examples
In April 22, 2021, THODEX was the largest rug pull to date. More than $2 billion dollars in crypto assets stolen from 390,000 active traders and investors.
Another example, on March 3, 2021, Meerkat Finance was launched on the Binance smart chain, stole about $31 million worth of investor funds which were transferred to multiple new addresses.
Lastly but certainly not the least, on November 1, 2021, the developers abruptly rugged the SQUID Game token, causing the price of the token to drop from $2,860 to effectively $0 in a little over 5 minutes. $3.38 million dollars were swindled from investors.
Ponzi and Pyramid Schemes
Pyramid schemes and Ponzi schemes promise extraordinary returns in exchange for an up-front investment. Ponzi and pyramid schemes are self-sustaining as long as cash outflows can be matched by monetary inflows. Current investors returns are typically paid for with the incoming funds contributed by later investors.
Ponzi and Pyramid Examples
The biggest financial pyramid in the history of crypto accumulated nearly $4 billion, swindling 3 million investors. OneCoin was not listed on any cryptocurrency exchange, all coins were locked unable to be exchanged for crypto, cashed out to fiat currency, or withdrawn from the OneCoin platform to external wallets.
The main selling point of Mirror Trading International (MTI) was a daily profit of 0.5% – 1.5% in BTC, (500% annual ROI). The Mirror Trading International was taken down at the end of 2020 when its CEO, Johann Steynberg, fled to Brazil with investors’ money, approximately 23 thousand Bitcoin. It was estimated that MIT had accumulated nearly $600 million from 471 thousand registered accounts before it collapsed.
Phishing
Phishing utilizes various methods attempting to gain user credentials, login passwords, personal information, or private keys in order to steal Bitcoin or other crypto.
Methods of Phishing
Text Message
Social Media
Phone Calls
Fraudulent Websites
Malicious Software
Examples of Phishing
Text messages attempting to collect crypto exchange username and password.
Emails about Cold Wallet vulnerabilities attempting to gain PIN codes or private keys.
ICO Scams (Initial Coin Offering)
An initial coin offering (ICO) is the cryptocurrency industry’s equivalent to an initial public offering (IPO). A company looking to raise money to create a new coin, app, or service launches an ICO to raise funds.
Interested investors can buy into the offering and receive a new cryptocurrency token issued by the company. This token may have some utility in using the product or service the company is offering, or it may just represent a stake in the company or project. ICO investors become targets of sneaky schemes due to lack of regulations, these are called ICO Scams.
ICO Scam Examples
Bitcoiin – The project raised $75 million (claimed) from investors. Steven Seagal as the celebrity brand ambassador. The fact that this project just added an “i” to Bitcoin in its name should already raise huge red flags.
iFan and Pincoin – Scammed $660 million from ICO investors.
Thanks for reading, stay tuned for the second part to this crypto scams article soon.
-Wesley
Resources
- https://markets.businessinsider.com/news/stocks/dogecoin-a-victim-of-pump-and-dump-scheme-by-elon-musk-says-analyst-1030522149
- https://www.coingecko.com/en/coins/dogecoin
- https://www.investopedia.com/terms/p/pumpanddump.asp
- https://en.wikipedia.org/wiki/Dogecoin
- https://coinmarketcap.com/alexandria/glossary/rug-pull
- https://www.coindesk.com/markets/2021/12/17/defi-rug-pull-scams-pulled-in-28b-this-year-chainalysis/
- https://decrypt.co/60242/binance-chain-defi-meerkat-finance-hack-rug-pull
- https://www.washingtonpost.com/world/2021/11/02/squid-game-crypto-rug-pull/
- https://www.investopedia.com/insights/what-is-a-pyramid-scheme/
- https://www.investor.gov/protect-your-investments/fraud/types-fraud/ponzi-scheme
- https://www.investopedia.com/terms/o/onecoin.asp
- https://qz.com/africa/2060593/inside-mti-and-africrypts-bitcoin-scandals/
- https://en.wikipedia.org/wiki/Phishing
- https://consumer.ftc.gov/articles/what-know-about-cryptocurrency-and-scams
- https://help.coinbase.com/en/coinbase/privacy-and-security/avoiding-phishing-and-scams/what-is-phishing
- https://www.investopedia.com/tech/how-identify-cryptocurrency-and-ico-scams/
- https://cointelegraph.com/news/sec-charges-promoters-of-steven-seagal-spruiked-ico-from-2018
- https://www.investopedia.com/terms/i/initial-coin-offering-ico.asp
- https://www.cryptoground.com/a/660-million-pincoin-ifan-ico-fraud-vietnam