History of Crypto Scams and How to Avoid Them

Just stepped in crypto-land? Find out the history of crypto scams to avoid present ones!

The world of crypto is sometimes, well, complicated. And that can lead to confusion when it comes to which sorts of tokens to buy, how to avoid getting scammed, and how to fully enjoy the financial freedom the space offers. So how do you navigate through this uncertainty, you might ask? Dive in as we get into it (including some wild crypto scams!) and more in this!

The reward – and responsibility – of financial freedom

Blockchain and cryptocurrencies have enabled individuals to enjoy complete financial freedom, free from entities owning and controlling their money – a problem centralized traditional currencies face. But, in the same way, that rights come with responsibility, this freedom comes with risk if one isn’t careful. With no middlemen nor financial advisors in the space, some projects might look enticing – but they could be of the “too good to be true” ilk. 

This means, unfortunately, that those new to the space might be exposed to the risks without even knowing it and might fall prey to the schemes and the scams. Luckily, with careful consideration and keeping an eye out for red flags, the risks can be mitigated. One can learn from the past to safeguard the present. 

A snapshot of a couple of historical crypto scams

Throughout the short lifespan of the industry, there have been a couple of projects to hit the headlines for the outrageous swindling. Ponzi schemes, celebrity endorsement, get-rich-quick tricks. They’ve all hit the market and subsequently hit the bank accounts of vulnerable investors, becoming flagship crypto scams.

The OneCoin scandal

She called herself the “Cryptoqueen” and she somehow managed to swindle billions – and then disappeared into thin air. 

Back in 2014, a business woman called Ruja Ignatova launched OneCoin and hailed it as a competitor to Bitcoin. She touted the token’s price and promised massive financial rewards to investors. Unlike other cryptocurrencies, though, OneCoin wasn’t actively traded and couldn’t be used to purchase anything. 

There was no other use for the cryptocurrency other than “investment” for the massive profit. The company also sold educational materials like “courses on cryptocurrencies” but the model was a massive multi-level marketing scheme, where those buying the course material were rewarded for involving more people to the project. 

With the pyramid scheme model and the sales tactic driven by her charisma, Ignatova made billions. According to her brother (he was also a part of the scheme and is US custody for his involvement), she took in more than $500 million and used her riches to buy mansions (yes, plural), a yacht and a string of luxury cars. With the massive amounts of money flowing in (to her pocket), the project gained federal attention and investigations were launched.

After regulators blacklisted the company and banks caught wind of the immense scale of the scheme, a warrant was put out for the arrest of the ‘Cryptoqueen’. After the warrant was filed, she disappeared and she has yet to reappear.

The Bitconnect scam

In 2016, a platform launched that offered investment trading through automatic bots. It touted itself as a “lending platform” that promised investors high returns on automatic trades made by bots (spoiler, it was one of the biggest crypto scams in history). Despite the multilevel marketing structure (yep, it does scream “Ponzi scheme”) and absurdly high payouts, the token behind the project seemed to be performing well in 2018 – as a result of paid promotion from celebrities to recruit new investors. 

Including the very, very excitable investor who gave the audience one of the most exuberant testimonials to grace the internet. The scene from the project’s one and only ‘annual’ event quickly went viral (with good reason) and landed itself as one of crypto’s more meme-worthy presentations. Give it a watch and trust us, it’s well worth waiting to the end.

The project raised the eyebrows of critics and experts. In 2017, banks and regulators dove into investigations. After Bitconnect failed to prove its legitimacy, the platform folded, the value of the token plummeted and investors lost plenty. 

Common threads between the two

Both crypto scams have been investigated – and confirmed – illegitimate projects by regulators and the crypto-community and there are similarities between the two that offer insightful information for investors:

• Neither project was able to offer more than financial reward. There was no basis of technology functional or anything that the project could offer beyond profit.
• Both relied on aggressive marketing, charismatic sales tactics and rhetoric to pump the value of the token.
• The use of multi-level marketing tricks to entice new investors to encourage family and friends to join and invest too.

Check (for) yourself before you wreck (it for) yourself 

One of the main problems that often leads new investors to the traps set by scammers is just a lack of clear understanding of the industry – which is perfectly reasonable when entering a new market. This is especially true when there’s greed that runs rampant in anything that involves money. The fact that there isn’t always a great deal of guidance and orientation from industry leaders doesn’t help too much either. 

But that doesn’t mean that you’re destined to face a scam if you’re dipping your toes into the industry for the first time. Just make sure you give yourself the best chance at making sound decisions with clear, critical thinking rather than simply following something that looks “good”. We’ve got some quick tips below will help you on your way.

Get the facts before you give the funds 

You might have heard the golden rule when it comes to cryptocurrency: “DYOR” – do your own research. Before putting any funds into a project, do a deep dig into the background of the project, the founders and take a look at the token allocation and whether there is any interest and trust from the community and investors backing the project. Also give thorough consideration about how realistic the roadmap is. If the project doesn’t take its future seriously, then neither should you.

If it sounds too good to be true, it probably is

If something sounds like it is promising unreasonably high profits or unrealistic opportunities, chances are that the project is only worth scepticism. 

This is especially true if the project has little information listed. If you can’t find anything that backs up the claims – whether it’s reviews or content from external sources – approach with caution. It’s not a bad idea to go a step further by checking external audits thoroughly and verifying authenticity.

Recognize the crypto scam signs and keep a beady eye on trust-signals

There are a couple of tell-tale signs that something might not be legitimate. Be aware of the following red flags:

• The blockchain project seems more focused on marketing itself than on building the tech. Profit instead of progress as a key focus is cause for caution. 
• There’s more discussion around the price of the project’s token, rather than any practical use case. If the project doesn’t outline the utility and function it can offer and only discusses value, its future might not be sound.
• If the narrative of the project is emotionally driven – especially if there’s urgency laced in (“buy now!”) – and only appeals to how you can profit from it, it’s an indication of greed rather than need.

Cryptocurrency approach – learning from the past to profit in the future

Looking ahead, the more adoption the industry receives, the more we’ll see malicious projects pop up trying to take advantage of those new to the market. But with the right sort of information, a critical approach, and an awareness that an organization might not be all it seems, there’s so much potential in the cryptocurrency industry to be excited about. The future of the industry is in our hands, and the right decisions could lead to some pretty remarkable things.

So just remember: Go in with vigilance and come out with a victory. 

Knowledge is power

*Please note this article is for educational purposes and does not constitute any type of investment advice.