Crypto trading scams

Crypto trading scams

Every good cause in the world can be flipped for evil. The world has witnessed gruesome murders on the basis of religion, humans have been left impoverished because of politics and an entire nation could easily be wiped out because dynamites — which were invented to aid constructions — have morphed into atomic and hydrogen bombs. Cryptocurrency is not left out in this abuse of purpose.

Since the advent of Bitcoin and other cryptocurrencies, conmen have capitalized on its autonomy and confidentiality to perpetrate huge financial crimes. These scams have fleeced thousands of people of their wealth, and unfortunately, these investments cannot be recovered even when the perpetrators are apprehended. For instance, between 2014 and 2017, RujaIgnatova who called herself “Cryptoqueen” defrauded thousands of people across the world with a fake cryptocurrency called “OneCoin” — which she tagged “Bitcoin Killer”. It is said that she made about €4 billion from that scam, and disappeared without a trace till today.

It is easy for people to fall for crypto scams because it is no longer news that cryptocurrency is the future of money. Thus, many are quick to cling to any scheme that offers them the opportunity to investment in the cryptocurrency market both in the long-term and short-term. Over the years, crypto scams have taken diverse forms — from malware to Ponzi schemes to investment scams.

1. Malware

From Wabbit and White Trojan to Zeus Trojan and WannaCry, malwares have terrorized the internet for decades. They have been designed to decrease the performance of computers, steal credit card and other banking information, slow down internet speed, and infiltrate government records and programs. With cryptocurrency, Black hat hackers now have a new weapon in their malicious armory.

Recently, cryptocurrency users were warned of a malware called CryptoCurrency Clipboard Hijackers that monitors cryptocurrency addresses through the Windows clipboard and swaps them with addresses they control. reported that this malware currently manages 2.3 million Bitcoin addresses.

WannaCry (described by wired.comas “the worst cyberattack the world had ever seen” and which was single-handedly stopped by Marcus Hutchins) also had a cryptocurrency undertone. WannaCry encrypted files across different networks and demanded a $300 Bitcoin payment to unlock these files.

Another form of cryptocurrency malware is cryptojacking. Here, the criminal uses the computer of another to mine cryptocurrency. The scammers do this either by: (1) making victims click a malicious link in an email that loads a cryptomining code, or (2) infecting a website or online ad with a Javascript code that loads and automatically executes in the browser of the victim. Cryptojacking is said to be less malicious than other forms of malware. The victim’s data and computer are neither stolen nor damaged. However, it slows the performance of the affected computers. In cases where affected individuals or organizations are unaware of the cause of the slow performance, they may decide to replace computer components, thus incurring additional costs.

Cryptocurrency users may not bear the consequence of cryptojacking directly, however, it takes away mining rewards from legitimate miners and puts it in the hands of criminals. Legitimate miners already have to cope with Bitcoin halving that reduces their mining reward every four years. Cryptojacking further puts them in a disadvantaged position.

2. Fake Cryptocurrency Exchanges

Cryptocurrency exchanges offer crypto traders a platform to trade Bitcoins and altcoins,Bitcoins and fiat, or Bitcoins and tether. Popular exchanges include Binance, Coinbase Pro, Bitmex,Bittrex, Kraken, and Indodax. But there are fake exchanges who front as genuine platforms for cryptocurrency trade. One of such exchanges is BitKRX.

BitKRX was a South Korean fake exchange that affiliated itself to a real exchange, Korean Exchange (KRX). Aside claiming to be a branch of KRX, it also fronted as a creation of Korean Securities Dealers Automated Quotations (KOSDAQ), South Korean Futures Exchange and South Korean Stock Exchange. Thankfully, the scam was uncovered in 2017.

3. Pump and Dump

One of the first lessons a crypto trader would learn is to be wary of coins that increase rapidly in value over a short time. Most of the time, this rise is created artificially. Coins on an exchange mainly increase in value due to trends or strong fundamental analysis such as a company news. However, there are certain traders or investors who hold cheap coins whose value may not increase in the near future, so they use platforms such websites, blogs and social media pages to create fake news and “pump” the price of a coin. Naïve traders buy this coin, thinking it has true potentials. When the coin finally hits a particular value, the original investors “dump” this coin, and the value plummets at once. The naïve investors are left with a cheap coin, while the tricksters have cashed out.

4. Ponzi Schemes

Ponzi schemes are like a bad stain that would never go away. They always recur, taking different forms. A major reason why Ponzi schemes thrive is that they present as opportunities that offer financial liberation. Now when this is combined with the potentials that cryptocurrency offers, it becomes even easier for these schemes to ensnare its victims.

MiningMax was another crypto scam that sprung out of South Korea. The site promised its clients a daily ROI for a two-year period after making an initial investment of $3,200. It also gave clients a $200 commissions for every investor referred. MiningMax had about 18,000 clients from over 54 countries. Majority of its investors (about 14,000) were from its native country, South Korea; 2,600 were from the United States; 600 from China; while the rest were from Japan and other countries.

The flaw in the scheme became visible when the mining activities couldn’t pay the investors in the lower tier. High-level investors weren’t affected because they were paid using the investments of the low-level clients — a typical Ponzi strategy. revealed that investors were scammed out of about $250 million, split in the following proportions: $80 million on mining hardware, $110 million in offshore accounts, while the rest were payments to high-level investors and management. However, the scam was exposed in 2017 and several arrests were made. But the chairman, vice chairman and high-level investors went into hiding and were placed on Interpol’s wanted list.

5. Fake cryptocurrency

The world has seen Bitcoin increase from $13 in 2012 to $8,772 as at the time of writing. It has also seen the rise of Ethereum from $2 in 2015 to $203.70 as at the time of writing. These two currencies instill three thoughts in the minds of people: one, cryptocurrencies have the potential to be lucrative long-term investments; two, it may be already too late to invest in Bitcoin or Ethereum especially as a person who is in the middle or lower economic class; and three, the best way to invest in cryptocurrency is to spot a new coin and invest in it when it is still cheap. These thoughts are not only in the minds of innocent folks who want to leverage the world of cryptocurrency to gain wealth, they are also in the minds of crypto scammers who capitalize on these thoughts to introduce fake cryptocurrencies into the market. One of such coins is My Big Coin.

My Big Coin (MBC) was created in 2013 and posed as a currency with massive potentials: it was structured similarly to Bitcoin and had a limited number of 30 million coins, there was My Big Coin Pay which utilized ATMs and credit cards, and an announcement of a partnership with a company which would tether MBC coins to gold. It also claimed that it was actively traded across various exchanges and even had a partnership with MasterCard. There were continuous announcements of its increasing value on their Twitter platform — $23.17 in January 21, 2014, $52.88 in March 6, 2014, and $121.38  by November of same year. But in early 2018, it was discovered that MBC was another crypto scam — a bogus coin and a Ponzi scheme. It defrauded its clients of over $6 million. Fortunately, the culprits were apprehended and sued by the U.S. Commodity Futures Trading Commission in January 2018.

6. Fake ICOs

Most times, creators of fake coins use initial coin offerings (ICOs) to defraud individuals. These companies get victims to invest either by fronting as legitimate cryptocurrency companies, or using fake websites with faulty wallets.

Centra Tech was one of such ICOs and even had celebrity backing from DJ Khaled. The fake ICO garnered a total of $32 million before it was exposed in April 2018. DJ Khaled isn’t the only celebrity that has backed a fake ICO; other guilty celebrities are Paris Hilton (for LydianCoin), Floyd Mayweather(for Centra and Hubii) and Steven Seagal (for Bitcoiin). As a result of celebrity involvements in crypto scams, the U. S. Securities and Exchange Commission in 2017 issued a public warning about faux ICOs and investment opportunities which are backed by a crop of celebrities.

However, it is important to note that these celebrities may be innocent just like everyone else. For instance, celebrities like Imogen Heap, Paris Hilton and Mayweather had genuine interests in the world of blockchain and cryptocurrency until they realized that they were only used as a poster child to sell a crypto scam.

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