Cryptocurrency is an internet-based medium of exchange that utilises cryptographic functions in order to facilitate financial transactions. While it is an amazing discovery and innovation in the online market, there are still some glaring downsides to it. One of them is that cryptocurrency scams are more common than we would like to believe. A lot of people are falling prey to cryptocurrency scams, with the numbers hitting a whopping US$1.7 billion in 2018.
There are various types of cryptocurrency frauds online, but they have one thing in common: they are all seasoned, tried-and-tested Ponzi schemes. These are usually marked by the scams using the income from new participants or members in order to pay out profit for the prior investors.
If you haven’t really heard of cryptocurrency scams before and you do not know just what you should be looking for when dealing with businesses online, then you are at the right place. We are here to get you the low-down as to how they actually work.
One of the reasons why people fall into crypto scams is because fast-talking swindlers reel them in with big, tempting promises. Most of the cryptocurrency scammers are experts at feeding the greed of people with “testimonials” and promising big returns.
Ponzi schemes rely on referral and recruits. The way it works is an unsuspecting person invests in the scheme, expecting to read big fruits in a couple of weeks, and while they are waiting they share their referral codes which reel in more people. These scams rarely, if never, make actual profit from investments. The money that they receive individually is a percentage of the referrals they make.
Since it is mostly reliant on social media, some members truly put in the work to bring in more members and money. They cultivate online personas that will get the interest of people to join. Most of these posts are flashy ones that show off wealth or items that they bought by being a part of the scheme.
Initial Coin Offerings
One of the other common scam techniques is what we call the “initial coin offering”. Essentially, the way this works is that potential customers are promised discounts on new crypto coins. Cryptocurrency companies usually use this method in order to build up a fund for their future users.
Even if it can be an actual investment venture, most of the initial coin offerings end up as scams. The organisers go so far as to create elaborate plans, rent fake offices, and produce curated marketing materials in order to pass off as a legitimate business.
Capitalising on friends and family
The cryptocurrency, once started, stays afloat through the internet. The reality is that not everyone online is on guard about what they see. It is very easy to get fooled by cryptocurrency schemes if you do not know the telltale signs to look for. This is why the friends and family of existing members are usually the target market of these schemes.
Even relative experts can become victims of scams like this. They have evolved so much to the point that they look and sound like legitimate businesses, but are actually not.
In an unfamiliar territory like the cryptocurrency market, you should always make sure that your potential investment is credible. After all, it is your money that you’re going to be investing so you will need to ensure that it goes to a credible place. Don’t be afraid to ask questions as to how they actually plan to make money, and how they can do so without defrauding others!