Sheer novelty and high promise of blockchain technologies draws a wide curious audience. But, paradoxically, the burgeoning blockchain space is already ripe with fraud.
We at Finrazor are strongly committed to equip you, our readers, with the necessary knowledge and to urge you to exercise utmost caution when navigating through the space, which can at times be most challenging and testing. Here we list and explain the most common types of scams that you, as a crypto-enthusiast, should be aware of.
Named after a famous сon artist, a Ponzi scheme is a form of fraud which generates returns for earlier investors by luring in new unsuspecting investors. A Ponzi scheme is promoted as an investment with minimal risks and high, often guaranteed, returns. Ponzi schemes in the blockchain industry usually involve bitcoin high-yield investment programs, multi-level marketing, and fake cloud mining services. Some of the most notorious Ponzi schemes in the space include BitConnect, Bitpetite, Bitcoin Savings and Trust, Gawminer, Zenminer and more.
An ICO, or Initial Coin Offering, is an innovative way of raising capital by issuing and selling digital tokens, which will appreciate in time, should the venture prove successful. Such promising projects as Ethereum, EOS, Filecoin, NEO, and others all received funding as the result of their ICO campaigns. However, due to the ease of execution and the general public’s inobservance, there are a lot of fake ICOs in the scene. An ICO scam is a scheme whereby a purported blockchain startup attracts funding by talking up the value of its allegedly upcoming product. As soon as the campaign ends, fraudsters behind the startup run away with investor money never to deliver on their promises. Common examples of ICO scams include OneCoin, PlexCoin, and, however amusing it sound, PonziCoin.
Pump & Dump
Pump and Dump is a form of manipulative practice on the cryptocurrencies market. A pump-and-dump is a scheme where a group of fraudsters artificially drive up (pump) the price of a minor cryptocurrency or a token and then sell them (dump). They raise the value of an asset by buying out a large chunk of coins and promoting the asset on social media. In response to a sudden interest in the coin, its price goes up. This is when the manipulators sell their holdings. And, according to the Law of Supply and Demand, the price plunges, and those who were tricked into buying the coins are left with negative returns.
Phishing is a trick used to get a person’s essential information such as usernames, passwords, credit card details, and — in the context of cryptocurrencies — private keys. Phishing can take many forms such as fake websites, wallets, exchanges, or impersonations. Whenever you use a website, you should always check whether the URL is correct and has a lock symbol beside it. Fraudsters often fake websites by masquerading them as popular exchanges and wallets to trick people into signing in and giving up their private keys. Others may impersonate well-known people by copying their names and profile photos — just take a look at the replies under a Vitalik Buterin’s tweet, where a bunch of fake accounts are ‘giving away’ ethers.
We emphasize the importance of research and diligence and remind our readers to keep a vigilant eye on companies you decide to invest it.