Haydn Franklin, Tuesday 10th September 2019, 8:51 AM CEST
Cryptocurrency Scams

The Scams of Cryptocurrency

There have been countless scams relating to cryptocurrency for more than a decade, but none have been more prevalent than the exit scam. This scam became popular amongst hackers when the market space began to grow a few years ago. Most didn’t recognize the telltale signs of fraudulent behaviour, as these hackers would provide a fake initial coin offering or began a fundraising campaign. After the scammers acquired funds, they’d disappear without any trace of their prior activities.

One of the most significant cases of this behaviour was with Confido back in 2017. Acting as a cryptocurrency startup, they began a funding campaign, looking for numerous investors. After finding backers, they acquired more than $175,000.00 in funds. In 24 hours, all traces of the cryptocurrency startup were deleted from online records. The firm went from a $6 Million Valuation to $70,000.00 in several days after disappearing. Since Confido’s disappearance, they haven’t returned to the market space.

Additionally, cases of this behaviour include OneCoin and BitConnect. $3 Billion was collected from uninformed investors through BitConnect, by offering a unique AltCoin that’d never been seen before. When this firm was conducting the scam, they ranked in the top-ten operational firms of 2018.

Investors or retail clients should do extensive research on exchanges before registering. You never know when the next cryptocurrency firm will begin an exit scam, where they collect substantial funds and then leave the market without any repercussions. The best way to inform yourself on which firms are reliable and which are fake is by actively researching the licenses that are maintained by the exchange. Additionally, locate their social media accounts and view their recent activity. The way an exchange engages with the media and public displays an incredible deal about their internal operations. Finally, always be aware of the output of trades on the exchange. When the production begins to decrease significantly, it most likely means that the cryptocurrency firm is about to shut their doors through an exit scam.

The CEO and Founder of Crypto Jungle, Ben Samocha, stated: “You can never know when it’s truly about to happen. For example, with BitConnect if I had to bet, I would’ve said they should’ve exit-scammed way before the time they did.”


BitConnect at one point in time was the talk of the town in the cryptocurrency market space. However, things turned around, and the exchange was revealed to be a scam. There were cryptocurrency leaders that warned clients and investors that BitConnect shouldn’t be trusted, such as VitalikButerin. He suggested immediately that the overwhelming project was most likely a Ponzi Scheme. In January 2018, it would be revealed that Buterin was correct about his estimations. Without any notice, BitConnect shut down their doors, and the leaders of the exchange disappeared without a trace. The valuation of the company dropped from $2.7 billion down to $17 Million in less than a week due to the immediate shutdown.

Ben Samocha’s comments continued with, “Conduct proper due diligence, do not believe unsustainable false promises such as 6%+ profits guaranteed, look for the fundamentals and the proofs: they claim to have a partnership? Ask for transparency, approach the partner and verify it, etc. Besides, take extra care for MLM models that have several layers of profits (meaning, you gain commissions not from the people you recruit, but from their recruits as well).”

The Red Flags

The Idea of an Exit Scam isn’t challenging to understand. First, a former or new company will propose a new initial coin offering to clients. This ICO is then used to collect large sums of cash by promising a unique concept to investors. Organizers of the scam will then begin to output the initial coin offering on their lucrative exchange, which means their beginning to funnel money. Eventually, all funds are funnelled from the platform to an offshore banking account. Typically, the organizers will default to a country with weak legislation on finances. There are multiple red flags that investors and retail clients should know to avoid losing their invested funds.

  • White Paper: This term pertains to scammers that maintain white papers. These papers are typically poorly built and resemble another exchange operating in the marketspace. The white papers contain full sections that have been copied from other firms, except for having additional grammatical errors. These grammar errors are a telltale red flag for investors.
  • Profit Projections: Another telltale sign for retail clients is if this initial coin offering is projecting unrealistic or bold returns on investors. An example of this is BitConnect, who promised their investors that they’d receive a 1% revenue stream daily. This meant that a $1,000.00 investment would turn into $50 million in three years. This is an unsubstantiated claim that could never pan out.
  • Operational Evidence: Retail clients registering with a new exchange to jump on an initial coin offering should research the tangible details about the project. Any lack of key personnel, details on internal operations or represented investors indicates that the ICO is an exit scam. Additionally, reviewing social media posting indicates if likes and followers are genuine or purchased. Purchased followers/likes display a forced social media presence to increase popularity. Forced popularity and a lack of tangible details should prompt severe concerns among investors, with accounts immediately being shut down afterwards.
  • Unsubstantiated Product: Any new exchange that is managing a concept model that cannot work in the digital currency space isn’t viable. They’re creating an idea that cannot become a full product due to technological limits, jurisdictional legislation or governing bodies like the ESMA. Formidable partners in the industry should support ground-breaking concept models; without those partners, the ICO should be taken as a red flag and avoided thoroughly. Follow up with all prior suggestions to guarantee the ICO Project isn’t unsubstantiated.

What to Do?

Typically, most cryptocurrency scams have been centred around an initial coin offering. Most of the time, these cases are complex, revolving around years of scheming and illegal actions. Most exchanges illegally funnel small sums of money, instead of large amounts all at once like with Exit Scams. Most overlook the prolonged scam and focus on the exit scam, as that’s the one that faces dealing the most damage to investors. Luckily, there are leading executives in the cryptocurrency industry that are working to inform average consumers of the risk of these scams and what they can do to safeguard themselves.

One of these individuals is Robin Singh. Mr Singh owns the cryptocurrency profile and taxation program called Koinly, which he is used by hundreds of thousands of investors worldwide. Mr Singh stated: “As with all investments you need to do your due diligence when investing in a crypto product or company. Do you understand the product? Can you corroborate the numbers showcased by the promoters from independent sources? Is there any evidence of demand for the product? Is the team behind the product ‘real’? Most scam companies use fake LinkedIn accounts to avoid accountability, so it is always a good idea to validate their existence.”

Clients can enact the following strategies to avoid being affected by these exit scams. Those strategies include:

  • Clients need to check that the product is validated and have already gained traction.
  • Avoid investing in idea-only projects that use multiyear formats.
  • Determine which national authority regulates the new exchange and its initial coin offering.

The biggest thing to consider with these initial coin offerings is the founder’s history. Determine whether the founder has a proven track record, which can be accomplished through their LinkedIn profile. Most reliable ICO’s are managed by individuals who have 10+ years of experience in the digital currency space. Not only will these individuals have a LinkedIn Profile, but they’ll also maintain a Facebook and Twitter account. These accounts are used primarily by the founders to confirm their history in the industry. Any founder that doesn’t support these social media platforms or doesn’t have a proven track record should be considered shady.

The Founder and CEO for WazirX, Nischal Shetty, spoke about the state of cybersecurity for those affected by initial coin offerings. She stated: “Raising a complaint in your country’s cybercrime division is a good first step. Cyber crime teams can try to trace the location of such scamsters. Most times, if the scamsters are smart, then they’ll employ techniques that allow them to be completely anonymous or use a different identity. The best way to curb is to ensure there is enough public information about the founders. Founders with good social standing will not pull an exit scam, and even if they do, it’ll be easy for law enforcement to catch them.”

Author: Haydn Franklin

Hayden joined whichbroker.com in March 2019. He previously held positions at leading US facing financial news outlets. Hayden's focus is primarily Crypto and Forex news at whichbroker.com, however he is also whicbrokers long form content specialist leading him to write longer posts with an investigative angle. Hayden gradutated from the University of Chicago. Haydn Franklin can be contacted at [email protected], View all posts by Haydn Franklin

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