There are many ways in which cryptocurrency have changed how transactions are completed and most of these are for the better. However, interspersed with monumental leaps forward in financial technology, there have been more than a few scams along the way.
Both investors and ordinary consumers have demonstrated a great deal of interest in the various applications of blockchain technology, but it’s cryptocurrency that has been the most well-known of these for the last several years. This has resulted in unscrupulous individuals setting up ICOs (initial coin offerings) with the intention of fleecing investors instead of following through on their many promises.
The following are several notable cryptocurrency scams and stunts:
Perhaps one of the most well known ICO scams is that perpetuated by the founders of OneCoin. Following its failure and having been labeled a “clear ponzi scheme” in India in July 2017, the individuals behind the OneCoin ICO were also fined €2.5 mln by Italian authorities. Given that OneCoin doesn’t have a legitimate decentralized cryptocurrency or public ledgers, numerous industry experts cautioned investors about the operation. Although the company claimed to have been officially licensed in Vietnam, it was refuted by the country’s government, and numerous governments issued warnings about investing in the company.
There are a few reasons why OneCoin was initially considered a potentially good investment, and that has to do with the features it promised. The company’s stated mission is to sell packages of educational materials and facilitate the trading of tokens which are supposed to be able to “mine” OneCoin. In spite of the things it promised to users and investors, OneCoin had no actual plans to utilize the educational packages and was focused instead on cryptocurrency, investing, and utilized plagiarized content while claiming to “fix” issues Bitcoin has experienced in spite of being centralized and closed-source, both of which are not compatible with their supposed mission statement of being “transparent.”
Schemes such as this often wild claims based on being able to solve problems that nobody else in an industry has been able to, while providing little in the way of actual evidence, and OneCoin is far from the only cryptocurrency Ponzi scheme which has been uncovered.
After raising $50 million in direct and ICO funding, Savedroid’s founder, Dr. Yassin Hankr informed investors that the company was exiting with the message “Over and out.” The stated goal of Savedroid was to develop a crypto-backed credit card and use AI to manage user investments, which is a claim that many crypto companies have made, and been unable to deliver on. But, as it turns out, Savedroid used all of this as a PR stunt in order to bring attention to the various risks involved in cryptocurrency and ICOs — but this may have backfired on them as the community is now far less likely to trust anything they say and ultimately it remains to be seen if they can recover and produce any of the results they promised.
Bitconnect is another company which promised huge returns on investments to users who purchased Bitconnect’s own token with Bitcoin and then traded it to other members of the network. But it was shut down after receiving a cease and desist letter from American financial regulators. While some investors were wary given the high rate of return promised by the company, it was the lending program which raised the most concerns.
The lending setup operated through the purchase of BCC with Bitcoin, which was then lent out on Bitconnect’s lending software. Users received a variable percentage interest depending on how much BCC they lent out. Combined with the referral system that can be found in many other Ponzi schemes and the fact that the entire operation was run anonymously, it’s not a surprise that this company was a scam, but even so, it’s estimated that users lost at least $700,000, which some of them have filed a class action lawsuit to recover.
While all of these cryptocurrency scams are worrisome, they are not an indication that the entire industry has insurmountable problems, rather it falls on investors to do their due diligence before putting any money in a new cryptocurrency company.
To that end, there are a few warning signs that one should watch out for before signing up to be an investor in a new type of cryptocurrency or token.
The most obvious that is if a government says a cryptocurrency is a Ponzi or pyramid scheme, you shouldn’t dismiss the claims and instead, do your research and hold off on investing until such time as these claims can be proven to be false. Secondly, any company that promises you a complete return on your investments immediately or a large commission for signing other users up should be viewed as being potentially problematic. Finally, investing in cryptocurrencies can be very lucrative, but it’s essential that you investigate all claims, and exercise some common sense — if it seems too good to be true, better to steer clear and save your money.
