Late 2017 was a popular time for ICO’s to make their way onto the Crypto market. We saw a total of 235 registered ICO’s appear in just 2017, compared to 2016s 46. With that many flooding on to the market, it can be difficult to know which are scams and Ponzi schemes and so the Embily team has compiled a bunch of warning signs on ICO’s and scam projects to look out for, which will hopefully help you to protect your money.
Ponzi schemes and scams have been around forever in all sorts of different markets and fields. With the rise of crypto, it allows for scammers to hunt for new prey on a new playing field. And since blockchain and cryptocurrency are essentially still new technology in its infancy, many of the people using it are not fully aware of all the signs of a scam.
The biggest scam in recent crypto history is most likely BitConnect. A suspected Ponzi scheme in the past recently confirmed to be one by many.
BitConnect was founded in late 2015, according to their website; https://bitconnect.co/our-partners. But it was around early to mid-2017 when their lending program began to become popular and gain some attention. Their lending program allowed users to “lend” their Bitcoin to BitConnect, which then exchanges it to BitConnect Coins. They then invest and trade with the Bitcoin you gave to them and gave back an average return of 1% profit per day.
Even way back then, people were already calling BitConnect a scam and those that weren’t as direct and harsh did at least warn people intending to use BitConnect. Calling it a classic Ponzi scheme in a new crypto playground. So how can you decide it was a scam and what were the warning signs that a lot of people saw?
A screencap from H3H3’s video on BitConnect: https://youtu.be/EhL2OWXZ26s
What do they say they offer? How realistic does it sound?
Let’s start with what the project that you intend to invest in, actually offers. Let’s use BitConnect as an example: https://medium.com/@anesthesteve/BitConnect-explained-c68dd2daef2f
BitConnect will help you earn your profits ‘essentially’ without any risks. Averaging 1% profit back every day and you don’t need to do a thing and stating a 120% return per year is quite unrealistic. Just giv-sorry… ‘invest’ your Bitcoin and money and then wait for your returns. Anything that sounds too good to be true, it generally is.
And it isn’t just the crypto space that has this warning sign. Even with stocks, scam projects usually promise high returns based on very vague information. Because it’s a once in a lifetime opportunity, or we are changing the world. Just remember, very few things will net you large profits with little effort.
A strategy that is secret or too complex to explain.
Sometimes companies like this may state that they have a special strategy or some sort of awesome trading bot (Bitconnect said they had a super crypto trading bot) unless there is evidence of said strategy or bot then stay away.
How consistent are the returns?
Now that we know abnormally high returns is a red flag, another thing to check also is how consistent they are paying out customer returns. One thing to always remember is that all investment values have a tendency to go up and down and thus can affect the rate of returns.
You may have seen some of these go around already. The scammers will create a website or social media account that mimics an already existing and established projects website and/or account. For phish websites, once you log into them. They will have your login credentials on the real site. So always double check the site address to make sure you’re on the real website.
As for social media accounts, they may attempt scams such as these:
The Twitter handle: @blockchaiin has two i’s. So be sure to always double check the account name or the website. And always remember, if it’s too good to be true, then it usually isn’t.
How is it being marketed/promoted?
One sign of a scam can be seen how they market and/or promote their project. A lot of known Ponzi schemes and scams tend to advertise and push their marketing quite ‘aggressively’. Such as spamming their ad banners on numerous websites, sometimes even multiple banners on one webpage. Or perhaps they have a lot of video ads that pop up on websites you frequent.
Sometimes it isn’t as direct as an ad. Ponzi schemes are also known for othering very generous referral program rewards. This helps them bring in even more people, as it incentivises current users to refer and ‘recruit’. A lot of companies and projects rely on this as they prey on people’s FOMO (Fear of Missing Out), and urge on people to INVEST NOW.
Of course, BitConnect isn’t the only scam project out there. There are many scam ICO projects that seek to take your money. And as always, Emily urges our readers to do your own due diligence and know as much as possible before investing your own money into something and even when you do. Never put in more than you won’t miss.
If you’ve browsed the BitConnect subreddit lately, or even some of the other crypto subreddits. A lot of people have lost their entire life savings and even more, as they had also urged their friends and family to invest also.
If you’re just getting into Bitcoin and Cryptocurrencies and want to know where or how you should start, give this article a read: https://embily.com/getting-into-bitcoin-and-cryptocurrency-at-the-end-of-2017/
So as always, take care and protect your investments!
Citations and other links:
Some fast answers on Ponzi Schemes by the U.S. Securities and Exchange Commission:
Prodeum.IO, an ICO startup had just scammed their investors of millions of dollars. Their website currently only shows one word:
ICO runs away with $2.7m of Investor funds:
Crypto20 team helps to recover phished wallets:
H3H3s video on Bitconnect:
Image courtesy of MinnaSundberg, DeviantArt