Learn how to spot new cryptocurrency swindles: Internet Scambusters #817
Cryptocurrency investment is the next big money-making opportunity — or so we’re told.
But plowing your cash into this digital currency market is fraught with dangers, notably the risk of being badly burnt in a fraudulent initial coin offering (ICO).
In this week’s issue, we explain a little about what cryptocurrencies are and the telltale signs of an ICO scam.
Now, here we go…
Cryptocurrency Scammers Trade on Investor Ignorance
If you’re an investor with an eye for novel money-making opportunities, you may have considered buying into a cryptocurrency.
Plenty of people may have heard of cryptocurrencies — Bitcoin is the best known — but not a lot know what they are or how they work.
Which, of course, is one of the reasons why some investors want to get into them — before everyone else does.
We don’t have space to explain everything you need to know about them but here are the basics.
What is a Cryptocurrency?
A cryptocurrency, cybercurrency, or digital currency (they all mean more or less the same) is simply a way of transferring value from one person or organization to another, in a similar way to dollar bills.
And like dollar bills, most cybercurrencies are only worth what people believe they’re worth.
In the old days, dollar bills used to be backed by gold held by the U.S. Federal Reserve but that’s not the case any longer. So, in one sense the bill is only worth the cost of the paper it’s printed on.
But because everyone accepts that it represents a dollar’s worth of value, we can use them to exchange for things we want or need.
Many cryptocurrencies work in a similar way, except that they’re numbers in a ledger rather than paper notes.
They’re worth whatever people are prepared to exchange them for. A few are backed by other things of value, like computing time or commodities, but let’s not get too complicated here.
However, the important difference between dollars and digital currencies is that dollars are subject to control by governments and banking authorities. Cryptocurrencies have built-in security, but they are not controlled by any central authority, leaving them open to potential manipulation and abuse by scammers.
People buy and sell cryptocurrencies in a number of ways, but the main methods are through cybercurrency exchanges, market-traded funds similar to mutual funds, and through new issues known as initial coin offerings (ICOs).
It’s ICOs we want to focus on because they’re far and away the biggest sources of scams, which already run into hundreds of millions of dollars globally.
There are already thousands of cryptocurrencies, each differing from the others in some way. Prices are usually very volatile, with investors trying to judge timing so they get in when prices are at their lowest and out at the top.
This makes new ICOs attractive to speculators and experienced investors. However, they’ve also drawn in inexperienced investors who hoped to make a quick killing but, instead, have lost millions either by misjudging the market or through ICO scams.
The basic scam process is fairly simple. An individual or organization announces the launch of a new cryptocurrency. They back it up with various types of documentation explaining how it will work and promising big returns.
Investors pour into the ICO, and then the perpetrators disappear with the cash.
In other, more sophisticated, frauds, the founders of a new cryptocurrency fail to tell the full story about their plans and their own ownership of the new “coin” or token. They actually keep a lot of it for themselves (never having actually bought it) and then sell as soon as they can.
Other variations follow the model of a Ponzi scheme in which some investors receive a return on their investment paid from new money that comes in from later investors who get their fingers burnt.
A recent article on Wired magazine’s website noted: “The cryptocurrency market is ripe for scammers because it’s relatively new, backed by tons of hype, and involves complicated technology.
“It’s easier to dupe someone into investing in your ICO in 2018 than your fake real estate business — and plenty of people have.
“A cryptocurrency startup only needs a swanky website and an official-looking white paper. There are also plenty of services to help streamline the process: You can automate your … sale or have someone write fake news articles hyping up your venture.”
How to Avoid an ICO Scam
Often, the best way of spotting an ICO scam lies in what the launchers don’t say rather than what they do.
If the issuer doesn’t produce a synopsis, the White Paper referred to above, you can forget it.
If they do issue one, this should outline long-term plans with a timetable, identify the names of the people behind it (which you can then check out), and provide proof of an impending listing on official ICO registries.
As with other scams, you should also be on the lookout for get-rich-quick promises (a real no-no).
Having said all of this, your best approach to ICO investment is to seek the advice of a qualified financial professional. When we say “qualified,” we mean someone who knows and understands the cryptocurrency market.
No doubt, as the cryptocurrency world booms in the coming years, there will be genuine opportunities to achieve a good return on your investment. But there will also be an equally big chance of getting ripped off in a cryptocurrency scam. Take care!
Alert of the Week
If you’re a photographer or have friends in the photographic biz, be on the alert for the latest advance fee scam that targets this sector.
In recent incidents, photographers have received inquiries and, subsequently, bookings to cover major events like big weddings.
The scammer sends a check, usually for the full price quoted by the photographer, and then a couple of days later, says the event has been cancelled and that he needs the money back urgently.
The only way to do this, he says, is to wire the money to him — that is, before the bank notifies the photographer the check is a dud.
Never wire money in refund or partial refund of a recently received check. It’s always a scam.
That’s it for today — we hope you enjoy your week!