Scammers got smarter—so should you

3 min read

cryptocurrency-scamBy Serafima Aleksandrova, Aworker

2017 was a crazy year. One of the main highlights of the year was, of course, the hype around cryptocurrencies. The newest, unknown technology which can change the way our lives go every day created numerous next-gen startups and, thereafter, frauds and scam schemes. I’d like to tell that not every ICO is a scam, and many cryptocurrency startups are legitimate. However, the slightly regulated cryptocurrency investment landscape is filled with scammers.

The crypto market

As I mentioned earlier, 2017 was a year full of new opportunities for both honest entrepreneurs and fraudsters.

According to the CoinSchedule, there were more than 230 ICOs in 2017 which raised more than $3.7 Billion in total.

RELATED: What is an initial coin offering?

Cryptocurrency ICO Stats 2018 (credits:
ICOs by Category 2018 (credits:

The numbers are amazing. A third of all investments went to the Infrastructure, 10% to the Finance sector, and 5.5% to the Drugs & Healthcare. Sounds great, doesn’t it?

Not that much. Considering the fact that, according to a recent analysis from the accounting firm Ernst & Young, more than 10% of the $3.7 billion raised through ICOs has been lost or stolen in hacker attacks. Don’t forget about scammers who went with “Get money. Get lost” scheme.

The research also noted that the volume of ICOs has been slowing since late 2017. Less than 25 percent of ICOs reached their target in November, compared with 90 percent in June.

Recently Facebook announced in a blog post that it banned all cryptocurrency advertising from the platform. The company noted that ads for cryptocurrency investment opportunities, like ICOs, were “not currently operating in good faith.” Facebook has a point. Do you remember Prodeum, a cryptocurrency startup that appeared online a couple of weeks ago? Well, by the next week, it was gone.

RELATED: Why you should be wary of ICOs

It joins a long line. In April 2017, there was Mumbai-based OneCoin, a blockchain startup that was discovered to be a Ponzi scheme—but not before its founders allegedly funneled at least $350 million through Germany. Then there was Confido, which disappeared after raising over $370,000. Don’t forget BitConnect, an anonymous cryptocurrency exchange that was accused of being a Ponzi scheme numerous times before it finally shut down.

The cryptocurrency market is filled with scammers because it’s new, everyone talks about it, and it involves significantly new and complicated technology. Blockchains are encrypted, distributed ledgers that operate without a central authority like a bank. The data in blockchain is securely stored on many computers, so it can’t be altered or hacked.

Fraudulent ICOs can be used to repackage old frauds in a new wrapper,” says Todd Kornfeld, a securities attorney at the firm Pepper Hamilton.

Detecting Fool’s Gold

The exact terms of an ICO are usually laid out in an accompanying whitepaper, which in 2017 was often the only documentation that investors have to decipher whether a new startup is a solid opportunity. Plenty of ICOs raised millions of dollars in cryptocurrency without having a working prototype of their software. Even when a demonstration is available, only savvy investors can really evaluate whether an application will be useful.

The team from Kontenga created a map which divides the space into a nine-slot matrix with positive and negative spaces determined at various intersections. An interesting application of this map is measuring the risk parameter of your portfolio if you own a bunch of coins.

RELATED: How to detect an ICO scam

ICO Quality Matrix (source: medium)

How do you stay safe with those threads around? There are several steps that are great looking at if you consider any crypto investment opportunity:

  1. Does it look too good to be true (i.e., improbably high/fast returns)?  If it does, it is probably a scam.
  2. Never trust an unsolicited approach via email or social media and never provide any personal details or give any money online until you know exactly who you are giving the data.
  3. Do your due diligence.  Make sure you are informed about people you are dealing with before entering into any agreements or making payments. A legitimate business will have all of these details to hand and will be willing to share them. They will also have a “digital footprint” you can trace to make doubly sure they are what/who they say they are.

Blockchain startups are worried about the lack of trust in the projects because of the number of frauds out there so they created a new initiative called ‘No scam Startups’ which is aimed to evaluate teams that get ready for ICO to find out how transparent they really are and do they really want to build a legitimate business on blockchain.

They chose experts from the industry, who have already finished the ICO or who know a lot of them (bloggers, advisors) to evaluate the teams and find out Who Is Who in the market.

RELATED: Why regulations could be a boon to ICOs

The real teams have nothing to worry about because the evaluation will demonstrate the real people behind computer screens. ‘No Scam Startups’ creates a trust from visitors and investors to the projects and finds frauders to stop them before anyone could send their money to them. Scammers, you better watch out!

All in all, cryptocurrency market is new, and it’s not surprising that a lot of people are afraid of it and claim it’s all a “giant lie.” Conduct your own research and decide whether it’s worth of your time and money or not. Just keep in mind that solid investments do not promise you the short-term rewards.

Serafima Aleksandrova is PR manager at Aworker

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