Identifying Bitcoin Scams | Terence Zimwara
When governments imposed stay at home regulations as a response to the Covid-19 virus this inadvertently created new opportunities for others. Online businesses and marketplaces have seen a marked increase in revenues but so have online scams.
Many population groups have long ignored or resisted internet shopping believing this to be a preserve for the elite. However, after being immobilized by the stay at home regulations, many realize they now have to quickly learn and grasp the art of shopping or making payments online.
Unfortunately, those that must learn this art quickly face another hurdle, the scammers.
Scammers usually take advantage of desperate situations or where ignorance is abound by promising an easy way out. That is exactly what they have been doing throughout this dark period. Scammers have particularly zeroed in the cryptocurrency world, a logical step from their perspective. This is a young industry that is still unregulated in many places and as such, there are many loopholes to exploit.
As usual, these scammers are making promises of surreal returns to their new target market that includes adults who cannot venture outside as well as school children stuck in homes. Those expressing interest (by responding to advertisements) in investing are reminded of how other newcomers made fabulous profits during the cryptocurrency market boom of 2017.
2017 ICO scams
Indeed, that market exploded in 2017 and many genuine, as well as criminal projects, managed to raise millions of dollars by pitching projects—no matter how unrealistic—just as long were identified as cryptocurrency-related. Back then, it was the fear of missing out (FOMO) that lured even the educated or rational thinking people to plunge themselves into scams.
As research firm Satis group found out, many people got burnt after buying into what they thought were genuine ICOs. Based on its own classification criteria, Satis concludes that as much as 78% of ICOs it observed in 2018 were scams!
Eventually, the ICO bubble of 2017 would burst and many regulators have since stepped in to sanitize this market and to protect consumers from further cryptocurrency scams. In some countries, the ICO market now has some form of regulation and while potential investors themselves are now more circumspect of projects that promise big or unrealistic returns.
Consequently, this has forced criminals to use new and rather sleek methods that still target those interested in cryptocurrencies. As already explained, the lockdown period is presenting a unique opportunity for scammers to defraud large groups of people and that has prompted law enforcement agencies to issue new warnings.
For instance, the United States law enforcement agency, the Federal Bureau of Investigations (FBI), issued a global warning in April after noting a spike in cases of crypto-related scams.
In a statement, the FBI warns:
“Fraudsters are leveraging increased fear and uncertainty during the COVID-19 pandemic to steal your money and launder it through the complex cryptocurrency ecosystem.”
The statement went on to say that people of all ages, including the elderly, are being victimized by criminals through cryptocurrency-related fraud schemes.
The FBI notes that developments in cryptocurrency technology and an increasing number of businesses accepting it as payment have driven the growing popularity and accessibility of cryptocurrencies. There are not only numerous virtual asset service providers online but also thousands of cryptocurrency kiosks located throughout the world which are exploited by criminals to facilitate their schemes.
So how brazen are some of these scams?
Well, according to the FBI, criminals are now pitching fraudulent investments in a “new” and developing cryptocurrency, such as an initial coin offering (ICO) or any other investment vehicle to take a victim’s money.
These scams typically involve scenarios that seem “too good to be true”—offering large monetary returns for a short-term, small investment. Potential cryptocurrency investors need to understand no economy is doing too well at the moment or immune from the effects of Covid-19.
Therefore, at this time, it is only logical to expect a lower rate of return for any new project—whether it is cryptocurrency-related or not –until economies starting pumping again. Any investment idea that seems to ignore or defy these realities needs to be looked at twice.
As the FBI has observed, such projects could be the work of scammers who are out to steal the investment money for personal use. The complexities of cryptocurrencies are then used to hide the true destination of the stolen funds.
The FBI also lists blackmail as one of the growing tactics that scammers are using to extract money from victims. The scammers will send threatening emails or letters in which they claim to have access to someone’s personal information or knowledge of your “dirty secrets” and demand payment in Bitcoin to prevent the release of this information.
In one such email seen by the writer, the scammer claimed they had harvested the victim’s passwords to all their social media accounts. But here is the kicker, the scammer claims to have filmed the victim watching pornography and they intend to send the video to all the victim’s contacts unless they are paid in Bitcoin. The scammers even include a link to a site that guides someone buying Bitcoin for the first time.
Some people have fallen for this and many more will become victims because the scammers know the power of shame.
Nevertheless, the FBI and others are advising people in such circumstances to avoid making such payments because such threats are usually empty. By spamming millions of email addresses, a scammer using this tactic can cast his nets wider with very minimal costs. So if for instance, two people out of 2 million pay the blackmail money that will be a healthy rate of return for the scammer.
Scammers taking advantage of lockdown
However, sometimes the scams are not as sophisticated as experiences in some countries have shown. For instance, since cryptocurrency trading and related businesses are not formally recognized in Zimbabwe, this lack of regulation forces traders and those new to this to conduct deals outside the conventional system.
Usually, this will happen on social media platforms like Whatsapp and Telegram where chat group members buy and sell. Since the start of the lockdown, there has been a spike of people making inquiries and subsequently making payments to acquire Bitcoin or other tokens.
In the run-up to the so-called Bitcoin halving, novice investors were encouraged to purchase coins because there was a likelihood that their investments would double in a short space of time. However, the seller would insist on being paid via mobile money since lockdown regulations make it difficult for traders to do face to face transactions. Yet as soon as payment is received, the seller of the Bitcoin simply disappears.
Now because the country’s consumer protection law does not cover cryptocurrencies, it means they are no recourse and the stolen funds will not be recovered.
The FBI does provide tips to help people avoid falling victims to scammers. Below are some of the tips:
- Conduct extensive research on potential investment opportunities. Do not take everything at face value.
- Do not use your bank accounts for a work-from-home business-related activity or provide your bank account information to someone who is not named on the account.
- Contact law enforcement before paying out blackmail and/or extortion attempts and before converting your money into cryptocurrency to pay them.
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