How to avoid scams in crypto

Half a billion dollars were scammed in crypto last year, and this year might be much more. Crypto is per se a risky form of digital asset, and the rule of thumb for all investors should be the following: If you understand it, consider investing in it. But if you don’t understand it, stay away. Despite how much money your friend or your cousin told you that he or she made in crypto, very often, whatever crypto investment that you have been presented is either a scam or a Ponzi scheme. This column is meant to educate the readers not to fall pray to scammers nor to park their savings in unsubstantiated projects that are likely to run away leaving nothing behind. Let us go by order.

A scam is a fraud that is purposely designed to steal money from someone. It might present itself under many different guises, but in general it promises unrealistic earnings for a little invested amount. The most classic one is the famous “419” scam (named for the section of Nigeria’s criminal code dealing with fraud). Someone writes you an email or a message on Whatsapp claiming that you are due to receive a certain amount, but in order to do so, you will need to pay some fees in advance. Once paid the fees, your money is gone, and the contact will never connect with you again.

In crypto however, this might come as a form of transaction. For example, someone sends you a lengthy message stating that a mysterious seller is willing to let go a number of Bitcoins (sometimes gold too) for a discounted price. The process for the transaction is carefully described in details, making it sound really thought through and legit. However, there is no legitimacy at the back of it, because there is no seller to start with. Someone is just looking for a way to pocket some advance transactions with the excuse of testing how genuine is the buyer, or the authenticity of a crypto wallet.

A Ponzi scheme on the other hand is designed with the intention of raising funds for the development of some sort of actual project. One that I was pitched last year promised many thing along the way: a crypto wallet, a crypto messenger, a blockchain social media, a blockchain phone, a metaverse... Every time they failed to deliver a promise, they promised something better and bigger, to keep the money flowing in. In general they tend to show their face, unlike true blue scammers. Probably, Ponzi founders deep down genuinely think that they can get something done, but due to their greed and often total lack of knowledge on the subject matter, they fail to deliver.

Generally they tend to embellish their story citing some successful case study. Often there is a young good looking man in his 20s, probably stationed in Dubai, driving a fancy car and posting pictures of posh restaurants on Instagram. This “pawn” is fully sponsored by the Ponzi puppeteer and is used mostly to show that “the system works”. The sad thing about Ponzi scheme is that the entry level amount is relatively small, and most inexperienced investors think: “It’s just a small amount, even if I lose, it is not a big deal.”