Future Tense

Bitcoin’s Success Is Drawing More Attention to the Shadiest Parts of the Cryptocurrency World

Beware the Bitcoin scams.
Beware the Bitcoin scams. Dan Kitwood/Getty Images

Cryptocurrency scams are still thriving, but they’re attracting more attention, multiple reports over the last week suggest. The shadiness cited demonstrates the power of misinformation in a sector crowded by everyday investors eager to make a quick fortune. Regulators are making their initial moves to reign in the unruly crypto landscape, but many novice investors continue to be fooled into trusting con artists who are essentially peddling tea leaves.

Last week we saw more rumblings of a coming global regulatory wave, with news that South Korea is still considering a ban on crypto exchanges and that China will be blocking domestic access to centralized trading platforms. (Some believe the reports helped drive down the price of bitcoin.) In the U.S., two cease-and-desist letters from state securities authorities also brought down an exchange called BitConnect, which had long been criticized as a Ponzi scheme. New York’s Commodity Futures Trading Commission also announced on Friday that it had filed three lawsuits against cryptocurrency companies that were allegedly defrauding their customers.

Advertisement
Advertisement
Advertisement
Advertisement

Even with this foray into clamping down on bad actors, scams continue to be exposed. Buzzfeed reported on a number of incidents of dishonest actors spreading disinformation on social media and dummy websites about tech superstars in an apparent attempt to pump and dump certain currencies. (Pumping and dumping in this case involves artificially raising the value of a cryptocurrency you own by spreading false statements and then cashing out at the higher price.)

For example, a fake Twitter account with the handle @officiallmcafee (notice the extra “L”) had been active earlier in this month purporting to deliver investing advice from John McAfee, the founder of the McAfee computer security giant who many see as a well-respected cryptocurrency soothsayer. Whoever was behind the account promoted a currency called GVT at 3 p.m. on January 14. Within 20 minutes, the currency’s value rose from $30 to $45 and then fell back down to $30.29. Other schemes have similarly attempted to purloin star power from the likes of Richard Branson and Elon Musk.

Advertisement

Beyond the unscrupulous whispers on the internet, a number of sketchy companies have been selling themselves as crystal balls of future cryptocurrency trends. One of the companies that the New York trading commission sued last week was allegedly promising customers bitcoin advice but then failing to deliver anything once receiving payment. Buzzfeed also notes that “self-proclaimed bitcoin experts” have been spreading spotty info in the hopes of getting people to pay for their advice.

Advertisement

Other companies have been casting themselves as pioneers on the verge of creating a serious rival to Bitcoin and Ethereum, with business plans that are at best cavalier and at worst deceitful. The Securities and Exchange Commission has of late been keeping an eye on initial coin offerings (ICO), the process through which a company distributes crypto tokens to buyers.

Advertisement
Advertisement

In one notable case, the commission halted the ICO for a currency called PlexCoin in December after the company had allegedly promised investors a 1,354 percent profit within a month.

As Reuters notes, the professional services fund Ernst & Young released research Monday on 372 ICOs showing that more than 10 percent of the funds raised are lost or stolen by hackers, and that the underlying business plans that these companies distribute are rife with coding errors and general sloppiness. TechCrunch also reported that scammers have even been setting up fake ICO websites to trick unwitting investors.

As Bitcoin battles for recognition as a legitimate currency or asset—and continues to entice eager novice investors—scams like these are likely to continue until regulators swoop in.

Advertisement