By Temo Bezhiashvili - Knowledge - 2 months ago

Scammers Within the Blockchain Industry and How to Protect Yourself from Scams

Scammers have been around since the dawn of economy. In fact the first ever recorded fraud goes back to 300 B.C., when a Greek merchant, Hegestratos took out a large insurance policy called bottomry. Which is a loan that a merchant takes out, and has to pay back with an interest when the cargo arrives. It wasn’t a bad deal for Hegestratos, despite the fact that he had to pay the interest, he would still make some profit from the deal. However instead of working hard to build his fortune he decided to sink his empty ship and sell the cargo to another party. This way he would avoid paying back the loan and would make double the profit. Easy money right? At least that’s what he tried to do, and that was the first recorded attempt of scamming. Since then, in every industry that has emerged throughout the history, scammers were always present. Blockchain industry is no exception. Quite the opposite actually, scammers have truly thrived because of the hype created around the industry and lack of knowledge. Especially during the ICO boom in 2017, when around $11 billion was raised through this new and innovative way of fundraising.

Scammers made a lot of money throughout this chaotic boom of ICO’s. However in the end Hegestratos, as with most of the scammers, was caught in the act while trying to escape was drowned. Justice always catches up one way or another, but let’s not leave it up to chance and discuss scamming methods, the biggest scams and what we can do to avoid them.

Among others, the most commonly used form of scam is “phishing” on social media. Phishing attacks usually come from someone creating channels of your project on social media, that the project doesn’t intend to use, this represents larger scale phishing attacks so to speak. That is the reason why it is considered as best practice to not announce an ICO before you register official channels on every social media. Creating a clone channel could also pose a high threat if you didn’t put the information about all the official channels on your website. So there is constant monitoring required. You need to warn your community and keep them informed at all times, so that they won’t become victims to the phishing attacks. The most common place where these type of scams occur is on Telegram. Since Telegram is the most popular tool to maintain and grow communities in this industry, that’s where most of the low-level scammers reside.

What happens is that a scammer poses as an admin of a channel which you are part of. There are constant discussions going on and questions are being asked. Some channels have 30k people in it, so there’s a lot going on and sometimes it gets hard to keep track of everyone and everything. So scammers create a username with similar to admins that is hardly distinguishable. For example, if admin’s Telegram handle is Cryptomike , the scammer would create a name such as Cryptomiike , install the same profile picture and write to you about the project and offer you discounts on the tokens. This discount obviously comes after you send some BTC or ETH (in order for you to be eligible for the discount). Another option is someone sending you a link with the malware and hacking you with it, clearing out your wallets and accounts and basically anything they can get their hands on.

In cases like this, you should always keep in mind and read the pinned messages on the Telegram channel, which always warns you:

  • Channel admins will never write you first out of their own initiative, unless you asked a particular question in the channel
  • They will never ask for any kind of donation, or wallet address or any other financial information
  • Channel admins always have an “admin” tag next to their name

So before you engage in a conversation with a stranger on Telegram, make sure you triple check all of the above-mentioned points and definitely pay attention to the pinned messages of the channel. Another interesting Telegram “phishing” method that I came across was, when a scammer copied a pinned message and added his name in the admin list. So always check for the original pinned message on top of the channel and do not trust the one that was just posted in the chat.

Of course the above-mentioned scamming methods are just a drop in the ocean. Sure, it has been a serious problem and unfortunately, a lot of people have lost quite a lot of money. However, the scale of those phishing attacks is usually small. Couple of hundred, maybe even a thousand victims in worst case scenarios. But the bigger problem for the industry and the credibility of blockchain technology and its mass adoption, are the “institutional scammers” as I like to call them, companies that create fake projects to scam millions of dollars from investors. Let’s have a look at couple of them.

If you have been in this industry long enough, you have definitely seen the video, or the memes of a guy screaming “Bitconnect”. It was one of the most famous scams, which was highly hyped through marketing campaigns and conferences. Users exchanged their Bitcoins to Bitconnect coin and were promised ridiculous returns. But it was all just a Ponzi scheme, where users lost up to $700,000 which was subject of just one class action lawsuit, so who knows about all the other funds they stole.

Another interesting wide range scam was CentraTech , which actually involved a couple of celebrities, including Floyd Mayweather and Dj Khaled. They actively promoted CentraTech which was supposed to be Visa and Mastercard services for converting crypto to fiat. However, what it actually turned out to be, was a big old scam that raised $32 million, and instead of crypto to fiat debit cards, delivered whole lot of disappointment.

You think it’s a lot of money right? Wait before you hear about Pincoin & IFAN , the biggest scam in the ICO history. The two ICO’s operated by the same entity from Vietnam, scammed more than 32,000 investors out of a total of $660 million. Both of the ICOs were labeled as multi-level marketing scams, that were highly promoted and advertised by celebrities. Investigations are still going on to this very point, and a lot of people are still looking to get their investments back.

Unfortunately, these were only 3 of many ICO scams, despite the fact of there being countless opportunities for business within this industry. Some people simply choose the “easy path” of fraud and seriously damage the credibility and adoption of blockchain technology. Considering all that, It’s no surprise that almost 80% of all the ICOs conducted in 2017 were scams and out of the $11.9 billion that was raised in 2017, $1.34 billion went to scammers.

The reason these scams are able to succeed is the also the biggest obstacle to innovation, lack of knowledge. Lack of knowledge has led to the ‘cryptochaos’ we have recently experienced. Of course, everyone, including the scammers, realizes this lack of knowledge and takes advantage of it. The idea of ‘easy money’ has always been very appealing to people, so they believe the lies because they want to, because they do not know what the truth looks like in this industry. All they hear is this buzz, the excitement, the loud statements like ‘crypto is the future’ or ‘making money has never been so easy’ and it is hard not to believe. People look to examples such as the CEO of Ripple at some point was one of the richest men in the world, yet nobody knew what Ripple actually was, it all seems too easy.

Taking risks doesn’t necessarily mean blindly diving into something you don’t understand. It is critical to comprehend the project, the idea you are investing in, and to invest with a certain level due diligence on the project and on the team, actively engaging with the team can also make a big difference. Avoid shady people with shady proposals. As much as we would like to believe, nobody will hand you the keys to the golden castle. I am personally a very cautious person, and when something is too good to be true, it usually ends up being so.

So by all means, educate yourself, understand everything from basic knowledge of blockchain to the consensus protocols and payment specifications, everything you need to know before you engage in a project, especially financially, so that we can move forward together without the fear of getting scammed or losing your investment on an unrealistic idea. Knowledge is the most effective tool in any type of venture, it’s the investment that pays out the best!