The following is a guest post by Erica Stanford, author of Crypto Wars: Faked Deaths, Missing Billions and Industry Disruption. If you’d like to submit a guest post like this one about crypto scams or any other topic, please check out the Money Q&A guest posting guidelines.
Crypto hacks and scams are big news and are getting more sophisticated by the day. Where a few years ago, one could look at the larger scams, and in the vast majority of cases, see signs of a Ponzi scheme or at least see an indication that all was not well, today, scams are almost indistinguishable, in some cases, from what they are intending to replicate. It can now be very hard to know what is a scam and what isn’t. All of the red flags of what makes a scam in crypto can be present in a good project, and scams make so many – albeit false- claims, to the degree that it can be hard to know what or who to believe.
Crypto hacks and scams happen frequently, often leave with billions, and cumulatively hurt millions of people all around the world. Some hacks hit suddenly, victims of hacks, with the lapse security of the crypto exchanges and wallets often leaving only themselves directly to blame. The founders of some crypto projects and exchanges have themselves exit scammed, disappearing with billions of dollars of their own users’ money.
Other scams go on for years, fooling their investors as well as often enough the media, taking money from their victims even whilst law enforcement is actively trying publicly to stop them. These scams shock the world by their brazenness; faking team members, partnerships, customers and making up the most bizarre and extreme of claims, making the unimaginable a very sad and very real reality.
One of the most notorious crypto scams, Bitconnect, conned multiple billions of dollars out of its victims, using promises of high payouts and compound interest to attract investors. Bitconnect, even in its early days, gave off red flags – hosting wild events and parties with singing, disco balls, and giving away supercars, flying its investors around the world to partake in its events.
However, even in the early days, to those who wanted to see and knew what to look for, it was clear that Bitconnect was nothing but a Ponzi scheme. Scams now, in crypto, are far more sophisticated, and generally far harder to recognize for what they are.
One trend of crypto scams is that leaders jump from scam to scam, taking their accrued expertise in orchestration, in marketing, promotion, and in the technology involved onto the next scam, and then the next. The sophistication of some of the worst crypto scams that affect the most people is now extreme. Scammers can replicate websites, social media handles, and email addresses, take over social media channels of celebrities and influencers and make imitations look almost indistinguishable from the real.
Another key trend employed by crypto scams, and the one that perhaps has affected and continues to affect the most millions of people, is the blending of multi-level marketing with crypto. Onecoin, perhaps the biggest-generating crypto scam of all time, was the first to realize the money-making potential of bringing multi-level marketing- a sales structure that is morally dubious at best and inexplicably still generally legal, to the money-making potential of digital money. The mix of MLM and crypto has traveled from scam to scam, using expert marketeers and scams’ own victims to promote them to reel in more victims and their money.
The pyramid-shaped incentive structure in multi-level marketing creates profitable incentives for people to encourage investment in these crypto scams. Those who get in earliest make the most and are highly incentivized to bring as many people into the scam as they possibly can. The high returns sometimes seen in crypto coupled with a generously paying incentive structure that pays out high commissions to those who bring other people in to invest, explains how the biggest crypto scams have grown so large and affected so many people, extracting tens of billions of dollars from millions of people around the world.
The problem is, it’s not just the scams scamming people. The largest and worst crypto scams bring over the best teams of multi-level marketers, professionals who had huge downlines who knew exactly how to win people over and get them to invest. The scams tend to initially payout, so those who are brought in early often trust the scams, in turn bringing in their own friends, families, and communities to invest. By the time a scam is publicly revealed as such, the leaders and multi-level marketers have typically moved on to the next, leaving only the victims with no recourse to get their money back.
Crypto Wars: Faked Deaths, Missing Billions and Industry Disruption by Erica Stanford is published by Kogan Page, priced £14.99, available online and from all good bookshops.