Cryptocurrencies like bitcoin have had a significant impact on financial services and the world of money. Not only are they providing the whole world with a new way of transferring value, but they are also solving some of the problems inherent in the way monetary systems operate. They are a building block for financial autonomy.
Tied to this positive movement, though, are the vices that accompany every sort of financial service, system and product. Terms like bitcoin scam or cryptocurrency scam are hardly a new phenomenon and this is chiefly because of some individuals that have adopted digital currencies as an avenue for predatory behaviour.
The fact that bitcoin and cryptocurrencies are still a new concept for many, plus the extremely high valuations that these digital currencies have registered in the past makes the cryptocurrency space an ideal environment for scam artists trying to take advantage of people.
One very fresh example is how in March 2018 over 27,000 people in South Africa are reported to have lost over US$50 million to a scam called BTC Global. The alleged scam artists got the better of people by convincing them that their funds, sent as bitcoin to a specific wallet, would be invested. This bitcoin scam operated like a Ponzi scheme, encouraging people to pour money into a fund with some “returns” distributed sparsely before the entire thing collapsed.
A similar scam hit the people of Zimbabwe, Nigeria and other parts of Africa under the MMM Global name. All this suggests that when dealing with digital currencies, people should be cautious.
This doesn’t mean that all activity in the cryptocurrency space is dishonest, though.
The majority of the visible, serious players are actually using these currencies to solve real problems. The important thing for anyone trying to get involved in cryptocurrencies is to know how to identify what might turn out to be a bitcoin scam and deal with it cautiously.
If you do not want to be a victim of a bitcoin scam, we have listed five things that should give you some reason to pause before engaging in business with a cryptocurrency outfit.
How to spot a potential bitcoin scam (or any other cryptocurrency scam)
- Huge and guaranteed returns
If any sort of investment offers unusually high rates of return it should be approached with a lot of caution. In the case of BTC Global, investors were guaranteed a 14% return per week, a figure which far exceeds what investment funds guarantee. If you are not sure whether what’s being offered is an abnormally high rate, it is worth asking a financial service professional or at the very least check on Google what the average return on certain investments comes down to. If all of that seems out of reach, just ask someone from your very own bank. They will have someone who can help you understand this. - Limited information on the company or business
Where is this company from? Where are its offices? Who runs it? Who have they dealt with in the past? Have they been covered by the mainstream media? Anyone or any company handling people’s money has an obligation to share a fair amount of information about themselves. This includes the team handling our money (or at least the lead investor) and their track record. Unlike making sausages, investing people’s funds, in whichever currency, calls for transparency, accountability and traceability. If these conditions are not being met, then caution is advised. - A suspiciously poor website
Investment houses are supposed to be well-resourced outfits that provide services which give investors confidence. This means operating a site that displays a certain level of professionalism. Sites like the one used for BTC Global that have very basic content that could pass for amateur work and not a lot of information on the operation should be investigated thoroughly before any money is sent to any of their wallets. - Limited investment in product and service awareness, branding
This ties in with the website design. Any investment fund or firm has to have some content that communicates who they are and how serious they are taking their responsibility as a money/cryptocurrency business. There should be some decent investment in this area, especially if the outfit can guarantee pots of money in interest every week. - A digital footprint that questions the company’s legitimacy
This is the digital age. The most obvious way to get information on anyone who will handle your cryptocurrency or money is to Google the name of the business, the names of their investment manager and their team. Look at news articles, references and even ratings. After a number of search results, you should have a fair appreciation of how legitimate a business or an “investment guru” is. If the results turn up a number of mentions of the company as a bitcoin scam or Ponzi scheme then it might be worth it to put brakes on that investment.
These five are the most common things to watch for, but there are bound to be other signs that those who have come across such scams might have picked up. Always do some research on who you buy your cryptocurrency from or who you send it to.