Cryptocurrency, meaning digital currencies that only exist electronically, is an exciting prospect to many who want to achieve wealth outside of the traditional economy. While it is the undisputed darling of criminals and the dark web, the average consumer may invest in cryptocurrencies in the hope of securing excellent profits, and/or hiding assets in the relatively anonymous and unregulated crypto landscape. The complexity of the technology involved, and the lack of governmental oversight of the sector, provide a fertile ground for scammers.
value. Others will likely never be of any value whatsoever, created opportunistically on the basis of the “greater fool” doctrine: the notion that you can make money from a bad asset as long as there is a greater fool who is willing to buy it from you. Value is driven by supply and demand, and can be manipulated by way of “pump and dump” schemes. Any many a “crypto investment” has nothing whatever to do with crypto, but is an old fraud using a new device.
Countless platforms have sprung up, appearing to enable consumers to buy crypto and, seemingly, watch their portfolios grow in value, to their great delight. We tend to trust sleek websites showing financial data, although these are easy for a scammer to build and falsify. Platforms discourage cashing out through high withdrawal charges, and encourage consumers to re-invest all profits in the same scheme instead. The problem tends to come in when the consumer wants to cash out their investment – but can not. The scheme usually exists online only, with no customer service in place. No reputable person can be tracked down in relation to the scheme, nor is there a legitimate business address. Truly, the consumer’s money was lost to them as soon as it reached the scammer’s hands by means of the platform.
Many a crypto scam will fold in elements of MLM (multi-level marketing) with promises of further income streams through recruiting additional “investors”. An MLM scheme is one with a hierarchical structure, usually selling a low or no value product, with those putting their effort into the scheme relying entirely on commissions to generate income – from selling the product, or from recruiting others to buy the product with the aim to sell it themselves. Commissions flow up a pyramid, with those at the very top of the chain generating wealth, and those in the middle and lower levels likely to end up out of pocket having bought unsaleable stock, blaming themselves for their failure to replicate the success of the higher-ups.
In the spirit of MLMs, a crypto scam may require you to pay commissions to the “coach” who recruited you to the scheme, and promise you commissions for recruiting new “investors” to the scheme. There may be a points system, and giveaways to incentivise participation.
Closely related to MLMs are Ponzi schemes, fraudulent investment scams which are presented as legitimate business opportunities. Would-be investors are promised unrealistically high returns over short periods of time. These schemes rely on a constant influx of new “investors”, so that earlier “investors” can be paid out “profits” funded by newer “investors”, which convince them that the scheme is running as promised. As soon as the stream of new “investors” dries up, or earlier “investors” seek to withdraw significant funds from the scheme, it falls apart. “Invested” funds disappear almost immediately once in the scammer’s hands – to fund the scammer’s extravagant lifestyle and/or to keep the duped “investors” confident that the scam is above board by paying out bits and pieces of their supposed “profits”. Mathematically, the vast majority of “investors” in any Ponzi scheme will be left high and dry when the scheme inevitably falls apart.
In truth, these scams are nothing new. Where there is money, there will be people trying to get hold of it without having earned it. Consumers are warned to be especially careful with any scheme relying on technology that seems too difficult to understand, or offering returns that seem too good to be true.