What is a scam?

The term scam is translated as "fraud. Originally, scammers were defined as those who extorted money through phone calls and emails. Cryptocurrency scams are fraudulent schemes in which digital currencies or fiat money are stolen, taking advantage of the trust of their owners.

Scammers should not be confused with hackers who hack into cryptocurrency wallets and steal users' funds. Unlike them, scammers convince the victim to transfer funds to them on their own.

What kinds of scams are there? 

Scammers are constantly creating new ways to cheat, but you can highlight several basic schemes.

The classic type of scam is extortion in the guise of a famous person or company on social networks or YouTube. Usually, they open an account on behalf of a well-known person who is associated with some well-known crypto project. 

Then, on his behalf, they announce an "advertising campaign" or a "free" distribution of cryptocurrencies. In order to participate in it, you "only" need to transfer a small amount of cryptocurrency to the specified address. In return, the fake account promises to "return" a large amount. After sending the crypto-assets, the scammers hide.

In addition, they often publish fake "live broadcasts" of previously recorded interviews on YouTube, on which they overlay their address to receive cryptocurrencies. These videos are promoted in advertising networks on sites with pirated content.

Pyramid.

The most famous type of fraud, which has also moved into the field of cryptocurrencies from the industry of traditional finance. Any pyramid is built on the promise of a large and fast income from participants' investments. In reality, the pyramid founders do not do any real work. If they do pay income, it is only to a few depositors and only at the expense of new participants. Eventually the organizers of the scheme appropriate the savings and the pyramid collapses.

The founders of many modern pyramid schemes often imitate cryptocurrency investment products, as the price of some popular coins grows much faster than classical financial instruments.

Exit-skam

Exit-skimming is a sophisticated type of fraud. It differs from fake tokensales in that the project receives funds not through fundraising, but through a plausible imitation of real activity. For example, scammers might launch an app with minimal functions, which involves transferring cryptocurrencies to their account supposedly for some services. 

Some pseudo-projects only promise results and create the appearance of some work. Their representatives participate in conferences and give interviews, but the planned launch of the product is constantly postponed. Sooner or later the organizers of the scheme disappear. It may be difficult for an ordinary user to recognize an exit-skam, but experts and technical specialists can conduct their own investigation and publicly expose cheaters.

Sometimes exit-skimming occurs in working apps whose founders unreasonably and unexpectedly stop working and abscond with users' funds. In rare cases, cryptocurrency exchanges may do so, whose managers may steal users' funds, disguising it as a hack of the site.

Pump & Dump scheme

This type of fraud involves the release of a token. To set up a Pump & Dump scheme, a crypto-asset is released to the market that is not backed by a working product, funding, or team. However, they try to tie it to some for example, a movie or TV series, serving the coin as its "official" asset. This is what the creators of the Squid Game token did, for example, who positioned it as an asset supposedly from the creators of the Squid Game series.

DeFi Scam.

Decentralized finance has created new approaches to cryptocurrency trading and use, but it has also triggered new types of fraud.

Rug pull. Attackers create an asset (often masquerading as popular tokens) for which they launch a trading pair and pool on a decentralized exchange. Other users add their own funds. Eventually, the organizers of the scheme dramatically withdraw them, leaving other users with devalued tokens.

Another option: fraudsters create a decentralized trading protocol and add an exploit to its code. They start attracting users and their funds to the protocol with high returns, but eventually exploit the vulnerability in the code and steal all of the users' funds.

Honeypot.

Fraudsters create a token, release it on a decentralized exchange, and begin aggressively marketing it. At the same time, the smart contract of the token contains a ban on its sale by anyone other than the organizers of the scheme. They start buying the asset, and when its price reaches a significant level, the scammers sell as many tokens as they can while they are still worth something.

Fake Tokensale.

Another type of scam portrays fundraising activity. Attackers create a website dedicated to a supposedly new startup and fill it with content so that it creates a believable impression. In particular, they come up with a description of the "blockchain project" and team members and open social media pages. 

Next, the scammers announce the initial sale of project tokens, from participants of which they collect real funds. Soon after that, the scammers stop their activity and appropriate everything for themselves.

Known examples of cryptocurrency scams:

OneCoin.

Europe's most famous pyramid scheme, whose "brand" has even spread to other countries. It was a resident of Bulgaria, Ruji Ignatova. OneCoin sold "educational packages", with a certain amount of "coins" as a gift. In reality, neither cryptocurrency nor blockchain company. After the revelation, Ignatova disappeared.

PlusToken

The largest crypto pyramid scheme based in China. It operated under the guise of a digital currency wallet. About a year after its launch, users began to complain about the inability to withdraw their funds. Chinese police arrested dozens of members of the fraudulent group.

Africrypt

An African pyramid scheme under the guise of a "cryptocurrency investment platform" based in South Africa. It lasted about a year. After that Africrypt investors accused its founders of fraud. Now the police are looking for them.

Good luck to you readers read.cash

18.04.2022.

@Belozoriana