Back in 2013, when we started crypto-investing, we had not too many alternatives. We could either take the VC approach and invest fiat money in crypto-startups or directly in the crypto currencies whose number was also fairly limited at that time. The US guys were also able to invest in Barry Silbert public-listed Bitcoin Investment Trust, i.e. they could invest shares of a public-listed company that invested exclusively in Bitcoins. That was pretty much the crypto-investment market five years ago. And actually the situation in the cryptoworld was quite cosy: Everyone knew that cloud-mining maybe is not the great idea, but the extent of the fraud was negligible. The people within the cryptosphere knew each other more or less.
Meanwhile, the crypto-investment landscape has changed completely.
By now — mid 2018 there are countless investment offers promising investors a “great” share of the crypto hype:
- Old fashioned equity investments in Crypto-Startups
- Coins from decentralized networks: Monero, ZCash, Bitcoin,…
- Crypto-Mining (Cloud-Mining, Mining-Server, etc.)
- Crypto-Trading and Arbitrage
- Crypto shares and investment trusts
- Crypto derivatives (options)
- Tokens from centralized networks.
In addition to these various crypto-investment alternatives, different Token issuing and distribution systems have developed that dominate the market today. Investors typically know the system of Initial Coin Offerings (ICO) where startups issue new cryptographic tokens. ICOs are often compared with the IPOs of Internet companies in the New Economy or the DotCom era of the late 1990s. By the end of June 2018, a total of around US$ 13.7 billion had been collected through Token Sales held.
In addition to the ICO’s, there are also multi-level marketing (MLM) systems, which allow private investors to enter the crypto scene by purchasing mining or trading packages.
We can therefore divide the crypto-investment market right now into the following three segments.
The dawn of the soldiers of fortune
Lured by the high profits made by crypto investors in late 2017 unexperienced investors are eager to enter the crypto-market.And as it happens very often, fraudsters and soldiers of fortune have also realized the scale of potential profits for them. At a breathtaking speed different Ponzi-schemes have developed established solely with the intent to rip off inexperienced investors:
ICO-Scams: in our definition ICO-Scams include all projects which are based on lies about the team members(ranging from faked identities to lies about the blockchain-experience of the team members), as well as
Cryptomining MLM-schemes: experienced and unscrupulous online marketers — who sold insurance contracts or some other scrap before the crypto hype — entered the market to run crypto-mining MLM-schemes on a worldwide scale and gathering huge amounts. Lured by the promise of high and just impossible high mining returns, retail investors invest enormous amounts in all these fraudulent systems — the more we collect the figures for these PONZI-schemes the more the Tether issue pales.
With the cryptocurrency market capitalization declining most of the PONZI-schemes are running into issues — leaving thousand disappointed and befrauded private investors.
Lately I learned that the binary option industry with more and more countries forbidding binary option business models is looking for new areas to use their fraudulent approach: they also decided to enter the crypto market to take advantage of the bitcoin payment system and the unexperienced crypto investors and to continue their fraudulent activities in this new area. All these binary option operators already have left thousands of disappointed and befrauded investors in the fiat world and now intend to continue their work in the crypto world.
Regulators and prosecutors are just starting to understand the crypto investment market and the new fraudulent activities going on. This will take time, within this time an huge amount of money will be wasted and an enormous number of investors will be defrauded and disappointed. This will harm this new promising industry as each disappointed and defrauded investor will be lost for us.
Therefore we think the crypto industry must start to fight these PONZI-schemes and fraudulent activities going on. So that is the reason why we set up the Crypto42 Watchdog Initiative, an initiative to lobby, to educate as well as to identify the scams and to fight them. We completly agree with Meltem Demirors (Chief Strategy Officer CoinShares):
“Everyone, who is aware of a SCAM or of a Fraud in the Crypto-world and is not reporting/fighting these SCAMS or Fraud is contributing and fostering these SCAMS”.
As a first step we decided to support FinTelegram, an initiative to advance and protect investors as we think that the fraudsters must be drawn before the curtain. We are doing research for this initiative. FinTelegram by the meantime succeeded in establishing a cooperation with an Israeli start-up Wealth Recovery International, and we a quite busy.
In case you are interested to join us resp. to support us (we need all help offered) pls get in touch: firstname.lastname@example.org or just register with crypto42.org resp. email@example.com.
This article was originally published on Medium.
For a more detailed description of the different kinds of frauds happening in the cryptospace pls refer to this excellent article by the Valore Initiative: Most Common Cryptocurrency Scams & How to Avoid Them.