Cryptocurrency Scams and Hacks List: Fraud in Bitcoin, ICOs, Altcoin

On Monday, December 4th the US Securities and Exchange Commission fired the first shots in what many expect to be a period of renewed regulatory enforcement in the crypto space. The SEC’s new Cyber Unit engaged an emergency asset freeze against PlexCorps, the group behind PlexCoin. PlexCoin’s recent ICO raised $15 million after promising investors an extravagant 13-fold return on investment in a mere 29 days—a clear violation of US Securities law and a major red flag for fraudulent activity.

The SEC’s move comes just days after another high profile ICO fraud, Confido, made headlines on November 21st. In a story that’s become practically archetypal in the ICO scene, Confido’s cofounders made off with $375,000 of unwary investors’ cash.

For anyone actively engaged in the crypto space these ICO and token scams are nothing new. In 2017 alone ICOs have raised approximately $3.5 billion, so its no surprise that droves of scam artists and conmen have proven eager to get in on the action. Moreover, a lack of regulation and the relative complexity of the underlying technology have made the crypto space an ideal poaching ground for opportunistic scammers.

Lured into the token economy by daydreams of runaway dollar signs, laypeople with little grasp of the technological nuances of blockchain or cryptocurrency make for undeniably easy targets. While the ICO market has cooled over the last few months, the same half-dozen or so formulaic scams remain as common as ever for one simple reason—they’re easy money.

While most serious players in the token economy see the recent SEC action as the start of a positive trend in crypto, for the time being cash grabs and simple cons continue to pose a real and present danger to newcomers and unwary investors alike. While the “Wild West” phase of the token economy may be swiftly coming to a close, investors should continue to watch out for common crypto cons. Make no mistake, a rogue’s gallery of virtual banditos remains very much at large.

Shady Exchanges

Back in 2014 the infamous Mt. Gox hack and subsequent fiasco demonstrated to the crypto community just how wary coin holders need to be of shady exchanges. There are dozens if not hundreds of coin exchanges operating in the crypto space today. While plenty strive to remain perfectly above board, there are innumerable ways for bad actors to slip into the bunch. Scammers can exploit established escrow services, mix up wallet addresses or set up their own phony exchanges outright. For newcomers buying in to crypto for the first time—or even veteran day-traders—the best bet remains to stick with reputable exchanges, and of course, to keep a close eye on your wallet addresses.

Wallet Scams

On a similar note, wallet scams remain another common threat. It’s simple enough for scammers to set up a bogus wallet service, so stick with well-known wallet services to avoid loosing control of your stored assets. Unfortunately, even well established wallet services can wind up turning into train wrecks, so spreading your coins and/or tokens between wallets is seldom a bad idea.

Slack Bot Invasions & Impersonators

Most ICOs and crypto projects set up a variety of communication channels to help them connect to the community and drum up support. Until quite recently Slack was more or less the go-to service. Unfortunately, it’s a piece of cake for scam artists to set up bots to invade Slack channels and disseminate shoddy information—everything from fake wallet addresses to phony announcements and links to phishing sites. A common ploy is to impersonate channel admins or pose as members of the ICO team directly. Impersonators are keen on trying their luck across multiple channels, so fake Twitter and Facebook pages are also quite common. Ultimately it’s up to project teams to protect their communities from copy-cat scams—but casual users can hedge their bets by never providing sensitive wallet or log-in information through off-channel links. Unfortunately, impersonators have become increasingly sophisticated in the last few months, so the threat remains as large as ever!

Pump and Dump Schemes

Pump and dump schemes present another quick and easy route for fraudsters. Without any market controls, the token economy is extremely vulnerable to coordinated pump and dump activities. The concept is simple enough, a group of opportunistic folk get together and artificially inflate the value of a particular coin or token—which remains an easy thing to do in today’s volatile market—and just as suddenly they cash out on their holdings and make off with all the excess value. Smaller tokens and lesser known altcoins are especially susceptible to pump and dump routines, and there’s really not a lot that investors can do about it. The best advice is to do your homework before investing, if there doesn’t seem to be any particular reason for a sudden spike in a given token’s value, there’s a fair chance you’re witnessing a classic pump and dump—so its best to stay away or you’ll to be left holding a horde of worthless tokens when the game is finally up.

There are plenty of other ways to dupe unwary investors out of their cash in the crypto space, with many of the most tried and true scams originating in the traditional investment world. Straight up Ponzi schemes, overestimated price projections, and undeliverable promises remain common enough in crypto. The major difference between the token economy and traditional markets remains the lack of recourse for ICO investors and coin holders who’ve been scammed. While regulation is undeniably on the horizon, for the time being its up to individual investors to do their homework and cover their own asse(t)s!

With all of this said, we - ourselves - are invested in a variety of cryptocurrencies. As explained in a contributor article about why to invest in Bitcoin / cryptocurrency, there is rampent fraud in this market, but we believe that the good outweighs those who are attempting to bastardize the leap forward that blockchain and cryptocurrency seeks to gift to us.