Top Cryptocurrency Scams in 2019 – A Look Back

Handy Tips / 10.12.2019

Within the cryptocurrency community, the word scam is often applied to dubious startups and/or Initial Coin Offerings (ICOs)/Initial Exchange Offering (IEOs). When the project seems to lack any practical usefulness, and the business idea behind it is suspicious, such projects are often referred to as scams.

The main feature of a Bitcoin scam, compared with other ways of stealing money, is that it usually takes advantage of people’s trust and negligence. Currently, the cryptocurrency market is not regulated enough to protect people from scams, so that is why it is such a common thing among users of digital currencies.

Most scams are easily identifiable, because they usually follow the same techniques used by previous, classical scamming techniques. The targeted victims are people who are easily overwhelmed and tricked by the promises made by the scammers of obtaining quick profit with minimum effort.

Let us now look back at some of the biggest cases that made headlines this year, with the hope that we will not fall into the same trap again.

South Korean Ponzi scheme

Specialists from South Korea have applied AI components to reveal a multimillion-dollar Ponzi plot that swindled more than 56,000 financial specialists. The investors were mostly new to crypto exchanges, with the larger part being in their 70s. The unlisted M-token was guaranteed to bring 600%, which is the thing that baited users in.

As is typical of Ponzi schemes, the shopping website provided rewards to members for recruitment of new victims: 60,000 won ($52) in cash for each new member and 120,000 won ($104) to the initial recruiter if a new member persuaded another person to join.

In what can be said as a test for Korea’s capabilities, the Ponzi scheme was uncovered using an AI algorithm that the crime department had recently started using. The scam was mostly targeted to senior citizens and retired persons, who were promised that with their investment they would get “mCoin” which would soon grow to 600% of the value at which they initially bought it.

The $70mn & Indian ICO Scam

Amit Lakhanpal was one of four men who has been accused of stealing $71.6 million as part of an ICO scam. To attract investors, it is said that he and his partners inflated the price of his cryptocurrency and claimed that the royal family of Dubai supported his project. Criminal investigation authorities in the Indian state of Gujarat have booked five people for running a fraudulent initial coin offering (ICO) called Bitstrades.

“[The] majority of investors who lost money in the racket are yet to come forward. We hope that following the registration of the complaint, they will provide details of cheating about the accused to [the crime department],” an investigating officer told Times of India, India’s premier newspaper.

The scammers even went as far as listing an ad on the CoinMarketCap website, to show a hint of legitimacy. It’s not just CoinMarketCap, Bitstrades also managed to place sponsored articles on a number of cryptocurrency news sites including newsBTC, The Merkle, and CoinSpeaker.

The $40mn Binance Hack

An article by Business Insider Noted that, while it is uncommon to see an established exchange like Binance get hacked, the cybercriminals managed not only to steal 7,000 bitcoin but also two-factor authentication codes and API tokens. Binance also revealed that the hackers were able to compromise “very high net-worth accounts”.

Binance has been fairly forthcoming about the hack, detailing its impact in a blog post from Binance CEO Zhao Changpeng. “The hackers used a variety of techniques, including phishing, viruses and other attacks,” wrote Zhao. “The hackers had the patience to wait, and execute well-orchestrated actions through multiple seemingly independent accounts at the most opportune time. The transaction is structured in a way that passed our existing security checks.”

The North Korean Mac Malware

Lazarus Group, a gang of hackers believed to be sponsored by North Korea, tried to penetrate Apple computers running macOS by tricking users into downloading a cryptocurrency application from a seemingly legit website.

The attackers created a cryptocurrency-trading application, hosted on GitHub to give it more credibility, and built a good-enough website to promote it. Once the user installs the software and grants it administrative privileges, the hackers have a backdoor into the OS.

The Lazarus Group and other hacking groups based or sponsored by North Korea have been rumored to be operating for years, and the United States has issued a few advisories over time regarding their continuous attacks.

What can you do?

Scams follow a long tradition of exchanges ‘losing’, ‘misplacing’ and even disappearing with the funds held by them. Mt. Gox, QuadrigaCX, Golix Exchange all hit the news with the same the of scam. Using this, the community should note that instead of putting all their faith in the hands of centralized entities, but should actually move towards holding their own funds. As it is said in the community, “Not your keys, not your crypto”

Evaluating red flags can not only save you a lot of money, but also better allocate time to evaluate assets without so many red flags. It should be acknowledged that there are exceptions to every rule. These are common red flags that on average represent problematic situations for the future of a coin.

For persons interested in not getting into such scams and avoiding losing any money, please do check our post on how to ignore such scams and be a vigilant investor.

avatar
Sudarshan M is a long time crypto-enthusiast. Pulled in by bitcoin early on, it did not take long for Sudarshan to divert all of his academic attention from business studies to blockchain by doing his Masters and eventually pursuing his PhD in the subject.