Crypto Scams: Lessons from History and Recent Trends


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Crypto Scams Lessons from History and Recent Trends

Crypto scams are, unfortunately, still a major part of the digital currency market. Indeed, the desire to avoid scams has defined many of the blockchain industry’s current business practices. With high risks and the potential for disaster, protecting against crypto Ponzi schemes is critical for all investors.

Numerous high-profile fraud and Ponzi schemes – such as Bitconnect, Centratech and Bitcoin Savings and Trust – have betrayed investors’ trust to steal crypto assets. Fake wallets and shady exchanges conducting exit scams also present a major risk for investors.

Before investing in a coin, it’s important to investigate the company’s history, founders, and documentation. It’s also worth checking the coin’s community forum to see if other investors have had bad experiences with the organization.

“Promising” new exchanges and investment platforms

When it comes to famous crypto scams, Bitconnect sits right at the top of the table. The platform gained momentum by promising high-yielding investor programs. Its own token, BCC, even reached a market cap of over US$2.6 billion in January 2018.

However, Bitconnect turned out to be a Ponzi scheme, closing at the peak of its value. BCC coins became worthless, with Texas and North Carolina issuing legal accusations against Bitconnect’s founders. The organization’s leader, Divyesh Darji, was arrested in Delhi in August 2018.

One of the most recent crypto exit scams took place in South Korea with the PureBit exchange. This case is quite interesting, as the mainstream and crypto communities joined forces to pressure founders into returning nearly $30 million worth of stolen funds. In a recent statement on Twitter, the PureBit’s leader acknowledged the fraud.

“I made an unforgivable mistake that cannot be turned around, blinded by money. It has been less than a day and I have already started to suffer from guilt. Although it cannot be compared with the hardship faced by the investors, I also felt significant guilt.”

Ponzi investment schemes

Ponzi schemes have plagued the crypto industry for years. Bitcoin Savings and Trust – run by Trendon Shavers from Texas, better known as Pirateat40 – was one of the earliest examples of a crypto Ponzi scheme.

In 2011, Shavers promised investors up to seven percent returns weekly on their investment in BTC via Bitcoin Savings and Trust. Most investors believed their funds were being used for arbitrage trading as Shavers claimed. Instead, he cycled the money, passing BTC from new to old investors to give the illusion of legitimate returns.

Shavers controlled about seven percent of the total number of BTC in circulation at one point. Out of the 700,000 BTC that passed through his hands, he misappropriated approximately 146,000 BTC. The stolen amount was worth around US$147,000 in 2011. He spent that money on gambling and personal expenses.

That amount of BTC would have been worth almost $3 billion at the all-time high price in December 2017. Shavers faced justice in 2016, receiving a one-and-a-half-year prison sentence alongside a substantial fine.

Dumping funds into fraudulent ICOs

More recently, Centratech’s ICO attracted over $32 million worth of investment with endorsements from celebrities DJ Khaled and Floyd Mayweather. On May 17, the U.S. Securities and Exchange Commission (SEC) charged Centratech’s founders, accusing them of using crypto as a scam.


They created fictional executives with impressive biographies and lied about partnerships with legitimate businesses. The Ponzi scheme included fake Centra credit cards and crypto licences. Luckily the founders, after sentencing, had to repay their victims with interest.

Fake wallets – the new Trojan horses

Most fraudulent seed-generator and wallet apps work in a similar manner. was one of those projects. Website operators asked users to submit their private keys or recovery seeds as a means of generating Bitcoin Gold (BTG) wallets. The scammers stole more than $3 million worth of BTC, BTG, ETH, and LTC from their wallets.

One operator working under the pseudonym John Dass became a prominent community member of the Bitcoin Gold team. He even managed to persuade BTG to promote his project on its official website and Twitter profile. John Dass has successfully avoided justice so far. The Bitcoin Gold team – which consists of volunteers – claims it has lost contact with John Dass.

Recently, fake wallet apps have become much more common, as discovered by malware researcher Lukas Stefanko. In a blog post published on November 13, the analyst identified four new fraudulent crypto wallet applications. Once installed, these apps steal users’ mobile banking credentials and credit card information. Stefanko found fake wallets on the Google Play Store disguised as legitimate services for Tether, Neo, and MetaMask. Fake wallets can extract sensitive personal details and steal assets.

Protecting against crypto scams

Many crypto scams use much simpler techniques than sophisticated Ponzi schemes. In these cases, investors can often spot fraud by investigating the company’s origins.

Many of these projects use anonymity to hide their true intentions. That’s why whitepapers and legal documentation are so important; they can help investors assess a project’s legitimacy. If a company doesn’t provide any of these documents, there’s a good chance it’s a crypto scam.

The Korean general public has given us the perfect template for dealing with crypto scams. When PureBit defrauded investors, the mainstream and blockchain communities rose awareness at a staggering rate, alerting both the public and government authorities.

Communicating with peers and keeping an eye on the media is always important when trying to spot crypto scams. Investors should check the numerous online scam lists and forums to fraud-proof their investments as solidly as possible.

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