Get your Scams Here!

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Get Your Scams Here!

The term “scam” gets thrown around a lot in the cryptocurrency community, but with little consistency. When an ICO founder disappears at the end of a fundraising round without delivering a product, most of us can agree that it’s a scam. However, if you tune into the “Bitcoin Morning Brief” with Tone Vays, you’ll hear him calling just about every cryptocurrency project other than Bitcoin a scam.

Let’s take a step back and try to define what a scam is. Is there even a clear definition? Are scams subjective? What active projects might be viewed as scams?

What is a Scam?

Webster’s Dictionary defines a scam as “a dishonest scheme; a fraud.” If you google the biggest scams in history, you’ll run into some classics:

  1. A gold-mining company named Bre-X lied about finding gold in order to pump their valuation. The lead geologist went so far as shaving gold off of his wedding band and adding it to drill-core samples. Company stock went from pennies a share to over $280. Many investors lost money.

    bitcoin, btc, bch, bcc, scam, investment, ponzi, pyramid scheme, altcoins, iota, verge,

    We’ve found gold! It was here all along!

  2. Ponzi schemes – Investors give money to a scammer who promises guaranteed returns. The investors receive “interest” on schedule for a short time, but the “interest” is paid out of investments from new suckers, not from legitimate business profit or investment gains. Ultimately, the scammer disappears with everyone’s money before paying back their initial investments, let alone profits. Some early “investors” might get their money back if they sniff out the scheme. Later “investors” lose everything.
  3. Lincoln Savings and Loans – Charles Keating used investors savings cash in high-risk ventures without informing depositors. The company eventually went bankrupt, leaving depositors holding the bag.
  4. Nigerian Prince Schemes – Victims get an email from a Nigerian prince who wants to give them $1 Million in gold. The thing is, he needs the victim to wire $10K in USD to cover shipping fees. The victim sends an irreversible wire, and *poof*, the Prince vanishes.
prince meme

That poor prince….

What do all of these examples have in common? They’re all dishonest and fraudulent, like Websters says. However, there are nuances that separate each of these scams.

  1. The geologist clearly lied about what he had found. These faked samples caused investors to believe that the company was worth much more than its current market price, so they bought to stock up to incredible valuations. Investors used bad (fraudulent) information to inform their investment decision.
  2. Not all Ponzi schemes start out as Ponzi schemes. Often, the scammer initially has good, albeit misguided intentions. Say the scammer thought he had a winning trading algorithm, and he wanted his friends to take part in the gains. Then, some “black swan” event or trading bug causes losses (or more realistically, his bot just isn’t good). The trader doesn’t want to let his early investors down, so he finds new investors to pay interest to the original investors. Do the Ponzi-man’s original intentions matter? Was the Ponzi-man a scammer the moment that he promised future returns?
  3. Mr. Keating clearly misused his client’s assets. He planned to make some quick profit, then return the money back to his clients, without them knowing that their money ever moved. However, nothing is risk-free. The clients certainly cannot be blamed, as they had no knowledge that their savings were being misused, right? Is this even a scam, or is it straight theft?
  4. The Nigerian prince shares some attributes with the Ponzi-man, namely guaranteed returns. Of course, the Prince’s plan makes little sense to most people. If he HAS money, why does he NEED money? Any sane person should be able to sniff out this fraud, and we shouldn’t have sympathy for them, right? What if the victim is mentally handicapped? Or what if the victim has their wits about them, they understand it’s a long shot that there is any truth to the story, but they’re willing to roll the dice? In this case, should the Prince have the right to run this kind of scheme?

Scams may be a little more complex than they initially seem. First, there’s a difference between a scam and theft. If you got mugged on the street for all of your cash, you wouldn’t get mocked by your friends. If you wired $10K to a Nigerian Prince on the other hand….

Substantial misrepresentation, such as in the case of the gold mining company, is clearly fraud. The company misrepresented their resources, their core samples and therefore the potential gold that they were sitting on. However, what happens when a company misrepresents a resource that is more abstract, such as intellectual property, human capital, or partnerships?

Fraud in Cryptocurrency

The Ponzi Schemes

Bitconnect, USI Tech, and many other companies looked to take advantage of investors in more or less the same way: “Lock up your money with us and get guaranteed returns!” How much? Up to 40% a month! How? A proprietary trading bot and volatility software! The cryptocurrency community is full of techies and anarchists, but it also has an overwhelming number of people looking to “get rich quick.” So, there were plenty of investors ready to buy into a Ponzi-scheme.

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Wow, these returns look too good to be true!

Any product that offers “Guaranteed Returns” should automatically draw suspicion. Nothing in this life is guaranteed. Not insurance policies, not the FDIC, not Government treasuries, and certainly not bitconnect. For any investments that do come *close* to risk-free, you can count on very small returns on your money (0-3% per year). In fact, 8% returns per year (averaged over time) are considered great for low-medium risk investments. Something that offers 40% a month? Ha!

In addition to the guaranteed, massive returns, bitconnect also offered little insight into their source of profit. “Proprietary trading bot” was apparently enough to convince a lot of people that bitconnect was the real deal. Sure, they could have some hyper-trading arbitrage machine, but if they did, why would they offer it to you?

So, how did bitconnect continue to attract new money, when it seemed so fraudulent? Well, they hired Multi-Level Marketing (MLM) teams and implemented the ever-so-popular pyramid scheme. Want to earn more money? Shill! Shill! Shill! Convince your friends to buy in and get a % of their returns. After all, you’ve been getting paid out so far, because more and more people are buying into the fraud. It’s important to note that not all multi-level marketing companies are frauds. Usually, if profits are focused more on recruiting new salespeople rather than selling a product, it’s a pramid scheme/scam. Don’t believe me? Ask the Better Business Bureau.

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Oh come on, don’t put an ACTUAL PYRAMID in our slides!

In January 2018, bitconnect received Cease and Desist orders from various authorities in the UK and United States, as authorities deemed it to be a high-risk pyramid scheme. Shortly after, most promoters began distancing themselves from bitconnect, claiming that they never endorsed the platform in the first place. Some even purged their YouTube channels. Bitconnect tried to combat this bad press by producing their own news stories and segments, looking to calm worried investors. The whole story is quite fascinating and is documented in detail here.

Despite bitconnect’s best efforts to show that it was a legitimate company, it wasn’t enough to keep them afloat. First came server downtime, then the company would close all lending operations. Within minutes, the price of bitconnect coins (ticker: BCC) plummeted over 90%. In July 2017, there is currently little to no market for bitconnect coins.

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hey babe, what’s uhhhh 40% of zero?

The US and UK governments clearly saw bitconnect as a Ponzi scheme. Apparently, the market would eventually agree. The incredibly popular platform is now dead, and some early promoters likely sold their BCC early on, at a high price, leaving later investors with a lot of worthless BCC.

Cryptocurrency is Scam-Land

While Bitconnect is one of the bigger, more obvious scams, it is not particularly interesting. Ponzi schemes have been done many times before, using all types of investments. However, the cryptocurrency world has many other, sometimes novel examples of scammery, including how cryptocurrencies get started in the first place.


In 2017, new projects raised billions of dollars through Initial Coin Offerings (ICO’s). These projects promised coins or tokens from their new platforms in return for investment capital, usually provided in the form of irreversible Bitcoin and Ethereum transactions. Sometimes, the project would already have a working blockchain, either in Beta or Mainnet. More often, the project would only have a Whitepaper that described the design of the system. Better yet, some projects only had a website and a list of team members.

2017 was a hot year for cryptocurrencies, and a hotter year for ICO’s. In fact, ICO’s raised over $5 Billion in 2017.

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Dassa lotta moolah

ICO’s completely changed the way that projects could raise money. Cryptocurrency projects no longer needed bank loans, they didn’t need to shop their idea to Venture Capitalists (VC’s), and they didn’t need to meet the stringent requirements laid out by the SEC to have an Initial Public Offering on a stock exchange. Did ICO’s bust down the doors of traditional finance and give ordinary investors access to pre-IPO companies that have huge potential? Or did ICO’s circumvent needed financial structures in order to scam amateur investors? Well, a little bit of both. Many in the cryptocurrency community have argued that ICO’s are a huge breakthrough for humanity. Yes, scams exist, but they believe that each investor should have the freedom to invest as they please, and the burden of research should be on the individual.

Unfortunately, there were plenty of exit scams this year. Some projects raised millions, then the founders simply disappeared. Again, this is more aligned with theft than scam, so we won’t get into those here. However, it’s worth asking, are all ICO’s scams because they circumvented traditional finance, and traditional consumer protections? Are ICO’s scams if they never deliver a working product? Are projects scams if their tokens don’t give voting rights, or rights to future dividends, like traditional stocks. Are they scams if they misrepresent the ability of their programmers, or the size of the market they’re going after?

The Truth Benders

With cryptocurrency being such a new, complicated technology, there is a lot of room for misrepresentation, some more fraudulent than others.

False Teams

There are plenty of ICO’s that launched with just a website, and pictures of their team members. Lesser-known ICO’s were known to include “Advisors” that had little to no connection with the project. For instance, some ERC-20 tokens listed Vitalik Buterin, the founder of Ethereum, as part of their team. In reality, he built the Ethereum platform that the ERC-20 tokens were created on but he did not have anything to do with the project in question.

Some projects went so far as using celebrity photos for their team members. It’s unclear whether the scammers thought this would work, or if they were just having some fun – seeing if anyone was stupid enough to invest in a project created by a graphic designer who looks EXACTLY like Ryan Gossling.

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Dream on, Kevin

Misrepresent your team, and you are a scammer. Investors should always ensure that a project’s team members are actually involved in the project. However, even this can be hard, as twitter obviously has not verified every programmer, and there are plenty of scam bots. These scam bots impersonate a programmer, and usually offer to send someone 5 Ether if they are first sent 1 Ether from the victim (a la Nigerian Prince). It’s gotten so bad that high-profile crypto personalities had to state that they weren’t giving away Ether in their profiles.

vitalik 1

But what about the DAO?

False Partnerships

In addition to misrepresenting team members, many projects (and their fanboys) misrepresent their project’s partnerships. With cryptocurrency markets being so thinly traded, news of a new partnership can skyrocket the price of a coin, leading to big profits for anyone who can front-run the “announcement”.

Sometimes, the fake partnerships get so bad that the traditional company has the address them. For instance, a crypto project called “carvertical” announced a partnership with BMW. They claimed that they would become “the first blockchain company integrating connected vehicles data onto vehicle reports system.” BMW said, “NOPE!”


Damn – called ’em out by name!

These fake partnerships have crept into larger projects as well, with IOTA being one such project that is continuously being accused of overstating partnerships.

Just because your project is built on Ethereum, your nodes are hosted on Amazon Web Services, or Ali Baba accepts your coin, does not mean you have a partnership with them. Investors – always be wary of partnership announcements. Check with the traditional companies. Or, simply, just buy and hold Bitcoin.

False Security

Many projects overstate the security of their network. While it is incredibly hard to attack the Bitcoin network, this does not hold for all cryptocurrency projects. Bitcoin uses Proof-of-Work (PoW) mining as security. If you want to attack the Bitcoin network, it’s no mystery what you need to do, you need to control a large percentage of mining power. With Bitcoin being the largest supercomputer (using this word loosely) in the world, you likely need tens of Billions of dollars to effectively attack Bitcoin. Smaller PoW coins are vulnerable to attack simply because there is not a lot of hashpower on their chains. Worse yet, many smaller coins use the same hashing algorithm and therefore the same equipment is used to mine their coins. Hashpower is typically spread across many different coins, as miners will mine whatever is most profitable. However, at any time, a large miner can decide to attack a smaller chain. This has happened frequently in 2018. Smaller PoW coins are not immutable, and are not a safe place to hold value.

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I am NOT passing up the opportunity to post a kewl haxx0r pic

Other projects think they can make their project less vulnerable to attack by using multiple hashing algorithms (Verge) or by rolling new cryptography (IOTA). Both projects have been severely compromised. Kids, DON’T ROLL YOUR OWN CRYPTO!!!! Some projects blatantly misrepresent their coin’s security. Others have overconfident programming teams who think that they built the next best thing.


This one warrants its own article, and I am not choosing a side. However, we have to talk about Bitcoin Cash. Bitcoin Cash (BCH) is a hard fork (copy) of Bitcoin that was created in 2017. BCH shares many of Bitcoin’s characteristics, but differs in one key way – the block size is 8 MB versus Bitcoin’s 1 MB limit. BCH was created mostly out of frustration that Bitcoin was not scaling correctly or quickly enough for some people. Personally, I think scaling Bitcoin might be the greatest engineering challenge of the decade, so I’m glad to see different attempts at scaling. What I’m not cool with, is deception.

Bitcoin actually forks all of the time, and nodes have to decide what the “real” Bitcoin is. Bitcoin’s code instructs nodes to follow the chain with the most accumulated Proof-of-Work,  known as the “longest chain”. By this metric, Bitcoin (BTC) is “the real Bitcoin”. BTC’s claim at being Bitcoin is also supported by other facts: BTC currently has about 8x the hashpower of BCH, 10x the price, and is referred to as Bitcoin on all major exchanges.

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BTC vs BCH hashrate

So, there should be no confusion, right? Well, there’s a group of users and developers that believe BCH is the real Bitcoin. They believe that BCH deserves the Bitcoin name because is it more in line with Satoshi’s original whitepaper. They also believe that BCH can serve as digital cash, and that BTC cannot, due to block size limitations.

This is all well and good, but many believe that BCH has pushed into scam territory, mostly by trying to steal Bitcoin’s brand and even trick new users into buying BCH, thinking that it is BTC. How are they doing this? Well, the twitter user @Bitcoin is apparently controled by a BCH supporter. The account almost exclusive tweets negative information and opinions about Bitcoin (BTC), Blockstream and more. Many Twitter users have reported this account as fraudulent for this reason. Twitter has temporarily suspended the account in the past due to overwhelming fraud complaints.

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I mean, what IS Bitcoin really? Is it, like, a physical coin?

No one is “in charge” of Bitcoin. The creator, Satoshi Nakamoto, has disappeared, likely because he realized that staying around would damage Bitcoin’s decentralization. Bitcoin is not a company, or even a foundation. Bitcoin has no marketing team, therefore, no single Bitcoin entity owns all of the accounts or domains that appear to be related to Bitcoin. In fact, even’s owners appear to be hostile to Bitcoin. This is particularly difficult for new users to understand. If you were to try and buy Bitcoin, what would you do? You’d likely head to or @bitcoin on twitter for more information. The problem is, if you were to download the “bitcoin wallet” by on an apple device, you’d actually be set up with a BCH wallet by default. This has not only caused confusion among new users, but it caused many people to lose money when they sent BTC to a BCH address.

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Well, at least some more BTC got burned

This was apparently close enough to fraudulent behavior that abandoned this approach, and they now show both wallets by default on the app.

You almost fixed it! Bitcoin CORE? Come on.....

So, do I think Bitcoin Cash (BCH) is a fraud? No. Have some individuals associated with BCH engaged in fraudulent behavior? Yes. Is this bad for Bitcoin? Certainly.

Are All Altcoins Scams?

So, back to Tone Vays. He calls all altcoins scams. More accurately, he starts with the assumption that everything besides Bitcoin is a scam. I believe he uses the word “scam” a little loosely in a lot of cases, but I understand his point. Bitcoin dominates in terms of hashpower, usage, and price. Bitcoin has been running since 2009, and is constantly exposed to all forms of attack. If a coin claims to be as secure as Bitcoin, it is making quite a bold claim, and is mostly likely wrong. Sometimes, the developers making that claim are being purposefully deceptive, sometimes they’re being naive. Where do you draw the line and determine that the project is a scam? Well, that’s up to you.

Should Bitcoin be the only blockchain? Probably not. During the 2017 bubble, Bitcoin fees skyrocketed. If you wanted to use Bitcoin as digital cash in December, you likely couldn’t….fees were too high. If you were developing a decentralized application on top of Bitcoin, and you needed low fees and fast confirmations for your platform to work, you likely jumped to another platform. Some Bitcoin proponents may say that the fee market worked as intended, and that Bitcoin has the right long term vision for scaling. This may be true for their use case, but not for ALL use cases. Therefore, altcoins need to exist, but investors need to know what they’re getting into.


Finance always has its fair share of scammers. Mix it up with groundbreaking technology, and you’ve got massive opportunity for fraud and exploitation. Scams aren’t always easy to detect, but in general, if something sounds too good to be true, it likely is. If you’re investing in the cryptocurrency space, be sure to do your own research, pursue expert opinions, or contact us for help.

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