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Most of the people in the world of finance these days are lured in, to some degree, by the shine of cryptocurrencies.
After all, what’s not to like? Safe investments, high returns, and standardized exchanges are offered today for cryptocurrencies.
Yet, at some point in time, even the biggest of cryptocurrencies such as Bitcoin have been blamed to be mere Ponzi schemes, relying on nothing more than the sheer demand they face, and the circulation of digital money.
The great investor Warren Buffet, too, has his scepticisms on the same.
While Bitcoin and most other cryptocurrencies we use today seem to be legitimate operations, this has not always been the case.
The world of cryptocurrencies has, time and again, been shaken to its core by scams, ranging in millions of dollars, looting investors and bringing empires to the ground.
While some of the money from such scams has been recovered, a lot of funds have been lost, too.
Perps have used every trick in the book, from simple Ponzi schemes to syphoned bank accounts, to put away their clandestine earnings. Below are some of the biggest frauds that have been witnessed by the cryptocurrency world so far.
Pincoin/iFan ICO scam
Perhaps one of the biggest ways by which a cryptocurrency can scam people is through an ICO – Initial Coin Offering.
An ICO is similar to an IPO. when a company goes public and offers its shares to the public, it is an IPO, or Initial Public Offering. Similarly, when a cryptocurrency first offers its coins to the public, it is through an initial coin offering.
Since this is a way of raising capital, it can be used to scam people.
That is exactly what happened when a Ho Chi Minh based company, Modern Tech, scammed its subscribers in Vietnam out of approximately USD 660 Million in funds, by offering coins for Pincoin and iFan, a blockchain based social media platform.
Modern Tech lured in about 32000 investors in this scheme, and after taking in their money, fled the country and closed down their building. Investors were seen protesting outside the building until quite some time.
In the beginning, the company offered Pincoin tokens to its subscribers, who were very happy with the bonus that they received.
Soon, however, they began to only offer iFan tokens instead, and very soon, the value of these tokens hit rock bottom, leaving investors with practically no returns.
While iFan was registered in Singapore, Pincoin was registered in Dubai, and both companies approached Vietnam Based Modern Tech to market their products in the country.
Ifan was a social media platform targeted towards celebrities, artists and so on. On the other hand, a lot of experts had already purported Pincoin to be fraudulent, as it was clearly identified as a multi-level marketing scheme.
While the company offered 40% assured returns to its investors, modern tech offered an additional 8% for investors bringing other investors. No one knew the origin of this additional capital.
Investors started becoming worried when rewards were offered in iFan tokens instead of fiat money, and their growth was limited to digital assets.
This recent scam, unearthed in April 2018, is touted to be the biggest ICO scam in history.
Till date, the fraudsters are at large and no money has been recovered.
Mt. Gox Bitcoin Scam
When we think of Bitcoin, we generally think of safe exchanges, regulation, and standardization.
Back in 2010, however, all of this was proved wrong when one of the world’s then largest names in Bitcoin exchanges, Mt. Gox, came down crashing upon itself and left a USD 450 Million hole of corruption, scandal, and fraud.
A hack in the Mt Gox framework, which released the keys of the hot wallets handled by Mt Gox, breached the security of the system and resulted in huge losses to the members.
Beginning in 2011, the hack took place at a time when wallet encryption was not as common as it is today, and iterative hacks and losses continued to ensue.
By the mid of 2013, roughly 630,000 BTC, then valued at above USD 400 Million, were lost. eventually, about 850, 000 BTC would be lost. Today, the value of these Bitcoins would average about USD 8 Billion.
Specialists claim corruption because they find it hard to believe that Mt Gox was unaware of the gaping hole in their framework for almost two years, and that fund kept coming in, despite the strong and continuous leakage of cryptocoins.
Surprisingly, the funds were moved around as “deposits” in various accounts, which resulted in an additional 40,000 BTC in Mt Gox’s circulation.
Mark Kerpeles, the then chairperson of Mt Gox, and one of the biggest investors even today was made infamous by the disaster. While the scam was named as an unconscious neglect of fiduciary duty, and no one was caught for it, it has affected the reputation of everyone involved.
The Optioment Pyramid of BST
The optioment pyramid, or the optioment ploy, was one of the worst ICO scams that was faced by Bitcoin.
Bitcoin Savings and Trust ( BST) run by Trendon Shavers, lured in a lot of investors, offering rewards as lucrative as 7% a week. Turns out, it was nothing but a mere Ponzi Scheme.
Trendon claims that he made the extra returns by short selling a stack of bitcoins for high prices before re-purchasing them at market prices.
That means, he sold bitcoins for very high values, and only then did he buy the original bitcoins at original market prices. He claims to have deposited over 500,000 bitcoins in this manner.
While Trendon also invested some of his Bitcoins in Mt Gox, he used most of these to move forward his Ponzi scheme, and pay back his older investors with money from the newer ones.
At least 48 out of his 100 investors were said to face losses, amount to about USD 1.25 Million.
At the time, the bitcoins he laundered away were worth about USD 97 Million. He was penalised for USD 40 Millio, and sentenced to prison for one and a half years.
Another instance of ICO scams, Centra tech managed to raise USD 32 Million for its ICO, before the SEC in USA realised that they had failed to register their coin, and stowed away the money raised for the same.
The Founders, Sohrab Sharma and Robert Farkas, lied to their investors and provided no returns after having raised the capital, before complaints were lodged against them in New York.
They used a number of crooked strategies to mislead their investors. Not only did they lure them with promises of tokens when in fact none existed, but they also professed to hold business relationships with card providers such as Visa and MasterCard, to add to the credibility of their “firm”.
Further, they created a fictional series of employees, each with an awe-inspiring bios, and made it look like they worked for Centra tech.
They made it appear as though celebrities supported and promoted their scheme. For a known fact, celebrities such as DJ Khaled and Floyd Mayweather did support Centra tech, until it was found to be a scam.
They converted the whole facade to create a multi-level marketing scheme, reliant heavily on celebrity endorsements and the ethos of a strong company.
The duo marketed Centra as a cryptocurrency that can be linked to major debit cards, and thus be used to spend various other cryptocurrencies in everyday transactions.
A scam that is still highly controversial, onecoin has its fair share of supporters and foes.
There are many who still believe it to be a legitimate operation, although it has been more or less declared as a scam officially in almost all the countries where it operated.
Labeled as a “clear Ponzi Scheme” by investigating authorities, the Onecoin scam , which was identified first in Bulgaria, managed to rob investors off of a total of more than USD 30 Million.
Officially claimed to be registered in Vietnam, although the country later denied the claim, the holdings made by Onecoin were seized in China.
Onecoin claimed to be a regular altcoin that had been created by mining and gained value from its demand and supply chains.
Similar to a lot of scams in this list, it also utilised the Multi-level marketing scheme, marketing its tokens as rewards for the purchase of educational products.
Further, it relied on investors roping in other investors in order to yield rewards. It was then identified as a ponzi pyramid scheme.
To raise suspicions, onecoin could only be traded on its official exchange, and not on any independent exchanges.
It also claimed to have the largest blockchain, geared to issue a total of 120 Billion units.
Once flags were raised on this operation in Bulgaria, other countries also began barring the cryptocurrency, and soon its operations were shut down.
Its founder was identified as a woman who claimed to be a harvard graduate, although independent studies later found this to be false, too.
The biggest operation against Onecoin in the entire world was conducted in Mumbai in India, where sting operations cracked down on several known promoters on Onecoin, seizing over USD 3.7 Million. Yet, around USD 11 Million was illicitly smuggled out, never to be recovered.
Another ICO scam, Plexcoin raised over USD 15 Million, before all its funds were frozen and owner, Dominic Lacroix was jailed.
Since Plexcoin’s holdings classified as securities, the SEC could jump in on time and take action. This was the first time when the SEC used its cybercrime unit against an ICO.
Lacroix was given jail time and fined USD 100,000 by a Canadian court once this was unearthed.
Bitcoin Gold Scam
Claiming to be a new coin token linked to several coins, the Bitcoin Gold scandal robbed its investors of above USD 3.3 Million in total.
A multicoin scandal, it involved scams over USD 3 Million in Bitcoin, USD 100,000 in Bitcoin Gold itself, and similar high amounts in ethereum and litecoin.
Propagated through a website by the name of mybtgwallet.com, the scam prompted users to share their recovery seeds in order to generate wallets for bitcoin gold, and soon after receipt of seeds, the users found their wallets cleared of all their holdings.
The team had been marketing bitcoin gold as a secure holding variation of Bitcoin that restricted the possibilities for further mining.
Bitconnect was blamed to be a Ponzi scheme long before it was shut down. It is widely touted as “the biggest exit scheme in cryptocurrency networks”.
In its initial days, it looked to be a promising cryptocurrency, offering rewards and benefits to lure investors.
Bitconnect’s exchange allowed users to exchange Bitcoins for BCC ( bitconnect coins)
Using a different Ponzi referral scheme, the exchange allowed users to lend other users BCC, as a function of how many BCC they had learnt themselves.
Together, the two schemes together formed a four-tier investment system that syphoned off funds from investors.
Amounts coming up to about USD 700,000 have been lost to the platform, and a class action lawsuit is in place against it.