Without a doubt, cryptocurrencies are a fashionable investment in the world, it has even become a way to protect against inflation caused by the high emission carried out by countries around the world in order to reactivate an economy sensitive to the pandemic.
However, there are risks because, just as it is easy to invest, so are frauds by this means, I present five most common frauds that have made investors scream.
1. Ponzi Scam
This mechanism is named after its inventor Carlo Ponzi, an Italian immigrant who traveled to the US and proposed quick profits by investing in postage stamps.
In this scheme, a high-yield “legal business” is advertised, paying profits to users with money from new entrants. “Pyramid scams have the same characteristic: they tell you that you win, but the one at the top always wins, not the one at the bottom,” Guillermo Navarro, an expert in technological law and creator of the Bildenlex study, explains to iProUP.
One of the most resonant cases is that of Generación Zoe, founded by Leonardo Cositorto, which promised returns of 7.5% per month by betting on a coaching course and even its Zoe cryptocurrency, which plummeted from $0.31 to 0 ,14 current.
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Although Cositorto, recently extradited to Argentina, assured that it is not a pyramid scheme, in several videos circulating on the Internet he is seen explaining to his “leaders” how they would charge 100 dollars for each person who joins the system until eighth level. A kind of illustrated manual on how a Ponzi works.
2. Free coins or “Give away”
In these scams, free coins are often offered by participating in a cryptocurrency platform or project.
An example was OneCoin, from Bulgarian brothers Konstantin and Ruja Ignatova, which combined an ICO (Initial Coin Offering) and Ponzi scheme with a give away. The latter consisted of the promise of free crypto to those who joined the platform.
But it turned out to be one of the most iconic crypto frauds. It is estimated that the scam amounted to US$4 billion, of which at least US$3 million belonged to Argentines.
3. Investments with experts and robots
In this type of fraud, a company claims to get its money from contributions from partners, robots, and market forecasters who promise 70% efficiency.
One of the most resonant cases in Argentina is that of the Spanish company Ganancias Deportivas, which is estimated to have defrauded more than 40,000 users in the Mendoza town of San Rafael.
Users enter the platform, by invitation, and pay an annual membership of 107 euros, between registration fees and commissions. Then they must buy some of the packs that the company sells: the figures range from 60 to 10,000 euros, paid in cryptocurrencies.
In exchange, it promises an exorbitant monthly return of 20% per month and 240% per year, far above any other investment instrument that the market can offer. But it also provides another service: network marketing or recurring earnings, which, according to the firm, offers returns of up to 4% if the user refers new associates.
“The company is not registered in AFIP, nor in the National Securities Commission, nor in the Institute of Games and Casinos of Mendoza, nor in any other body,” Javier Giaroli, in charge of the 2nd Civil Prosecutor’s Office, tells iProUP and Instruction of San Rafael, who began an investigation in early 2021.
The lawyer points out that the sustenance of the operation is based on a “criminal pyramid or ponzi scheme, where only the exponential growth of new contributors sustains the remuneration paid to the first.”
“If the scheme works as indicated, it must necessarily collapse at some point, either because new contributors do not enter or those who enter are insufficient to distribute profits to the previous ones,” warns the Giaroli prosecutor’s office.
4. Fake ICOs
The expert Ismael Lofeudo comments to iProUP that the scam based on ICO (Initial Coin Offering) was the first to be known, and prompted the Central Bank and the Fiscal Information Unit (FIU) to issue warnings to Argentine investors about the high risks of crypto assets.
ICOs are nothing more than an initial coin offering, a valid alternative to fund new projects. But it became widespread in the form of fraud: new crypto assets arrived with pompous names and a business model that promised high returns.
“The unsuspecting victims are encouraged to acquire a new cryptocurrency through money or crypto assets that do have a market value, such as Bitcoin, Ether, DAI or USDT,” explains the expert. Later, Lofeudo continues, “the project disappears and they keep the investors’ funds. This methodology was repeated ad nauseam since 2014.”
And he adds: “Although in some cases the scam was so big that those responsible ended up arrested or ordered to be arrested, in most cases the culprits were not prosecuted.”
5. Viruses that mine
Lofeudo indicates that “another modality with unique characteristics is the use of programs called Trojans to mine cryptocurrencies without the authorization of the owners of the computers.”
“The criminal installs an application on the victim’s PC without their knowledge. It can use a program that offers a legitimate service or exploit vulnerabilities in some other software or the same outdated operating system,” he says.
According to the expert, “once the computer is infected, it is added to a computer network controlled by the criminal and used to mine cryptocurrencies, using the computing power of the infected terminals.”
As examples of this type of fraud, Lofeudo mentions programs marketed by the Steam video game platform and the hacking of the Wi-Fi network of Starbucks stores in Buenos Aires.