A how to guide to avoid Bitcoin scams in Namibia.
Definitions (if not found in text):
Altcoin — a copy of the Bitcoin software with inferior features and market capitalisation which is directly correlated to Bitcoin and very high risk.
Cryptocurrency — a digital currency.
Trade volume — is the amount (total number) of an asset (or a given set of securities, or an entire market) that was traded during a given period of time.
Market cap — in cryptocurrency terms, it’s defined as the total circulating supply of Bitcoin (or altcoin) multiplied by current price.
1. Ponzi and Pyramid Schemes:
These usually consists of offerings where you must deposit an upfront fee to guarantee a profitable payout somewhere down the line. It is always the initial deposit (principal) that is used to pay previous investors in the scheme, meaning it’s only a matter of time before many people part of such a scheme loose their money.
They will usually ask you to invite a certain number of people before you see a payout — but this just means that you are receiving the deposit fee of some member you’ve signed up for the scheme.
It is only a matter of time with these type of schemes before a lot of people loose all or most of their money they have invested.
Popular examples of Bitcoin associated ponzi/pyramid schemes known to be operating in Namibia include:
MLC MyLifeChange 247 mining schemes
AWS Mining Namibia
How to protect yourself from ponzi/pyramid schemes:
- Make sure to check https://google.com.na and search the company name together with the word ‘scam’ (‘company name’ + ‘scam’ e.g. ‘Bitclub Network scam’) and see if multiple valid results show up. When the company has been red flagged multiple times by various different sources, it is safe to assume it’s a scam.
- Do your due diligence by checking if the company is locally registered with the correct legal entities.
- Do they have a website or just a Facebook or social media page? If there is no official website, that should raise red flags.
- When their website information or promotional material claims to be able to guarantee unusually high returns such as doubling your investment in a short amount of time, it is a scam.
- Does the company ‘About Us’ page have any information about real people or links to their profiles? Do their Terms & Conditions also state incorporation information? If not, this should raise a red flag.
‘Phishing’ is when you receive an emails or messages that appear as if they originate from an official entity such as your bank — or, in our case, from your Bitcoin marketplace or supplier. These emails or messages can contain a link that navigates to a website that appears as a clone of the real website but is faked and used to steal user login details.
Once you enter your login details to your account on these faked web pages, the scammers have what they have need to log into your real account and steal your Bitcoin.
How to avoid phishing scams:
- Always see if there are any mistakes in the website URLs (a URL is the website address e.g. https://mycompany.com) and that the website has a padlock that shows an official certificate of the company you are attempting to visit when you click on the padlock. Always try to make certain you’re visiting the real website.
- Don’t click on suspicious links emailed to you.
- Never disclose TO ANYONE YOU DON’T FULLY TRUST your personal private Bitcoin wallet keys or mnemonic phrases.
Malware installs unwanted software on your computer or device that can use up your computing resources by doing things like cryptocurrency mining, spy on what you type or how you use your software so that the author of the software can steal information or funds from you.
Malware can also lock you out of your computer and the author will only release your data for a ransom paid in Bitcoin, this can result in critical loss of data or data theft — even when paying the ransom.
How to avoid malware:
- Never install software that you aren’t 100% sure comes from the legitimate author/vendor.
- Don’t click on suspicious links in websites or in emails that you receive.
- Always make sure to keep your antivirus software up to date.
4. Fraudulent ICO/STO’s:
An (Initial Coin Offering) ICO or (Security Token Offering) has been a popular way to raise funds from the public for entities mainly in the Ethereum ‘cryptocurrency’ space but has also been associated to other altcoin/cryptocurrency platforms such as NEO, Tron, NEM Chain, Stellar, Ripple, Dash and others.
An ICO/STO is usually an attempt by a group of people to get members of public to invest in their project by buying a cryptocurrency (usually Ethereum) which they then invest into project specific ‘coins’ or ‘tokens’ that the project intends to use as a purchase mechanism somewhere down the line in the project roadmap. This always comes with a promise that the ‘coin’ invested in, will be worth much more in the future and the investors will see a premium on their investment.
Unfortunately the space has been marred with a bewildering amount of fraud in the billions of USD throughout 2017 and 2018 with a reported 80% of all ICO/STO’s declared as exit scams and many prominent researchers (including the inventor of Etherum and also first ever ICO conductor) claiming with good reason that over 90% of ICO/STO’s created will fail.
Very few investors anywhere in the world have made any significant gains by investing in ICO’s, most people have made losses of up to 90%.
How to avoid getting scammed by an ICO/STO:
- If you see the acronym or full description of ICO/STO attached to a project/investment, it is good reason to avoid the project/investment altogether.
- If you are not an experienced day cryptocurrency trader who is able to short the token being offered, do not invest in any ICO/STO.
5. Fake and/or badly operated cryptocurrency exchanges/wallets:
Comparable to phishing tricks, watch out for dubious Bitcoin/cryptocurrency exchanges. They may walk and talk like a respectable trade, yet they’re simply a front to embezzle people from their money.
Some exchanges will allure clients with special offers that sound like a pipe dream. Others will pressure clients into making a large deposits, many a times offering ‘rewards’ to the individuals who store bigger sums. When they finally have your funds they may charge extremely high trading and custodianship fees, and make it exceptionally hard or impossible to withdraw assets.
Many exchanges are badly implemented and have so little trade volume that putting your money into them is like throwing it into a black hole.
Con artists have also concentrated on programming complex fake wallet applications that, once downloaded to a user’s device, are utilised to spy on the users device usage data and steal their Bitcoin. These applications have even made it into official application stores like Google Play and AppStore, so doing due diligence before downloading any wallet or exchange application to your device is paramount.
Effective methods to avoid fake/badly written marketplaces/exchanges and fake wallet trickery:
- Stick to the entities with the most public clout and trust in your locale. Ensure they are legally registered to operate in your jurisdiction.
- Thoroughly investigate any software (exchange or wallet) before making a record — who is the group behind the trade or wallet? Where is the organisation incorporated? Are there dependable audits from different clients affirming its authenticity?
- If it’s an exchange, investigate the total daily/weekly/monthly volume on the site/application, if it is too low — or unbelievably high with no corroboration, raise a red flag and search for something more reputable.
- Never keep significant amounts of Bitcoin stored on an exchange wallet, find a reputable personal wallet to store your Bitcoin in over the long term.
- Don’t haphazardly pick a wallet from the application store, make sure you read reviews and do due diligence on the authors — try to download applications from authentic wallet developers and known exchange authors.
6. Scammers and Con-Men:
Scammers and con men have found many ingenious ways to embezzle people out of their money, from appealing to your emotions to setting up complex fake operations to convince the unsuspecting public of legitimacy — it is important that you distance yourself from anything that sounds too good to be true.
How to avoid them:
- Avoid replying to emails that appeal to your emotions asking you to send Bitcoin or funds for this or that cause without doing due diligence and ensuring the validity of the claim.
- Avoid answering emails, phone calls and SMS’s that implore you to send your access details or private keys, usually official businesses will NEVER ask for any sensitive details over any communication channels.
- Avoid attending multi level marketing events which have a Bitcoin or cryptocurrency aspect as they are scams 99% of the time.
7. Pump and dump schemes:
Many Altcoins are a speculator’s dream come true and are ripe for of market manipulation, this has led to the rise of what are known as ‘pump and dump’ schemes.
This is where large groups of buyers target a altcoin with a small market cap (total amount of funds in circulation as the altcoin), buy the it ‘en masse’ (all together) at a particular time to drive its price up which then attracts a whole lot of new buyers fuelled by FOMO (a fear of missing out) — and then sell it to take advantage of the significant price rise.
This is an illegal practice in traditional securities markets, but is a common occurrence in the unregulated world of altcoins. In fact, there are several online groups and forums dedicated to this exact practice, so it’s important that you stay savvy and know how to steer clear of these scams.
How to avoid pump and dump scams:
- Be wary of low market cap altcoins that normally have a low trading volume but that suddenly experience a sharp price rise.
- Keep an eye out for ‘fake news’ on social media that hypes particular coins.
Carefully research the credentials and authors of any altcoins before buying into.
- Avoid altcoins altogether and stick to Bitcoin.
As a closing note we remind everyone to use their common sense, if it sounds too good to be true, it usually is!