Fraudsters & Cryptocurrency
2017 and 2018 will be remembered as the years cryptocurrency (which developed into its current form around 2009 with the creation of Bitcoin) entered the public’s conscious on the global stage. The impact and possibilities that cryptocurrencies and the underlying blockchain technology powering them have on the global financial system could redefine the international monetary system. We are entering a period in human history where these decentralized forms of digital currencies have the potential to up-end the current financial order by taking on the traditional bedrocks of stability; governments, banks, and interconnected international institutions. Or… it could be another passing trend, one of the many over-hyped millennial trends in technology whose impact is exaggerated by social media. Experts in this space could claim whatever they want but no really knows at this point how things will turn out, including some of the greatest minds in the fields of economics and finance.
The bird’s eye view of these emerging technologies and the ramifications on the global economic system are something we’re closely observing at Interfor. As things continue to develop at an increasingly rapid pace, two facts are very clear; first, there is a significant amount of money being invested internationally into the wide array of cryptocurrencies on the market, primarily thru ICOs (Initial Coin Offerings). The second (as history has unfortunately shown us) is where there is an opportunity to make a quick buck by breaking the rules, nefarious actors will quickly find a way to do so. Here at Interfor our mission is to educate you on the threats as we see them and to find ways to protect and counter these emerging challenges.
Let’s address the environment in which scams are happening in the first place. The cryptocurrency space operates in an opaque and closed fashion, using highly technical terms and jargon to confuse investors and create a notion of competence, exclusivity, and a manufactured sense of urgency. On top of that, there is what can be described as cult-like behavior (including jargon) which this community has adopted. The roots of cryptocurrency lie outside the confines of social normal and this lingo confirms outsider status. These tendencies all tie into cryptocurrency’s dark libertarian/anarchist roots and its facilitation as currency on the Silk Road; the infamous online black marketplace where the cornucopia of illegal drugs, weapons, illegal credit cards, etc., was sold.
One of the major reasons this space is interesting for criminals is for the simple reason many cryptocurrencies operate internationally and without government oversight and regulation. This has created a ‘Wild West’ environment with no return address hidden in the shadowy reaches of the Internet. The numbers paint a disturbing picture; according to Bitcoin.com over 1.3 billion (yes, you read that number right) has been stolen in scams just in 2018 alone. And we only just wrapped up the first quarter.
The reality is that scammers are taking advantage of people’s lack of understanding, as well as the ‘gold rush’ mentality that many uneducated investors have adopted. Even forms of communication such as Telegram, a messaging platform like Whatsapp (it also happens to be Russian and is raising money for its own ICO) has been the go-to mode of communication via it’s group chats in this space. Below are three examples of where we see fraud and illegal activity happening, and which to look out for:
⚪️ Ponzi schemes. Yes, they did not go away with Bernie Madoff and phony get-rich-quick schemes of the last decade. But it’s worse circa 2018 as “fake news” has entered the picture to affect the prices of unregulated cryptocurrencies. Fake news articles are manufactured to create a sense of urgency and raise the buying temperature of potential buyers. These crypto-Ponzi schemes are just the next generation of this scam genre which has plagued the financial and real estate world and is now having their day online.
⚪️ Dishonest exchanges. Exchanges are where the variety of cryptocurrencies are traded; fraud is happening on these highly unregulated exchanges. Unbelievably, some exchanges have been known to actually disappear overnight (and take the cryptocurrencies with them), but fortunately, there has been an improvement as of recent with several trusted exchanges gaining widespread usage.
⚪️ Money laundering. The new real estate. This time things have moved to the digital world with digital money laundering, or “crypto-cleansing”. It is, what Blackrock CEO Larry Fink calls the “index of money laundering”. Not surprisingly international crime syndicates, terrorist organizations, and the rogue states supporting them are using this digital form of money laundering to move money around the globe (as well as avoid sanctions).
So how is one to guard against being the victim of these forms of fraud? This goes back to the age-old question of how much risk one is willing to tolerate. ICOs and the world of cryptocurrencies are high-risk; as always one must keep their eyes wide open and understand the game being played. No one knows where this is all headed, and it is a challenge to rise above the noise of the polarizing impact this trend has had on people situated on both sides.
If you’re interested in investing in cryptocurrencies it is like anything in business and life, work via trusted sources from people in your network. And never underestimate the importance of educating yourself (i.e., oftentimes a simple Google search will come up with the information if an ICO is a scam). There is always a risk when entering a space as risky as cryptocurrencies, so when your due diligence and gut feeling is not enough, feel free to use us as a resource to shine a light.