Watch Out: Crypto scams are on the rise (
A new report from the UK’s Financial Conduct Authority (FCA) looks at the growing number of crypto-related scams. The FCA warns members of the public to stay vigilant as the number of fraud-related activities is increasing and scammers are becoming more sophisticated.

According to research by the FCA and Action Fraud, the number of scams related to crypto assets and forex investments rose significantly in 2018 with victims losing a total of £27 million in since the beginning of 2018.

Data provided by Action Fraud, the UK's national reporting center for fraud and cybercrime, revealed that in 2018 and 2019, victims lost an average of £14,600 to forex and crypto scams.

A worrying trend
The numbers reflect a worrying trend. The Director of Action Fraud, Pauline Smith, says that while the scammers must be held accountable for their actions, it is imperative that the general public do their research and act responsibly to avoid falling victim.

Smith says, “These figures are startling and provide a stark warning that people need to be wary of fake investments on online trading platforms. It’s vital that people carry out the necessary checks to ensure that an investment they’re considering is legitimate.

”However, the reality is that fraudsters employ a wide range of tactics in an attempt to entrap victims. Through the clever use of social media, well designed and professional looking websites, aspirational imagery and even faked celebrity endorsements, scammers are able to give their products a veneer of legitimacy.

Due to crypto’s steep learning curve, it can be extremely difficult for inexperienced people to discern the difference between a legitimate website and a scam.

Many fraudulent websites are marketed in the form of a get-rich-quick scheme. Scammers use a potent mix of advertising and psychology to prey on the public’s subconscious desire for wealth. Any project that promises a guaranteed return or profit, is almost certainly a scam.

Some of the more insidious scams give the false impression that they are paying out a profit in order to get the victim to invest more. Victims will be led to believe their investment has generated a profit, usually in the form of a small payout.

Bolstered with confidence, the victim is then more likely to invest further. These activities are promoted with aggressive upsell opportunities and entice victims to introduce friends and family through high-paying referral programs. This is an update of the classic pyramid scheme model.

When the scammer has finished exploiting the victim and new payments from the victim are no longer forthcoming, the scammer will close the victim’s account and disappear. The victim has no recourse to contact the scammers and limited options for the recovery of funds.

A new scam identified by Japan’s Consumer Affairs Agency (CAA) is a classic example. According to the CAA’s investigation, a company called CCS has placed advertisements online in Japan for a product called ‘Tech-Box’ which it says will enable users to earn “30,000 yen a day, just like playing a game.

” The gist of the scam is users install an app which will alert them to arbitrage opportunities on local crypto exchanges - enabling them to earn 30,000 yen a day by using the application for just 15 minutes.

The CAA says there is no system behind the app, and the CCS staff named online are fictitious. As crypto appears to be entering a bull run, however, it is likely scams like this will continue to deceive newcomers to the sector.

Profiling the victims
A paper by Marie Vasek and Tyler Moore, Analyzing the Bitcoin Ponzi Scheme Ecosystem, analyzed the supply and demand for Bitcoin-based Ponzi schemes. Released in February, the paper shows that there are a variety of these types of scams: from long cons such as Bitcoin Savings & Trust to overnight doubling schemes that do not take off.

The paper investigates what makes some Ponzi schemes successful and others less so.
Vasek and Moore analyzed 11,424 threads on, and identified 1,780 distinct scams. Of these, half lasted a week or less. Using survival analysis, Vasek and Moore looked to identify the factors that affect scam persistence.

The authors found that “one approach that appears to elongate the life of the scam is when the scammer interacts a lot with their victims, such as by posting more than a quarter of the comments in the related thread.

The report shows that those most likely to fall victim to crypto scams spend a significant amount of time on platforms dedicated to discussing crypto. While such forums are an important learning resource, it appears they also provide an attack vector for fraudsters who tend to target people new to the space.

A paper, called The ICO Gold Rush, published by a group of researchers from Luxembourg University, states: “More than half the ICO white papers are either silent on the initiators or backers or do not provide contact details, and an even greater share do not elaborate on the applicable law, segregation or pooling of client funds, and the existence of an external auditor.

Accordingly, the decision to invest in them often cannot be the outcome of a rational calculus.” While these findings are applicable to the ICO market, they are relevant because ICO scams constitute a significant portion of all cryptocurrency-related fraud.

It seems that the kind of individuals who are more likely to fall victim to a scam are those who are easily swayed by factors that should not drive investment decisions.

Those who don’t conduct thorough research on an investment opportunity, or perhaps do not have the skills to do so, are more likely to be driven by FOMO, and promises of guaranteed profit.

This group, along with newcomers to the industry who have not yet learned how to identify a scam, make for easy targets for scammers.

Lastly, a paper called When Cybercrimes Strike Undergraduates draws parallels between the extensive use of technology by undergraduates and a greater risk of falling victim to cybercrimes such as cryptocurrency scams.

The paper found that roughly half of the undergraduate students surveyed “have experienced one or more cybercrimes while in college, with malware, hacking, and phishing being the most prominently experienced cybercrimes.

The paper suggests that those students who do not maintain security practices such as updating the software on their devices were more likely to fall victim to cybercrime.

How to avoid scams
It’s important to be very skeptical of unknown opportunities. Don’t trust, verify. Remember that with investing, ‘if it sounds too good to be true’, that’s a red flag.

Mark Steward, Executive Director of Enforcement and Market Oversight, FCA, reiterated this sentiment in a press release: “We’re warning the public to be suspicious of adverts which promise high returns from online trading platforms.

Scammers can be very convincing so always do your own research into any firm you are considering investing with, to make sure that they are the real deal. Before investing online find out how to protect yourself from scams by visiting the ScamSmart website, and if in any doubt – don’t invest.

Thorough research means going beyond the website of the investment in question. Look up who is behind the company, are they real people with a proven track record?

What are other people saying? Are there any concerns to be aware of? Ignore endorsements by celebrities because they have no bearing on the technology or value of the product advertised.

Lastly, good online security practices are important for crypto asset investors. Using different passwords, hardware wallets and downloading high-quality anti-virus and anti-malware software are important tools for any crypto investor.

Never invest a significant amount of capital into crypto assets until you know how to keep those assets safe.


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    Francisco Gimeno - BC Analyst Scammers and hackers have been with us like parasites since the beginning of civilisation, if not before. They feed from avarice and people who believe yet such a thing as "free lunch" in this world. Let's fight them with knowledge, homework and a lot of skepticism. If it is too good to be true, then surely won't be true!