With the constant fluctuation in Bitcoin prices and the lure of easy money, many investors have been trying to get into this space. However, the Indian government has made investing in cryptocurrencies almost illegal, disallowing direct investments in them.
This has led to investors seeking alternate routes to invest in the cryptocurrency market. Some wire money through foreign contacts to exchanges abroad in an elaborate loop. Others look for easier options.
And that’s where the scamsters running Ponzi schemes come in.
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In early April, a cryptocurrency entrepreneur, Amit Bhardwaj, was arrested for allegedly duping investors for as much as Rs 13,000 crore in cryptocurrency value through his ventures GainBitcoin and GBMiners.
In early May, Delhi Police Cyber Cell raided a cryptocurrency mining unit in Dehradun, for illegally minting ethereum (another cryptocurrency). The people arrested were also accused of running their own cryptocurrency and duping investors.
In January, the UP special task force brought to light a bitcoin exchange fraud in Lucknow. The people behind the scam, lured investors by initially transferring Bitcoin into users wallets to gain their trust, and then when the investors put in more money, they would withdraw it and disappear.
Some of these scams are the oldest tricks in the book. They are the cryptocurrency equivalent of the Nigerian email phishing tricks. Here are some of the common scams to watch out for.
Ponzi Schemes
There have been instances of scamsters posing as agents helping users to invest in cryptocurrencies. They run the classic multi-level pyramid scam, where they take money from one set of investors and pay off another set partly. This falsely assures the investors that their money has been invested and they are getting some returns. This scam keeps building until it is substantial enough for the scamsters to disappear with the money.
Fake Cryptocurrencies
Bitcoin and its soaring value have left many investors thinking they have missed an opportunity to invest in the cryptocurrency. That’s when scamsters step in offering “newly minted” cryptocurrency that could one day gain significant value just like Bitcoin, Ether or Litecoin.
They come up with their own name for the cryptocurrency and sell it to investors - just that there is no real currency and they make off with the money. In India, a similar scam involving a site called Kashhcoins took place in December.
Fake Bitcoin Exchanges
As Bitcoin and the cryptocurrency space is not very well understood by many investors who are in it just to make a quick buck, scamsters find them easy prey. In December, police in South Korea, busted two fake exchanges – BitKRX and MiningMax – that were involved in a $200 million cryptocurrency Ponzi scheme.
As always, one needs to verify the authenticity of an exchange before investing, but greed and limited knowledge of cryptocurrency functioning allows scamsters to easily find gullible investors.
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