Bitcoin’s decentralised, permissionless, borderless nature means that anyone can start accepting payments from anyone anywhere in the world without incorporating in regulated jurisdictions and setting up bank accounts or merchant facilities. As the Bitcoin price rises and gets mainstream coverage, it has given rise to many scams targeting retail investors. As with any financial product, it pays to take the time to understand your investment and protect yourself from unscrupulous operators.
One particularly prevalent form of Bitcoin scam doing the rounds right now is the Ponzi or pyramid scheme. In a Ponzi scheme, the promoter promises investors a regular return on money they put into the scheme. The promoter will say money is being generated by investment or trading activities, but in reality the money is coming from new entrants into the scheme and no real investment exists. The Ponzi scheme eventually collapses when the original promoter walks away with all the money.
Ponzi schemes have some common features which taken together, indicate a less than legitimate operation. If you’re considering putting money into a scheme with one or more of these features, it may be a scam:
- Anydesk: A broker or advisor asking you to install any screen sharing software, particularly ‘Any Desk’ is almost certainly a scammer. There is no need for any genuine company to see your desktop screen and this is used as a ploy to retrieve your account information.
- Blockchain Scam: Anyone claiming they have ‘found’ a large amount of cryptocurrency that belongs to you on the blockchain is almost certainly a scammer. This scam usually involves tricking someone into depositing a ‘release fee’ to withdraw your funds. Once you deposit the ‘release fee’, it gets stolen from you by the scammer.
- Large account release scam: Often scam sites will show you a large balance that they have run up through ‘investing’ or ‘trading’ an amount that you deposited to them. These sites will then make reasons for you to deposit more funds before they can release your funds. All extra deposits get stolen by the scammer.
- Offshore brokers/investment sites: Cryptocurrency is a volatile asset. There is, however, no such thing as free money. Companies promising big returns after a small deposit with little risk are highly likely to be scams.
- The person recruiting you to the scheme is a trusted friend, family member or member of your community. Most members of a Ponzi scheme do not realise they’re in a Ponzi scheme until it collapses.
- The person recruiting you has already received some form of payment/s or returns. Members of a Ponzi scheme may indeed be receiving some form of payment/s at the time they try to recruit you – that doesn’t mean the scheme is legitimate.
- They promise very high, often fixed rates of return. The average super fund in Australia returns around 10% per year. Ponzi schemes will usually promise much higher returns, up to 1% per day.
- They offer benefits – such as compound interest – to entice you not to withdraw your money or Bitcoin. Ponzi schemes rely on keeping capital inside them to pay fake returns to their investors, who in turn will rely on these payments as ‘proof’ that the scheme is real, and recruit more members. Any scheme offering big financial inducements to keep your money inside it should be looked at very carefully.
- The company is not registered with ASIC. Any company offering financial products and services to Australians must be registered with the Australian Securities and Investments Commission. If the scheme is not registered, that is a warning sign. ASIC has more information on its website, including examples of Ponzi schemes, a list of registered companies, and a list of companies you should not deal with.
- Giveaway scams – If someone is asking you to send crypto and promising you will get more crypto sent back in return, this is a scam 100% of the time. Free crypto giveaways asking you to send an amount first do not exist. Even if you see these giveaways associated with well-known individuals, such as Elon Musk, this is still a scam designed to steal your funds.
Other forms of Bitcoin scam, similar to other financial scams, involve direct emails; malware downloads; and ‘flipping’ scams that encourage you to buy Bitcoin and immediately send it to someone with the promise of a significant sum of money in return. Forbes published an excellent article on Bitcoin scams which you can read here.
Independent Reserve is a venue for the trading of Bitcoin, Ethereum, Bitcoin Cash, and other cryptocurrencies. We are not involved in any Digital Currency investment schemes. We have been working closely with regulatory bodies since our founding in 2013, and hope Digital Currency will soon be formally regulated in this country helping to better protect Australian Digital Currency users.