Hello, professor @yohan2on, I am humbled to be part of your lecture about Crypto scams and how to avoid them and I present to you my homework post for the lecture that you provided to the steemians.

Introduction.

Cryptocurrency investments are a new asset class of investments that have made so many people get excited, the rally of Bitcoin and altcoins price in the uptrend early 2021 has alarmed a lot of people in the cryptocurrency space. This hype was seen from the media surrounding cryptocurrencies especially Bitcoin and Dogecoin. The primary reason why we have cryptocurrencies is to have a decentralized currency but this particular decentralized nature is also being misused for a lot of scams.

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What are crypto scams?

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Crypto scam is a general term used to describe crooked ways how participants use to trick and steal their victim’s hard-earned money from the cryptocurrency space. Most of the people who have been victims of these crypto scams are newbies who still have fresh minds on how exactly cryptocurrencies work which has slowed down cryptocurrency adoption worldwide as people get a negative attitude towards the new emerging technology. It was during this year when we had a huge number of cryptocurrency transactions and a huge number of altcoins flooding into the cryptocurrency market because of the success of the digital currency. With anything successful, there will be a lot of copycats as well and some of them are known to scam a lot of people and the cryptocurrency market is no different. The currently most common crypto scams are as follows;

Pump and Dump schemes:

Most people buy cryptocurrencies as a speculative asset which means that you buy these cryptocurrencies today for cheap and you sell them when the prices are really high more than what you bought them initially. We have been experiencing the upsurge of MEME coins most especially with the vogue of Dogecoin that Elon Musk commonly promoted, that is, the triumph of Dogecoin led to the hike of MEME tokens with the sole aim of going to the uptrend in price but there is no real-world utility for these coins.

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These coins are entirely driven by the hype surrounding them and when the hype settles, people tend to lose a lot of money that they invested in these coins. These work in a way that the initial investors of these coins buy them at very cheap rates then they create hype around the coins which will drive up the prices. Once the prices are high enough, these initial investors who hold a large number of these tokens will sell their holdings to make a lot of money dumping it on their victims who bought it at higher prices.

NFT scams.

It looks like NFT has solved the problem with buying digital collectibles and people are ready to spend millions of dollars worth of cryptocurrencies for NFT art or collectibles. Even if these are powered by blockchain technology and work so much like cryptocurrencies, the only difference is that cryptocurrency is a fungible asset. This means that you can exchange coins with similar value but you can not do it with NFTs because as the name suggests, they are non-fungible tokens.

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Here scammers get their victims by creating stores of famous NFT platforms that are so well designed making it very easy to trick users into either logging in with their credentials or giving away credit card information. The other way of how users get scammed with NFTs is by counterfeit NFTs or impersonation of another artist that sells NFTs for millions of dollars. Newbies to NFTs can easily get tricked and scammed with these fake online platforms that profess to sell NFTs.

Fake ICO:

ICO is a short form for Initial Coin Offering. Entrepreneurs who are looking to launch a new cryptocurrency usually do it by launching an initial coin offering. Currently, there are less to know government regulations for ICOs to perform which lays grounds for anyone to initiate an ICO if they have the technological support to aid their work. Creating an ICO does not require much effort because all you need to do is create a white paper with a few other documents describing the system along with a website or app that describes how the cryptocurrency project is going to work.

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The ease of doing something like this has attracted so many scammers. There has been an upsurge in ICO scams, for example, the exit scams where defrauding operations collocated by unethical cryptocurrency influencers who gather the funds for an ICO then suddenly vanish without putting out any information to the investors.

Viruses and malware scams:

Cryptocurrency assets being completely digital means that it is prone to malware infections and it is still one of the prime hacking methods when it comes to cryptocurrency hacks. It is usually done by infecting the device with keyloggers to steal passwords and pins that you’re entering. You will then be directed to a website without your permission and then this website will be used to steal your sensitive data which method is known as phishing.

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Make your own research on any cryptocurrency scam.

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I made research on one of the most cryptocurrency scams called Bitconnect. Bitconnect was too good to be true but that did not stop people running it from raising 2 billion dollars in funds for the Ponzi scheme. Bitconnect was launched in late 2016 and became one of the most successful ICOs during 2017. It was a platform that had its own coin called BCC which was supposed to allow users to earn guaranteed passive interests on their assets at a very high rate with no risk through the use of their trading bot and volatility software.

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The screenshot above is a little chat that showed some of the rates which could be earned. As you can see, larger deposits were encouraged by offering higher rates. All levels offered 40% per month and some levels had an extra amount being paid out daily but behind the scenes, the project was just using funds of newer users to pay out the interest for older users which is a definition of a Ponzi scheme.

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What was eye-catching about this project was that there were actually some people getting paid interest and being able to withdraw some money making it seem like it was real and back then even more than now people believed that crypto could make almost anything possible especially the people who were new to it. Some of the biggest YouTubers were involved in this Ponzi scheme and since the bigger YouTubers in crypto at the time were promoting this, it gave the project legitimacy. Additionally, the Bitconnect team worked so hard in their marketing campaigns and hosted very big events to get more people involved. A lot of the time, the people who advertised this project would do so by showing their Bitconnect accounts with huge balances and saying that anyone would achieve these results. With the hype that was in the project, the BCC token reached a value of 2.6 Billion dollars and became one of the top cryptos by marketcap.

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A report on the business insider website shows that the US regulators sued some of the promoters for the huge sums of money lost. Eventually, after a series of actions by regulators in the UK and the US, the platform shut down in early 2018, and as soon as that was announced, the BCC token crashed more than 90% causing huge losses.

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To what extent have crypto scams affected the crypto space?

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Cryptocurrency scams have slowed down the adoption of cryptocurrency all over the globe, that is to say, negative news spread faster than positive news for something that is new. So in the sense, the negative news about cryptocurrency scams while making people hard to convince about the good things cryptocurrencies can do for the world thus slowing down cryptocurrency adoption.

Cryptocurrency scams have made some governments in different countries ban cryptocurrency in the sense of protecting the people's income from scams, for example, this was seen when the Nigerian government banned cryptocurrency from the country.

Cryptocurrency scams have led to the reduction on investors in the industry, that is to say with all the news spreading around about how you can easily lose your money in cryptocurrency due to the rampant scammers has brought fear to the large potential investors in the industry with the aim of saving their hard-earned income from the scammers in the cryptocurrency space.

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Will regulations in crypto add value to the crypto space?

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Regulators around the globe are concerned that cryptocurrencies are vulnerable to investor fraud and have been used to finance illicit activities. But cryptocurrencies are different from other asset classes, that is to say, they are not issued by anyone who can be regulated, they are borderless and they can function in isolation from the existing financial system.

Regulations are not necessarily bad news for the cryptocurrency industry because in many of the many cases of fraud and hacking documents could benefit from a well-defined legal status.

Cryptocurrency markets react massively to regulatory news, that is, there is a strong reaction in prices and transaction volume, for example, what happened when the US security and exchange commission in early 2017 denied an application for Bitcoin traded fund. Immediately, after the announcement, the price of Bitcoin dropped by 16%, and also other cryptocurrencies were strongly affected.

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In conclusion.

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The crypto world is full of opportunities the fact that it’s still young, requires a few technical skills and most of the transactions are irreversible it being anonymous. This is why it is a scammer’s galore because they love targetting the crypto world since a lot of people are still so green about it but we could avoid scams with good research, vigilance, tech-savviness, and by following security best practices. Therefore I would love to thank professor @yohan2on for such an amazing lecture that is going to keep me alert on crypto scams.