Case Study: Top 5 scams in the history of crypto

In this article we will outline 5 of the most prominent scams in the history of crypto to give you a better idea of how to spot them in the future. Remember, crypto scams come in all shapes and forms, these top 5 scams will only give you a general idea of what to expect! For a more extensive list of crypto scams, please check out our other article.

Secondly, we will look briefly at 2 other active projects that we are very suspicious about. We encourage you all to research them yourselves and share your findings on CryptoCanary — our Yelp for crypto website.

Finally, we will provide you with our recommendation of how to best navigate around crypto scams, for your own sake, but also to better the entire ecosystem.

Bitconnect

Bitconnect was the most famous crypto scam of them all. It was widely debated among the crypto world and was annoyingly persisting since it made it onto the top 10 coins by market cap. It also produced many memes and funny clips, for example, Carlos Matos singing “hey, hey, heeeeyyy” is still a viral clip in the crypto world! However, the exit scam was not all fun and games — it cost a lot of people their hard earned money and some of them, their reputation. Some prominent YouTubers who were heavy Bitconnect promoters had to flee the scene and are facing legal charges. So we have seen that promoting scams (even unknowingly) may lead to legal problems.

Carlos Matos at Bitconnect’s annual ceremony

Bitconnect was well known for these following red flags:

  • It was a lending/staking platform where you could lock your coins for a certain time
  • They claimed there was an AI trading bot ensuring guaranteed unrealistic profits (more than 1% per day)
  • There was the Bitconnect coin (BCC) that could be mined (PoW and PoS). Bitconnect was originally an ICO.
  • There was a pyramid type of affiliate marketing program — this resulted in huge brigades of Bitconnect shillers everywhere. People thought they were making profits so they were convinced that they were promoting the best deal ever and became rich themselves after promoting it.
  • They promised a credit card that was never launched and was called out for a fake Visa partnership.
  • They had an anonymous team and a lot of questionable circumstances about the company behind it. The founder was unknown and the company had an untraceable address. At some point, Bitconnect moved to another business entity when the first company came into trouble about their financial filings (which they neglected).

Early investors in Bitconnect coin, the profit programs, and the affiliate program came out well rewarded:

  • Bitconnect coin outperformed Bitcoin between January 2017 and mid-November 2017, by 227x (in dollar value more than 1,800x).
  • Profits from its programs were obviously available for people who wanted to withdraw, but at the detriment of the final groups of people joining.
  • However, because reinvesting profits was strongly suggested, many early investors kept on reinvesting, which means they also lost most of their profits when Bitconnect collapsed.

Pay close attention to the chart below — it perfectly visualizes what happened when Bitconnect closed their platform. BCC’s price went down from its all time high of $460 to less than $0.00012 until the day of complete delisting from its last exchange in August 2018. It was a painful lesson for the vast majority of its participants.

USI Tech

USI Tech was another notable crypto scam that became notorious late 2017 and collapsed not long after Bitconnect went down. USI Tech was more focused on cloud mining contracts, but they also claimed to have an AI trading bot. They sold Bitcoin investment packages, where you locked your funds for certain amount of time in return for a certain amount of profit. Their reward plan had a pyramid structure and was obviously a Ponzi.

Unlike Bitconnect, the founders were more publicly visible and appeared in several videos online. One remarkable video was when the CEO was able to shoot footage of him showing the mining rigs they had in Iceland, which was actually in Genesis Mining’s facilities. Genesis Mining denied that they had a contract with USI Tech, which made the latter company look really bad to the public.

USI Tech also started an effort to launch their own coin near the end of their lifecycle. At a certain point, cease and desist orders started to be issued against USI Tech and soon the “technical difficulties” emerged, and then a complete shutdown when the company exit scammed. The USI Tech coin never got listed on any exchanges.

Davor Coin

Davor Coin was also one of the Bitconnect look-a-like lending platforms with the usual promises of unrealistic >1% daily profits from locking up funds in their platform (the longer the lock up, the higher the interest rate). Obviously by locking up your funds you are vulnerable during the long period of time in which you can’t pull your funds out before it shuts down. Below is how their lending program looked like… just look at the insane monthly rate, definitely a Ponzi!

Then there was this other huge red flag, which is their multi-level pyramid scheme affiliate program:

Just like other crypto scams, another red flag was their promise of crypto debit cards, which was on their roadmap.

Notably, the ICO price was between $0.72 and $1.20, and after exchange listing, the price reached $180, which was over 100 times the ICO price. For those that sold on the way up, their investment was highly profitable, which incentivized others to take their chances on lending/staking coins, despite their dubious nature and the risk that they might shut down at any point in time, which Davor team did eventually.

After the price topped in January 2018, the first cease and desist order came in and the bear market followed soon after. This caused the price to drop from $180 to $0.50, right before it shut down and the team announced that they would abandon the lending program and would focus on “legit goals”. In reality, the site shut down and investors basically lost their money, because no one could withdraw anymore.

This chart shows what the death of Davor Coin looked like on Coinmarketcap:

One Coin

Shockingly this scam is still running (since at least 2016), even after being exposed years ago and being under scrutiny (warnings, arrests, cease-and-desist orders) of regulators worldwide — watch this video from BBC.

Still the Ponzi/pyramid scheme is operating even though US prosecutors have indicted three top leaders this March and arrested one of them already.

On their website, it is clearly stated that One Coin operates as a network marketing company (multi-level-marketing and pyramid scheme) and the participants are called “independent marketing associates”. The coin is only tradable on their internal exchange and only accessible by their “associates”. Also, they claim that their CENTRALIZED business model allows them to operate effectively. Their private, non-public “blockchain” is basically a ledger on their own server that gets audited by an “external validator”. This company clearly has nothing to do with cryptocurrency nor blockchain, it is (“allegedly”) just a Ponzi/pyramid scheme. It cannot be stressed enough: stay away from their promises if you ever get approached by one of their “independent marketing associates”!

PlexCoin

This was also a beauty of a scam ICO organized by Canadian scammers Dominic Lacroix and Sabrina Paradis-Royer. It went on until late 2017, before regulators finally shut it down. It included many promises of unrealistically high profits, a white-paper that appeared and disappeared, and thousands of people who collectively invested a total of $15 million. In our Bitcoin For Beginners community, we also had members who fell for this ICO scam. The PlexCoin community had a core of strong believers that totally believed all the stories the founders produced about the “conspiracy of regulators against the PlexCoin project” and were forcefully defending this project despite all signs of disaster. The legal case against the organizers is still ongoing.

Ongoing concerns

In CryptoCanary, we review projects and try to identify the shady or suspicious aspects of various ones. So far, community members have reviewed the ongoing scam OneCoin, as well as Nasgo and Doubly. If you come across other scam projects it would be very helpful for crypto newbies if you could add it onto CryptoCanary so they can see your research before they fall for scams and forsake the entire crypto world because of it.

What can we learn from this?

Some investors realized that even though some projects were scams, there was often a time frame in which an investor could achieve great profits, since some scam coins made 50–100x returns before their eventual collapse. As long as these investors were able to pull their money out, they were fine. There are however some very large concerns with this approach:

  1. It is hard to predict how long a scam will run until it shuts down, and if you are not in time to withdraw, you lose all your money invested! Some take a couple of years before exiting, some just a few weeks!
  2. If a coin is sold, it is hard to predict if you will even get the coin before it collapses. Even if you do get the coin, the scammers may not list it on any exchanges before they exit. Again, here you are at the complete mercy of the scammers’ secret roadmap.
  3. It is immoral to knowingly participate in scams, because even if you are able to make a profit, it will be at the direct expense of the people after you that will end up losing their money.
  4. By participating, you are feeding the scams and contributing to the scammers industry, which ultimately destroys the reputation of crypto as a whole. In order to make our industry healthier and cultivate long term profit potential, it is vital we skip these immoral short-term profits.

Especially for beginner crypto investors it is super important to study as many different types of scams out there, because it will help you to identify them better and prevent you from falling for them. Scams are one of the top 5 highest risks in cryptocurrency, so you better get educated about it now!