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We are living in a time where scams are commonplace. Chances are some of the change in your wallet might even be fake, created by a scam artist somewhere to imitate real money. Where there is money to be made, there are scam artists willing to exploit the system in order to make it—in any way or form that they can.
Blockchain technology wasn't bringing much money back in 2010, but over the years, it's worth has risen almost exponentially—along with the number of scams that occur, particularly in the form of exit scams.
From the Humble Beginnings of Blockchain to Now
Blockchain technology may be new to the masses, but it is in fact a technology that has been around for over a decade. Since 2008, the idea of public-ledger technology has been developing. Satoshi Nakamoto, whomever he may be, was the first to launch a public blockchain as the public ledger for his new-found cryptocurrency—Bitcoin. Over the last decade, Bitcoin (BTC) has seen tremendous bull-runs, extreme crashes, and volatility in its valuation.
Just this week, CoinMarketCap announced that they now have over 2,000 crypto-currencies in there listed directory—and the website only includes "currencies" that have a trading volume of $3,000 or more per day. Considering that many cryptocurrencies are not even listed on exchanges yet, and therefore have no trading volume, we can assume that there is a huge amount of cryptocurrencies that exist, but are yet to be listed. The number of unlisted cryptocurrencies is probably in the thousands.
Too Good to Be True?
Between 2014 and 2018, things changed drastically. People began to see the real-life uses of public ledger and blockchain technology, and there were millions of dollars to be made during this time. However, where there is quick money to be made—scam artists are never far away. There have been various scams to come up in the past couple of years, however since the bull-run of December 2017, we have seen an ever-increasing number of people running “exit scams.”
Exit scams in the blockchain community have appeared in various forms; however, it was, and still is to some extent, the Initial Coin Offering (ICO) scams that affected the most people. ICOs were how many of the cryptocurrencies and their blockchains were initially funded. The process was relatively simple.
Here's an example: A company would be formed with the aim of using their blockchain as a fast method of payment that disrupted the banking industry. They advertised super-fast transaction confirmations, they advertised great looking partnerships, they had an amazingly designed website, the team all sounded intelligent, and they were getting mentioned all over social media. All they needed was for you to send them an amount of another cryptocurrency, and they would send you a share of theirs—with the assumption that the value of the tokens you receive from the ICO would eventually be worth much more than the Ether, Bitcoin, or alt-coin that you sent.
In many cases, these ICOs were real and people did make money on their investments, and continue to do so (although slightly less right now, as the 2018 bear market drags on).
Creating a professional website was never a problem. However, exit scams would never have worked if they didn't deliver their coin or token once the investment of Bitcoin or, predominantly, Ether had been made. Ethereum may have proved that blockchain has much more potential than simply being a digital currency, but it also allowed anyone with basic computer skills to create their own token (known as ERC-20)—this meant that anyone could now create their own cryptocurrency in a matter of minutes using Ethereum's smart contracts.
During and after the December 2017 bull-run, the blockchain and crypto-community was often referred to as "The Wild West" on social media—and for good reason, too. Thousands of worthless ICOs that turned out to be scams appeared, many appearing too good to be true. However, people still sent their Ethereum and received their ICO tokens.
Then the red flags of the scam in action would begin. Some of these scams were slow, continuing to take money, even as signs of the scam appeared. They would stop replying to emails, become less and less active on social media, and blogs posts would stop appearing on their website. These scammers would often appear online occasionally, reassuring the investors, and claiming that delays due to personal or legal reasons were holding them back, but that they were still working hard on the product. The communications would become less and less until they would never be heard from again, and the Ethereum would then slowly be moved out of their accounts while their websites were left unchanged.
Others were more brutal in their scam. They would accumulate the amount of Ethereum they had most likely predetermined, and then simply vanish. Some went as far as deleting websites, closing all social media accounts, and appeared to fall off the face of the earth.
The finances collected by the scammers, in most cases, would have been moved between blockchain addresses before eventually either being held as an investment, or cashed out into fiat currencies. Either way, the scammers made some serious money through exit scams, and they continue to do so.
Luckily, people are now more aware of the risks involved in ICOs and investing in such new technology in general. This makes people much less likely to blindly invest thousands of dollars in something they only came across hours before. However, the ICO exit scam is still out there, so look out for these signs an ICO is a scam before investing.
The Exchange Exit Scam
Although less common than ICO scams, exchange exit scams have occurred and people have lost serious amounts of money. Anyone who has researched investing in cryptocurrencies will have read, "Don't keep your coins on an exchange," time and time again— and for good reason too.
Although the main reason people advise against this practice is to protect the coins from being stolen by hackers, some exchanges have been scammed, too; simply closing down, stopping logins, and then eventually selling off the cryptocurrencies at a later date. Using exchanges is fine, but it is a good idea to move your coins and tokens into a secure wallet off the exchange after you have made your trades. This prevents you from falling victim to either a scam or a hack.