Crypto fraud has started to increase in recent years in parallel with the increase in awareness of digital assets and the number of investors. Many crypto scam projects take advantage of the growing appeal of crypto assets, the prospect of discovering the “next Bitcoin,” and a general lack of public education on the fundamentals of crypto technology.
What is a Crypto Ponzi Plan?
In the case of a crypto pyramid scheme, scammers set up fictitious crypto businesses and lure investors with various stories and pseudo-statistics. With crypto, it’s a little easier to market unrealistic profits to an audience that doesn’t have a deep understanding of how crypto actually works or is dazzled by the potential of digital assets to generate attractive returns on investment.
The history of ponzi schemes goes back to the 19th century. However, the illegal operations of Charles Ponzi, an Italian con man, in the early 1920s, have finally shed light on this particular type of fraud. Although Ponzi schemes have developed in parallel with technological developments, they are usually characterized by certain points:
- Promising fast and risk-free return on investment regardless of market conditions
- The investment patterns or business activities behind such programs that are claimed to be inexplicably complex.
- Blocking access to documents that could prove the legitimacy and existence of the business and its investments
Top 5 Crypto Scams
While the crypto industry is full of investment opportunities, this is also fueling the continuation of crypto scams. Due to the price volatility of digital assets and the inherent complexities of their underlying technologies, it is possible to offer investors uncertain and unrealistic crypto investment solutions. Therefore, the industry becomes even more open to fraud cases.
Based on this issue, we have compiled the 5 biggest fraud cases in crypto history for you…
1. Onecoin
Onecoin is perhaps the longest running pyramid scheme witnessed in the crypto industry. Founded by Bulgarian fraudster Ruja Ignatova, aka “Cryptoqueen”, Onecoin managed to attract investors to its numbers between 2014 and 2019. During this period, the Ponzi scheme was said to have defrauded investors of $5.8 billion by marketing Onecoin as the “Bitcoin Killer”.
Underneath this “business venture” was a multi-level marketing plan that paid members in cash and Onecoin each time they added new investors. The problem was not the marketing strategy per se, but the fact that Onecoin did not have its own blockchain. Therefore, when investors bought Onecoin, they were holding a worthless coin that was not backed by the accepted digital asset technology.
After years of warning investors not to invest in Onecoin, the US government has finally hardened the company’s operations and brought charges against its leaders. But by the time these events unfolded, Ignatova herself had disappeared.
2. Bitconnect
Bitconnect, another major crypto pyramid scheme, was launched in 2016 as a Bitcoin lending solution that promised 40 percent monthly returns. The operators were unknown developers led by a person named Satao Nakamoto, who is clearly a pseudonym. Investors had to buy BCC tokens, lock them on the platform, and wait for trading bots to use their locked funds to trade.
Vitalik Buterin, co-founder of Ethereum, followed by Mike Novogratz and Charlie Lee were the first to criticize the unsustainable returns on investment promised by Bitconnect. It wasn’t long before the plan caught the attention of the UK government. Eventually, US authorities declared Bitconect a Ponzi scheme and demanded that it cease operations in 2018. Then, the price of BCC dropped by 90 percent, causing investors to collectively lose over $3.5 billion.
3. PlusToken
PlusToken is one of the latest and greatest Ponzi schemes ever recorded in the crypto world. The scam ran much of its marketing campaign through the Chinese messaging app WeChat, seducing investors with the possibility of a 10-30 percent monthly return on investment. PlusToken has attracted more than 3 million investors, mostly in China, South Korea and Japan. The entire business model of the project is centered around crypto literacy and a wallet service. Eventually, the scammers convinced investors to increase their earnings by purchasing the project’s token PlusToken.
After spending a year robbing investors of their funds, the PlusToken team shut down the program in 2019 and debuted with over $3 billion in cryptocurrencies. Like most of the Ponzi schemes mentioned in this guide, the authorities have managed to arrest several of the plan’s main actors. Subsequently, the Chinese government confiscated $4 billion worth of crypto linked to the scam. However, it seems that not all people involved in the incident have been traced, as unknown organizations have successfully withdrawn some of the stolen funds in 2020.
4. GainBitcoin
In 2016, GainBitcoin emerged as an India-based cloud mining solution with the promise of 10 percent monthly returns for 18 months. As ridiculous as it may sound, the project has attracted at least $300 million in investment from Indian investors. In 2017, it was revealed that neither physical mining equipment nor any mining operations supported the detailed plan.
Fortunately, the mastermind of the scheme, Amit Bhardwaj, was arrested in 2018 and charged with defrauding more than 8,000 investors. However, from all indications, the case seems to have failed and it is unlikely that investors will recoup their losses.
5. Mining Max
Like GainBitcoin, Mining Max has used a so-called cloud mining venture to hide the true nature of its illegal operations. The platform promised investors a way to capitalize on the widespread crypto scam. Mining Max came up with the idea of joining a multi-crypto mining ecosystem with the potential to generate high returns. However, as with all other crypto pyramid schemes, much of the business model was based on intense marketing campaigns aimed at attracting new investments.
In total, Mining Max has attracted more than 18,000 investors in 54 countries. Of the $250 million raised, only $70 million was spent on purchasing mining hardware. The rest of the money was used to finance the Mining Max marketing campaign and the exorbitant lifestyles of the team members. Although several suspects linked to this scam have been arrested and charged, the company’s president, vice president, and other conspirators are still missing.
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