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As the returns from bitcoin and other cryptocurrencies hit stratospheric levels, so does the rise of scam artists. Most people are not aware how these scams work, so it is easy for the fraudsters to use big words to sound authentic to investors who don’t have enough knowledge to ask more technical questions.
The lure of big profits makes people less cautious and willing to hand over their money without doing their homework.
Richard de Sousa, partner at cryptocurrency exchange AltCoinTrader, says his company, as well as other platforms like Luno, has been used by unscrupulous individuals to con people out of their money in what he describes as a “man in the middle” scam.
He explains that an individual will open an account with the legitimate exchange platform (the platform being the man in the middle) and then go on to Facebook to promote themselves as bitcoin or cryptocurrency traders and promise to double people’s money.
The potential investor, who has no idea who the individual is behind the Facebook post, is lured by the promise of returns and deposits the money into a bank account.
Although this account is in fact with the exchange, such as AltCoinTrader, once the money is deposited, the scam artist converts it into bitcoin, which is highly mobile and can be transferred electronically anywhere.
“They usually wait until they have around 10 deposits and then they vanish,” says De Sousa, who then has to handle the fallout when the victim wants their money back from AltCoinTrader.
The challenge in getting their money back lies in the very nature of bitcoin. While every bitcoin transaction can be traced, you cannot necessarily track the person.
Unlike a bank account where the authorities could theoretically instruct the bank to seize the funds in the account, there is no such regulation in the virtual world of block chain.
“When we receive a complaint from a victim, we are able to provide the documentation we have and even the IP address and cell phone number.
“We cooperate fully with the police and in some cases the individual is arrested. If there are still funds in the account we will pay that out. But that does not happen often,” says De Sousa, who adds that “block chain and bitcoin is at the same time the most transparent and yet anonymous way of doing business”.
“We can track the address, but can’t track beyond that. While we can watch the activity linked to that address, we cannot link it back to an individual.”
De Sousa says that potential investors should know that there are only three legitimate exchanges operating in South Africa, namely AltCoinTrader, Luno and Ice3X. He says a legitimate exchange does not make promises about any returns.
“No one can make promises about the future. People who invest in bitcoin to make money are gambling, it is not a regulated sector,” says De Sousa.
He adds that every day, they receive a dozen phone calls from people asking how much money they can make out of bitcoin.
“My staff will tell you that we do not promise a return. All we do is covert rands to bitcoin and back again. If it goes up or down you make or lose money, but that is not the reason for the exchange.”
So why should you buy bitcoin if not to make a lot of money?
De Sousa says he built the platform to allow people to participate in cryptocurrency.
He argues that bitcoin is part of the revolution of the financial sector and that people who buy bitcoin should believe in the future of the technology and not just the financial rewards.
He believes cryptocurrency, bitcoin specifically, is a way to diversify from central bank-controlled fiat currencies.
“Millions of people are dedicating their lives to bitcoin, building a new technology to replace the corrupt and antiquated banking system.”
He believes we will see a time when people will be able to live their lives only earning and spending bitcoin.
“Everyone should at least own some bitcoin, even if it is to give to their grandkids”.
Whether you are buying cryptocurrencies for the belief in its technological revolution or hoping to make money, just be aware of the scamsters out there. It is not just the fake Facebook promises, but also serious hacking attempts to get into your cryptoaccount.
Just as hackers attempt to get your banking information from sending phishing emails, so are they starting with phishing attempts on cryptocurrency accounts.
Know what you are doing, don’t get caught up in the hype and do your homework.
