What’s a Cryptocurrency Exit Scam? How Do You Spot One?

February 11, 2021

Reading Time: 5 minutes

A crypto exit scam is a sham activity by deceitful cryptocurrency promoters who disappear after receiving investors’ money. The scammers either vanish during or after the ICO with the funds they have collected. Crypto exit scams are often in the form of Bitcoin scams, especially when promoters steal in Bitcoins by themselves. For instance, on 15th July 2020, there were reports of 130 high-profile Twitter users hacked to promote a Bitcoin scam. The authorities apprehended three suspects concerning the Bitcoin scam.

How crypto exit scam works

The so-called “crypto promoters” unveil a new cryptocurrency program based on a profit assuring impression. Potential investors are then lured to fund the program, which then goes dormant or active for a short period. The promoters then get off the grid and are impossible to trace, leaving the investors to bite the dust.

Culprits  of cryptocurrency exit scam manage to escape due to the nature of crypto, being decentralized, anonymous, and regulation-free. Any efforts to trace the frauds go fruitless, as many scams have proved.

Initial coin offering exit-scam

Entrepreneurs ominously look for investment platforms on upcoming and technological cryptocurrency. They end up extorting investors of their funds without producing a viable initial coin offering (ICO). A sum of $600 million has been extorted from more than 30,000 investors in an ICO exit scam by a Vietnamese crypto firm, Modern Tech.

ICO enables firms to create and put their crypto tokens in the market for consensus. Growing firms and startups globally run ICOs to produce funds to fund the company’s projects. ICO is simply a crowdsale in crypto used to crowdfund a particular project. ICO was the base that led to some successful crypto production such as Ethereum, VeChain, and Cardano. However, the proof of its usefulness, it is still misused in malicious activities.

Of all crypto scams, ICO scams are on the lead. Reports show that of all ICOs, 81% are malicious, 6% of them failing, 5% dying out, whereas 8% are on exchanges trading.

Worst cryptocurrency exit scam ever

As of 2016, the worst crypto exit scam was one of the darknet market (online black market) evolution. The perpetrators were able to raise and get away with Bitcoin worth $12 million. The sum was collected and held in an escrow on the market.

In 2019, a crypto exit scam named the Wall Street Market (WSM) had involved the theft of $14.2 million worth of crypto. Before inflicting more damage, the site was confiscated by authorities.

Benebit, an ICO that claimed to be a blockchain-based client loyalty platform, promised to allow clients to share trade benefits. In the market, the program raised about $4.6 million. The plan seemed very legitimate; it had even started its telegram channel. However, it all fell to the dust after it was revealed that the pictures it claimed to be of the creators’ team were discovered to be a photo from a boys’ school in the UK.

Upon revelation, the perpetrators vanished with haste, not leaving even a cent of the raised funds.

The worst cryptocurrency exit scam in 2020

As many know, the year 2020 has been a busy year in all life sectors, not leaving behind crypto exit scams. Most of 2020’s worst cryptocurrency exit scams hit hard on exchanges, being affected by vulnerability exploit and other social engineering scams.

Crypto exit scams have grown to be common and regular, and here are some of the biggest scams executed in 2020.

  1. Compounder Finance DeFi makes away with $11 million.

CoinDesk reported that the finance went by a “smarter farming” program and a Harvest/Yearn Finance clone. At that time, the site’s social media accounts, including Twitter, Medium, and Discord, seemed to have been brought down.

An investor, DefiYield, who claimed to have lost $1 million in the crypto exit scam, offered a $100,000 reward for information leading to the scammers’ capture or recovery of the funds. This 2020 crypto exit scam happened in December.

  1. PlusToken cryptocurrency scam

Another big exit scam is one perpetuated by a fraud ring using the South Korean-based firm, PlusToken. It promised a lucrative 9-18% monthly interest in its promotion, which was able to fool investors. They were also encouraged to bring in more people, enticing them with commissions. This move created the infamous Ponzi scheme of enormous proportions.

Following the PlusToken scam, the Chinese government has arrested more than 100 people thought to have had a hand in it. According to ZDNet, China has put in custody 109 of the suspects.

  • VaultAge scam

The VaultAge CEO has gone off the radar after his firm was involved in the scam, which stole $13 million from about 2,000 crypto investors. News24 reported that Willie Breedt, founder of VaultAge, was declared bankrupt. Investors in his firm, who had invested after being promised that the funds would grow, had to be worried. Before disappearing, Breedt made a report to the local police that he was being intimidated.

How to spot a crypto scam

Identifying and calling a red flag on a potential crypto scam, however hard it might be, but is possible. These are the signs of spotting a crypto scam, therefore avoiding a crypto robbery, and what to look at before investing.

  1. Team reputation

In the crypto industry, the biggest problem is trust; is the ICO and owners or promoters accountable? However promising as it might seem, it is never a good idea to invest your money in an ICO before verifying its credentials.

Going by social media followings and comments is not the right way to go at it as those can be easily faked or purchased. One should therefore perform a check on the ICO promoters and backers of the project.

  1. Extremely high return promises

When the deal is too good to be true, always weigh your steps therein before investing with the ICO. For example, BitConnect had pledged a 1% daily increment on investment, meaning that a $1000 investment would be $50 million in 3 years. Vitalik Buterin, the Ethereum founder, termed this as a Ponzi scheme.

In 2018, BitConnect put an end to its lending and exchange services after its client base surged since it launched its ICO in 2016. The market capitalization of BitConnect as of 2017 had hit past $2.9 billion and abruptly sank to $17 million in March 2018.

  • Overpromotion

An ICO being promoted at an alarmingly high rate is a red flag on a crypto exit scam. Seeing full-page ads of new ICO by unknown creators in the media is a common thing in densely populated countries like India. It is reported that Confido also spent on bloggers to advertise some online platforms.

Some ICOs with massive promotions might not be dubious, but it is however advised to be cautious.

  1. History

It is very crucial to review the records of the company and promoters before investing. Before deciding to invest, research the organization to know if it has a clear objective for the ICO, challenges, and solutions they provide.

Final Thought

Fraudulent activities have grown to be common in all sectors of trades, even in the established stock exchanges. In the crypto industry, investing runs a higher risk of fraud as it is non-regulated.

The crypto world is really unstable and new trends are coming up almost daily. Staying up to date with latest crypto news is your biggest weapon as you get toe to toe with upcoming trends. Therefore, you won’t learn by experiencing but rather be earlier warned. Mycryptoparadise gives you the front seat on latest and upcoming crypto industry news and most accurate crypto indicators. Subscribe to our telegram news channel to learn more.

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