Informative Guide to Cryptocurrency Scams

Posted on

You can’t really have a post regarding scams without first including the infamous Carlos Matos of Bitconnect. Later in the post we’ll briefly get into the rise and fall of Bitconnect and what it exactly is, and I’m sure most of you have already seen this clip but here it is in all of its glory - the notorious Carlos Matos at the Bitconnect Annual Ceremony:

Lending Cryptocurrency Scams a.k.a Crypto Ponzi Schemes

To really understand what lending cryptocurrency scams are we first must understand the definition of a ponzi scheme. According to Wikipedia a ponzi scheme is defined as:

A fraudulent investment operation where the operator generates returns for older investors through revenue paid by new investors, rather than from legitimate business activities or profit of financial trading. Operators of Ponzi schemes can be either individuals or corporations, and grab the attention of new investors by offering short-term returns that are either abnormally high or unusually consistent.

In cases with most fraudulent ponzi cryptocurrencies, investors are offered guaranteed gains for lending out their money on the platform as well as getting other people to invest through referral links.


Bitconnect whose initial release was February 15, 2016 has long been suspected of being a ponzi scheme. In the case of Bitconnect - they promised a return of 1% a day compounded on the initial investment into the lending platform and they also promised earning through an affiliate referral program. YouTubers such as Craig Grant, Trevon James, Ryan Hildreth, and CryptoNick made hundreds of thousands of dollars through the lending and referral program. Bitconnect lied about having a crypto trading bot which was allowing them to get investors those gains.

As with any scam there is an exit, and Bitconnect did just that when on January 16th they announced they were going to end their lending program as well as shutdown its exchange - citing the ceast and desist orders they received from the U.S. states of Texas and North Carolina.

How did they make money?

  • To lend and use the platform investors had to give Bitcoin for the platform’s coin BCC (Bitconnect Coin).
  • The 1% compounded gains were on the USD value of the portfolio.
  • Upon announcing the platform shutdown, they said they would be reimbursing users’ initial crypto investment in Bitconnect Coin - only problem was by that point BCC’s value plummeted.
  • They ran off with the initial Bitcoin that the BCC investors put in and left the investors with practically no money.

What happened in the aftermath?

  • Bitconnect were unsuccessful in launching an ICO called BitconnectX because they priced the initial tokens at too high of a value and most people were aware of their underhanded dealings by that point.
  • They shut everything down and ran away, there are multiple class action lawsuits against them and law enforcement has identified all of the people involved. The YouTubers listed earlier are all part of a major lawsuit in the U.S. and they have since deleted mostly all of their videos shilling Bitconnect from YouTube - promoting a ponzi in the U.S. as well as many other countries is punishable by law.

Why did they have to shutdown?

  • They ran out of money when the market became bearish - they were only able to pay investors because of the appreciation in value of the Bitconnect coin.


As of February 7, 2017, Bitconnect Coin is priced at $2.40 down -51.80% on the 24h according to Coinmarketcap.

Other possible lending ponzi scams

  • DavorCoin (DAV) - similar to Bitconnect
  • Lendconnect (LCT) - also similar to Bitconnect, it’s a lending program in which you can become an affiliate, they have no real products
  • Neoconnect, Liteconnect… all coins trying to use the same model as Bitconnect to con people.

Cloud Mining Scams

There are also many scams that fall in the cloud mining space. The business models for these go as the following:

  • Offer a cloud mining contract at a very high price
  • Promise guaranteed gains from mining with that contract
  • Overpromise and undeliver - run away with the money from the contract as well as any “service fees” that are related to the mining contract

Cloud Mining is a Scam Taken from a post on r/bitcoin

Operations such as Hashflare are most likely scams, you can identify a cloud mining scam by following many tell-tale signs such as:

  • No proof of mining equipment is given by the company
  • The domain registration of the cloud mining site has dubious information associated with it
  • The team is not easily accessible, and upon any sort of service troubles they give frivolous excuses
  • They guarantee profits from their operation
  • Deliberately try to hide any sort of fees related to using the service

It’s an unsustainable business model

The number of variables for a cloud mining operation to be successful are too high, the business running the operation would have to manage the following:

  • Electricity costs, depending on the country these could be very high
  • Hardware, as well as maintenance of equipment over time
  • Management of user details and user rewards

The upfront business costs are very high, and often it would take much time for a legitimate cloud mining operation to turn a profit - hence the proliferation of scams.

They’ll try to do ICOs to offset business costs

You may see a cloud mining scam try to do an ICO in order to offset business costs - this could be seen as a last act of desperation in which the scam trys to pay users with the money from the ICO in order to keep up their facade of the guaranteed profits. Often times if a cloud mining scam is unable to follow up on their promises they could be thrown at with class action lawsuits and other serious legal implications.

Fake ICOs - Overpromise, zero delivery

This is perhaps the most common scam in the cryptocurrency world that I’m sure many of our readers are aware of. In this scam a group of people create an ICO, most likely on Ethereum due to the large audience already aware of Ethereum tokens. The group then starts to promise big things:

  • They may create whitepapers through plagiarism
  • Add a fake team & advisors section to their website
  • Create a large scale guerilla marketing campaign in which they do airdrops, create large Telegram groups and channels
  • Piggyback off of established brands in cryptocurrency to market their token
  • Add backdoors into their solidity smart contract code in order to further siphon off inverstor money
  • Go to cryptocurrency events and push their ICO in order to attract new investors

ESFT marketing A possible ICO scam known as Ethereum Soft Fork Token, indicative by the viral marketing and piggybacking off of an established name

How do they exit?

They’ll usually say something like, “development is moving slower than usual,” or release a statement saying that the team is disbanding soon - they won’t care if the value of their token goes to zero because of the money they already siphoned off of the investors during the ICO. It is because of scams like this that the U.S. government and other regulatory authorities are seen as a necessity for the proper regulation of ICOs, but alas crypto media will often try to twist that as FUD and something which is detrimental to cryptocurrency.

General Con Artists and Fake Donations

We covered this partially in our previous scam alert but there has been an increase of fake accounts that try to impersonate prominent figures in the cryptocurrency space in order to launch fake donations. These accounts usually post something along the lines of “Send X amount of some coin to the follow address Y and receive 10X if you’re the first N people to do so.” These type of scammers also appear on other popular cryptocurrency platforms such as Telegram in which they privately message chat users and ask to do business or partake in lopsided trades.

On Telegram we recently encountered a scammer in the Litecoin group asking to trade 4 BTC for 4 LTC, we reported the user to the admins and they were quickly banned. The problem is very rampant though, and sadly many have fallen victim to these type of scams.

Twitter Con Artists An example of a con artist on Twitter trying to get money through a fake donation by impersonating Charlie Lee, founder of Litecoin


There are many, many more types of scams in the cryptocurrency space that one post wouldn’t do them quite the justice - we encourage our readers to stay vigilant and do a thorough fundamental analysis and take an objective perspective before making any investment.

Crypto Chasers Confidential will try its best to inform our readers and subscribers whenever we notice a scam or foul play at work. You can stay up to date with the latest alerts by subscribing to our channel on Telegram as well as following us on Twitter. Note: we will never send you referral links or spam, if you see an account trying to impersonate us please contact us via direct message on Twitter to notify us so we can take action. Thank you for your continued support!

The information provided in Crypto Chasers Confidential reports and blogs are for informational purposes only. It should not be considered legal or financial advice. You should consult with an attorney or other professional to determine what may be best for your individual needs.

Crypto Chasers Confidential does not make any guarantee or other promise as to any results that may be obtained from using our content. No one should make any investment decision without first consulting his or her own financial advisor and conducting his or her own research and due diligence. To the maximum extent permitted by law, Crypto Chasers disclaims any and all liability in the event any information, commentary, analysis, opinions, advice and/or recommendations prove to be inaccurate, incomplete or unreliable, or result in any investment or other losses.

Content contained on or made available through the website is not intended to and does not constitute legal advice or investment advice and no attorney-client relationship is formed. Your use of the information on the website or materials linked from the Web is at your own risk.