Cryptocurrency Exit Scams Have Cost Victims $100M

As ICO tokens continue their downward spiral in value, nearly $100 million has been stolen by exit scammers.

According a report (volume 2, issue 32) by blockchain intelligence firm Diar, ICO scams have cost victims at least $96.8 million over the past two years. By contrast, in 2018, legitimate blockchain startups have raised over $6.3 billion in ICOs.

While the OneCoin scam ($350 million) is the biggest to date, Chinese company Shenzhen Puyin Blockchain Group appears to be responsible for a staggering $60 million of all cryptocurrency thefts. The company raised funds for three different ventures: Puyin, ACChain, and BioLifeChain. None of these materialized and investors were left out in the rain.

Other scams include Cryptokami, which raised $12 million, abandoned its project, and vanished – its website is defunct; NVO which raised $8 million, abandoned its project and hasn’t updated its platform since March; LoopX, which raised $4.5 million before vanishing; and Prodeum, a blockchain vegetable startup that launched on a Thursday, raised $6.5 million over the weekend, and vanished by Monday.

Unfortunately, exit scams are still happening, due largely to little or no regulation to ensure the legitimacy of projects. It’s hard to regulate an industry where the product isn’t delivered until all funding has been secured.

Usually, it’s easy to spot an exit scam, but you have to be careful and discerning – and obviously, due to the large number of scams being perpetuated, not enough people are doing that and end up losing millions.

What to look for: plagiarized white papers, fake employee profiles, and plagiarized imagery. If it sounds too good to be true, it probably is. A cryptocurrency startup only needs a cool website, an official-looking white paper, a compelling “About Us” and some fake news. And it’s not always easy to tell the fake from the real deal.

According to the Wall Street Journal, about 19 percent of all ICOs clearly demonstrate some or all of these red flags – and yet, people continue to invest.

It’s hard to draw the line, though, when some projects are glacially slow in moving forward. They are using the capital they raised, making some progress, but have nothing to show for it.

Unfortunately, seeing huge sums of money raised – and then vanishing – is probably not going away anytime soon, as ICOs continue to be the preferred method for raising capital among blockchain startups. It’s too easy to launch an ICO amid a buzz of excitement, raise funds, and then overnight, shutting down the website, transferring the capital, and vanishing.

Investors interested in ICOs must be willing to gamble, for that’s what it is in the current climate. Doing one’s due diligence when considering investing in ICOs is a necessity, but not a sure bet.

Comments (No)

Leave a Reply