What crypto scams exist?

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Overview of the topics

  • Crypto Highlights: Karl Sebastian Greenwood risks 20 years in jail for wire fraud and conspiracy for money laundering.
  • Financial Data: Between 2014 and 2016, OneCoin generated €4.037 billion in sales revenue and earned profits.
  • Social Data: Since 2021, 46,000 people have lost more than $1 billion in cryptos due to scams.
  • Onchain Data: Since January scammers deployed over 350 fraudulent tokens a day, which involved two million investors.
  • Deep Dive: To diminish scam losses the FED has given three generic indications that all consumers should respect.

Crypto Highlights

OneCoin co-founder pleads guilty

On Friday 16, Karl Sebastian Greenwood pleaded guilty to having sold the multibillion-dollar crypto pyramid OneCoin. Greenwood risks 20 years in jail for wire fraud and conspiracy for money laundering. He will be sentenced on April 5, before District Judge Edgardo Ramos, who accepted his plea.

Already in 2018, the US issued an international arrest warrant, together with an Interpol red notice, against Greenwood. Indeed, he was arrested by the police of Thailand and extradited to the US. According to attorney Damian Williams, Greenwood was involved in one of the largest international fraud schemes ever perpetrated, conning victims out of billions of dollars.

Greenwood and his co-conspirators, including fugitive Ruja Ignova, aka the “Crypto Queen”, claimed that OneCoin would have been the Bitcoin killer. William states, however, that “OneCoins were worthless. Greenwood's lies were designed with one goal: to get everyday people all over the world to part with their hard-earned money”.

Social Data

In 2 years OneCoin earned €4.037 billion

Founded in 2014, OneCoin was an international pyramid scheme. The US Department of Justice described it as one of the biggest “crypto scams” in history. It was also known as an MLM network, where users could receive commissions for recruiting people to purchase packages, and it collected nearly €4 billion from investors.

According to the Department of Justice, between the fourth quarter of 2014 and the fourth quarter of 2016, OneCoin generated €4.037 billion in sales revenue and earned profits of €2.735 billion. Indeed, over 3 million people invested in fraudulent crypto packages sold by the company. Furthermore, Greenwood, who earned €20 million a month, had a fundamental role in the scam. He was recognized as the top MLM distributor of OneCoin, and Ignatova attributed to him the idea of selling the crypto with such a network.

Greenwood wasn’t alone. Ruja Ignatova conceived the business to defraud investors in 2014 and built it thanks to the other co-conspirators. Nowadays, Ignatova is still escaping. During 2022, the EU Agency for Law Enforcement added her to its most wanted fugitives list, offering a reward of $5,000 for information. She is suspected of having, as the “driving force” of the crypto OneCoin, induced people to invest in a worthless currency. In June the FBI added her to another list, the ten most wanted fugitives one, offering up to $100,000 for information.

On October 2017, Ignatova was charged by US prosecutors. Two weeks later she traveled from Bulgaria to Greece. Her location is “unknown” from then. However, after she escaped, Konstantin Ignatova, her brother, became CEO of OneCoin and was arrested in 2019 in Los Angeles.

Onchain Data

46,000 people involved in crypto scams

Since the beginning of 2021, more than 46,000 people have reported losing more than $1 billion in cryptos due to scams. What is the median individual loss? $2,600. Here, the main cryptos investors used to pay scammers are Bitcoin (70%), Tether (10%), and Ether (9%).

How much we should worry about scams? The reported losses in 2021 are sixty times that in 2018, mostly because money transfers can’t be reversed and most people are unfamiliar with how cryptos work. The Federal Trade Commission reported that there’s a strong correlation with social media; Half of the people who lost money to such a scam said it all started with an ad, post, or message on a social media platform.

Of the fraud losses, most are investment scams. Since 2021, $575 million of crypto fraud losses were perceived as investment opportunities. There’s even a common path: false promises of money exploiting people’s limited experience with cryptos. In most cases, victims are asked to transfer their money through a website, but the transfers are sent to the scammer’s wallet.

Second to investment scams, there are romance scams, with $185 million in crypto losses since 2021. They account for one in every three dollars lost to a romance scam. In this case, scammers usually catch up with people with their health and persuasion. But what’s the loss per individual? The median individual reported a crypto loss of $10,000.

Business and government impersonation scams are in third place with $133 million in crypto losses since 2021. In this case, scammers use to send a text about an “unauthorized Amazon purchase”, or a pop-up from Microsoft. The least affected people are the ones aged 20 to 49. With this respect, median individual-reported losses have tended to increase with age, topping out at $11,708 for people in their 70s.

On Twitter, the fear of crypto scams has begun again. During the past week, the words “OneCoin” and “Scam” were written 140 times and reported by most worldwide financial magazines. OneCoin co-founder Greenwood has in fact given rise to a wide discussion on the relationship between cryptos and scams.

Onchain Data

Every day 350 new scam tokens are created

Are cryptocurrencies the only ones affected by scams? According to on-chain data, since January scammers deployed over 350 fraudulent tokens a day and have involved almost two million investors, twice as much as those that lost money due to FTX.

Unfortunately, data shows also that, despite the recent crash of the crypto market, scams are increasing. This year, the number of scams has risen by 41.1%. Indeed, in 2021, there were only 83,369 scam tokens. In particular, it has been estimated that 12% of all tokens on the BNB chains are scams; this is due to low barriers to entry, caused by low gas fees.

But how does it happen? According to Solidus Labs “The scam is encoded in the token’s smart contract, which is traded on a decentralized exchange”. In this case, authorities have more difficulties accessing the funds. However, cryptos are deeply affected by this mechanism, because the “scammer’s illicit profits are denominated in crypto, not fiat currency”.

The most popular scam token was the “honeypot," which is a smart contract that doesn’t allow investors to resell it. Solidus Labs reported that the most successful “honeypot” in 2022 was the $3.3 million SQUID scam, which rose 45,000% in a couple of days.


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Deep Dive

How to avoid crypto scams?

To diminish scam losses the Federal Trade Commission has given generic indications that all consumers should respect. First of all, only scammers demand payment in crypto, as no business asks for money in advance.

Moreover, scammers will guarantee big returns, promising victims that they will rapidly and easily make money through crypto markets. Mixing online dating and investment advice can be another signal. Invite 3 friends and gain access to the full deep dive!

News of the week

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  • FTX: Thanks to FTX, regulating crypto should be easy. [Read more]
  • Crypto: How to handle the losses, confidence collapse. [Read more]
  • Law: Elon Musk breaks silence after 10 million Twitter users vote for him to step down. [Read more]

Read the full version here.


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