/ Scams

How do cryptocurrency scams work?

A cryptocurrency inspired by the hit Netflix show Squid Game made headlines last week when it completely collapsed. Do you know how apparent ‘rug pull’ scams work?

Last week the BBC reported that the cryptocurrency ‘Squid’, based on the phenomenal success of the Netflix series Squid Game, had collapsed in an apparent scam. The new digital token wasn’t quite as straightforward as buying and selling currencies either, which likely helped the perpetrators pull it off.

It was promoted as a ‘play to earn’ cryptocurrency. This is when tokens are bought to play online games in which you can earn more tokens which can then, in theory, be traded for other cryptocurrencies. 

But in this case, the tokens were completely worthless. According to Gizmodo, soon after its launch, the developers made off with the money victims had paid them – an estimated $3.3 million.

Explosion of ‘alternative’ cryptocurrencies

There has been an explosion of ‘alternative’ cryptocurrencies recently. Hundreds are being launched all the time, hoping to follow the rise of Bitcoin. Many, like Squid, attempt to piggyback off of trends, and are increasingly promoted by celebrities and online influencers. 

But regardless of what the cryptocurrency is called, or who is endorsing it, there is absolutely no regulation in this space. This makes the cryptocurrency scene a bit of a Wild West – and a potential playground for scammers.

What is a ‘rug pull’ scam?

Crypto scams tend to follow similar patterns. First there will be a lot of hype created online, with heavy advertising on social media and forums. The returns and rates are engineered to give an illusion of lucrative returns very early on.

The bigger the hype, the more people will invest, and the value might genuinely go up.

Then, without warning, the founders will disappear – and so will all your money. This is called a ‘rug pull’ scam.

There’s understandably a lot of excitement around crypto, which can lead to plenty of criminals capitalising on those eager to make money in a tough economic climate. It’s essentially gambling but, in the case of a scam, there is never any chance of winning.

How are crypto scams promoted?

Most cryptocurrency investment opportunities are promoted in similar ways, so it can be difficult to tell the real deal from the scams. But there are a few things to be sceptical about:

Being regularly bombarded by the same persuasive adverts online and on social media.

Unsolicited emails and messages on social media and forums promoting crypto investments. Sometimes these messages can be highly personalised and claim to offer insider tips.

Fake news stories designed to look like genuine media coverage that report success stories of those who have apparently made huge profits from crypto investing.

Fraudulent use of celebrities or influencers to promote a cryptocurrency or exchange platform without their knowledge. 

Social media accounts portraying the ‘luxury lifestyles’ of those who have ‘made their fortune’ on crypto. They’re easily fabricated.

Four signs of a crypto scam

⚠ Huge hype and unrealistic promises of high returns. Investors should be warned from the start that dabbling in crypto is at your own risk, and your investment could go up or down in value.

⚠ Initial investments are quickly lucrative, and you’re encouraged to invest more money to take advantage of great rates.

⚠ The new currency has a novelty name or design these could be trying to capitalise on a current trend which is usually just that a short lived fad.

⚠ The inability to sell the crypto you’ve bought, or exchange it for other cryptocurrencies.

Even if your friends, family or contacts encourage you to invest in cryptocurrency, it can’t hurt to be sceptical. Some operate similarly to pyramid schemes with those sucked in encouraged to ‘recruit’ relatives and friends for financial gain.

Some celebrity endorsements should also be taken with some cynicism. They can be easily faked, with stars’ names being used without their permission or knowledge.

However, celebrities are genuinely increasingly collaborating with, and promoting, crypto platforms. But ask yourself: is the singer, footballer or YouTuber really an expert in finance and investing? Of course not all crypto promotions and endorsements are scams, but do as much research as possible before making risky investments. If you do want to experiment, make sure you’re using an established exchange platform.

You probably won’t get your money back if things go wrong. Many high street banks block customers from buying cryptocurrency for this reason.

Are you tempted to invest in cryptocurrency? What’s been your experience? Have you spotted potential scams or even been a victim?


Will the banks be expected to reimburse “victims”?

Why would the banks be responsible for your misjudgement? That is the same as listening to someone say ‘Bed on the three legged horse at 4PM, put all your money on it’ – then expecting the bookies to pay you back when it fails to win.

What’s the name for a person who is easily parted from their money?

I’m concerned that this article is attempting to draw a line between those cryptocurrencies that are outright scams from the get-go, and those that are not.

The only distinguishing feature is the amount of time that any particular cryptocurrency can remain pumped before it is dumped. Unlike fiat currencies that are tied to a “trusted” economy like the US Dollar, Euro, Pound Sterling, etc., cryptocurrencies have no intrinsic value what-so-ever and they will go into free fall when the panic starts.

Just make sure you are not holding the KFC Party Bucket when the music stops, or you will get your fingers burnt. it’s all a game of chicken as to who is going to squawk first.

Em seems to be assuming that ‘Fiat’ Currencies are in some way more worthy of ‘trust’ than a ‘scam’ crypto. EVERY attempt in history for ANY Government to print its way out of Fiscal Rectitude has ended in hyper-inflation and tears. The only rule seems to be that the longer a Government can disguise and get away with its irresponsibility, the greater will be the pain when it falls apart … just like any Ponzi scheme. The two best things about ‘blockchain’ security are First that it is un-proven (because it has not ‘failed’ so far) and Secondly, that Politicians have, so far, been unable to manipulate it (though China is getting closest to robbing Bitcoin??)

I’m not assuming anything of the sort – which is why I put “trust” in quotes!

The fact is that most of us have to live within the territory of a sovereign state, many of whom issue a fiat currency. And we need to conform to the social norms and rules of law of that adopted state. (I say ‘adopted’, because I choose to make the UK my home. I have other citizenships that would allow me to live in the EU and North America. Most people unfortunately don’t have such a wide choice.)

So, like it or not, the majority of my wealth is tied up in UK property, savings and pensions, valued and held in GBP (Pound Sterling) – I have to trust that is a stable currency. But that is not quite as daft or risky as it sounds, since I need to make regular payments of HMRC taxes, Local Authority Council Tax, DVLA Road Tax, electricity, water, and buy food and road fuel to live, none of whom will accept any other form of currency. In fact, they legally HAVE to accept certain denominations of English paper currency and coins.

If I want to engage in currency speculation, I would first buy Euro, US or Canadian Dollars. At least if the UK goes down the toilet, I have investments in another currency that will be accepted in my new home.

As far as I am aware Bitcoinland doesn’t exist and never will. However, even if it did, I would find myself living in a world of drug dealers, swinders, oligarcs and deposed corrupt politicians. All trust is relative.

Am I the only one who has absolutely no idea of how cryptocurrency works? There appears to be no basis on which to invest and no assets to back anything up. But then, I read that Miami in Florida has launched its own version and made millions of $ for the council purse. What to believe??? Even though savings interest rates are so low, I don’t think my hard earned savings will be speculated on a non existent product. Am I wrong ??

No, Ivan, you are not the only one by a long chalk. In truth, I doubt whether one percent of the population has any real idea.

I have seen articles that explain cryptocurrency but I am so uninterested that I have not read any and I don’t think it will play any meaningful part in my life. Perhaps it is wrong of me to bury my head in the sand and hope it will go away, but that is how I feel. Even if it does become a significant aspect of consumer affairs it is a subject that I shall happily leave to others to tackle.

I think you are right about most people not understanding. I think it is something akin to a bullion dealer having, say, 10,000 special minted gold bars selling at £100 each. People can buy ownership of those bars (although the dealer holds on to the bars and the investor just gets proof of ownership) and can trade that ownership. Once all 10,000 bars are sold there will be no more available. When more people then want to buy the rules of supply and demand kick in – more demand than supply then the price goes up. Of course, the opposite applies – when demand drops, so does the price.
Of course, in my example the gold still has a basic value. Cryptocurrencies are ‘imaginary’ and rely upon trust. Once that trust goes then demand will fail and the value of the currency can drop to zero.
You should only get involved in cryptocurrencies (I was going to say ‘invest’ but this is not an investment – it is out and out gambling) unless you can afford to lose all the money you put in. Your money is at 100% risk and there is no compensation scheme – you are on your own. There really are no get rich quick schemes.

Exactly. If rackets like this were any good, those ‘in the know’ wouldn’t make them available to outsiders.

@Ivan – You don’t really need to know how it works to know enough to stay clear.

But perhaps I could interest you in an exciting new investment opportunity, based on holographic-imaged, biaxially-oriented polypropylene, and which uses intaglio-embossing with metameric pigments laid down under extreme pressure for enhanced security. There is a shortage at the moment and some investors are reported to have made gains of up to 2000%, according to the Daily Express and other newspapers *.

If you are baffled by the techno-speak, you are not alone, and this is a particular problem with crypto-investments. You read lots about blockchain, mining, encryption, nonces, SHA-256, blah, blah, blah … from the “experts”. But it is all magical misdirection; a deception that draws attention to one thing – the technology – to distract from another – cryptocurrency does not have any intrinsic value. Or, as you correctly say, assets to back it up.

* In case you are still wondering, it’s a polymer £5 note.

I seem to remember you can also ”invest” in virtual art. But when people pay millions for a piece of art with integrated shredder it is hardly surprising if the buy virtual money.

‘Spam’ filters invariably remove 100% ‘crypto currency’ offers from email listing and considering the information that these messages contain, it is hard to understand how any person can respond to the offers they contain. ?

I would not even think about investing, scams or not.

The whole bitcoin craze reminds me of ‘Tulip Mania’ that happened in Holland. At least the buyer had something solid , if over-priced, for their investment whereas there is nothing tangible with a bitcoin. If anything its intrinsic value is negative as it seems to depend on a whirling computer somewhere.

Is anyone listing the scam sites and genuine sites? That would be enormously helpful.

As a creative I am being encouraged by the reports by respected influencers to jump on the Cryptocurrency band wagon. I did some research and received an invitation to join a new community set up for creatives to help them make money from their work using NFTs. It’s called Continuum https://continuum.xyz/nft/ Is this a scam? The benefits of joining up for creatives in the overwhelmingly competitive market are very attractive. If this is genuine, one doesn’t want to miss out. But I’m wary.

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As pointed out earlier, wherever financial opportunities exist, be it stocks, forex, precious metals, commodities or crypto. there will be unscrupulous individuals seeking to take advantage of the ill-informed and unwary. It is always important to do your own research and seek guidance from those you can trust. A good example of trustworthy guidance is at http://www.commandercrypto.co.uk .

Dave Beeson says:
14 November 2021

I just send them all to report@phishing.gov.uk and blacklist the senders.
They seem to come together for a couple of days and then stop.

Marilyn Scott says:
14 November 2021

I really wish everybody {before entering into this area], would remember the very old and trusted saying – “if it sounds to good to be true – it usually is!!” — or is it just a case of ‘greed’. A real sad situation for anybody who got ‘caught up’ in this disgusting scam.

“Greed” IS the enticing factor! Rather unfortunate for those willing to invest!

Kenneth Hall says:
14 November 2021

There are no fairy godmothers other than in fairy tales, so if one comes along offering riches for little or no effort on your part, it’s another fairy tale.

Peter King says:
14 November 2021

Most of these Scams attract the Greedy and the Desperate all out to make a quick financial killing,I do feel sorry for the Desperate ones but to quote Radiohead ” You Do It To Yourselves You Do You And No One Else ,You Do It Yourselves “

I’m not going to pay any attention to cryptocurrencies, so can afford to ignore scams. I do not know about other cryptocurrencies but Bitcoin is responsible for the use of huge amounts of energy: https://www.theguardian.com/technology/2021/mar/10/bitcoin-rise-could-leave-carbon-footprint-size-london

If that. is not a good enough reason for steering clear of cryptocurrencies, does it make any sense to get involved in anything financial that is not regulated.

I´m commenting from Málaga in Spain where I have lived since the mid ´80s. As our Spanish consumers´ organisation : OCU advises, a responsible head of family will steer clear of unregulated and highly volatile crypto currencies. I follow OCU´s advice despite a family connection to that world!

Whenever I am tempted to trade in cryptocurrencies, I remind myself of the parallels with the physical Law of Conservation of Energy. This states that energy (c.f. wealth) can neither be created nor destroyed – only converted from one form of energy to another. This means that a system always has the same amount of energy (wealth), unless it’s added from the outside.

Since none of these cryptocurrency transactions actually generate any wealth, for every reported gain there is an equal and opposite loss. So my expection would be for a net zero gain, but for the fact that brokers charge fees for each transaction made. In that regard, it is more like playing roulette, where the house aways wins. I prefer to invest in schemes that generate wealth, rather than enjoy the fruits of someone’s misery.

However, in taxation terms, HMRC do not treat cryptocurrencies as gambling. Tax and NI is payable on cryptocurrency income, capital gains tax on “winnings”, and there are no legal tax-efficient means – unlike like ISAs and SIPPs – of holding investments in cryptocurrencies.

I bet HMRC don’t give anything back on “losings”.

Non of you know what you are talking about or have any idea of the tecnology involved in cryptocurrencies, so much so, that the chinese governament is using the same tecnology to create the digital yuan. Which, by the way is allready been used in some parts of the country.
I am not expert, but can vouch and prove that I am invested in some crypto currencies since 2018, including Bitcoin, and can say that in 3 years my investment has quintuple in value, (5 times my money!!!!), Does any government or bank or property give you such returns???. If Elon Musk (Tesla) can invest 5 billion in Bitcoin, I can have some of my savings invested in cryptocurrencies. And these who dont, will miss the boat and regrett it forever, Shame on you!!

Are you still invested? If so, you have made a big fat zero return, other than on paper. As I said above, this is a game of chicken. Don’t count them yet.

And yes, I do regret not buying Bitcoin when I could have bought several for a Pound, instead of wasting my time trying to mine them. So, for me, that particular boat has well and truly sailed. But nothing would persuade me to jump back on board at the price you’ve paid to be taken for a ride.

OK cash 50% of your investment in and so us in sterling or dollars the amount you receive back with all paper work

Walter says:
19 November 2021

Thing is that there is no boat to be missed. Regardless of technology used it is a zero sum game – your gain on Bitcoin is someone else loss. Bitcoin itself has no use or value while shares for example can pay you dividends or even let you control a company. It is all hype and gambling.
Digital yuan (or any other currency ) will not get any extra value by using blockchain ( this is a main software tool backing Bitcoin and likes) same as your £ has no extra value when you do electronic transfer or use debit card.

If I can’t see it, touch it, smell it, feel it and especially, don’t understand it, then my money stays in my pocket. FULL STOP!!!!!

I have allready bought and sold, and my money has been back into my bank account as a normal transfer of funds with no ifs and buts from any one, And by the way I decleare my profits and loses in my yearly tax retuns and the taxman dont quible about it and it takes the corresponding tax on my profits…. no questions asked!!!.