The illiterate in the 21st century will not be those who cannot read and write, but those who cannot learn, unlearn and relearn. Alvin Toffler, American writer and futurist.
Cryptocurrency fraud is a very sensitive issue. Although we are sensitive and unpleasant, we cannot avoid it and act as if it does not exist. The alpha and omega for fighting fraud is knowledge and the ability to think intelligently.
Cryptocurrencies remain outside the laws of any country. Their very essence protests against government interference and control. Thus, the opportunities offered by cryptocurrencies for business development also open up opportunities for the development of fraudulent projects.
The insignificant participation of the state in the life of cryptocurrencies means only one thing: the ATV has turned into a bicycle. To balance, we must be responsible, reasonable and educated.
New ideas always have first evangelists. These people develop and distribute them. However, in the life cycle of every idea there is a weak point when it is popular enough, but incomprehensible to the majority. At this stage, fraudsters can gain impressive power and use the popularity of the idea to their own advantage.
However, this step should not scare you. A strong idea manifests its power by overcoming this stage and continuing on the path of mass adoption. We discussed the history of money in the article “Cryptocurrency: a new branch of the evolution of payment systems”. In financial history, of course, there are a number of frauds. However, they all have one simple fact in common: they are outdated.
Once an idea gets mass acceptance, it's very difficult to use it to fool people. Mass-produced cars thwart the idea of superfuel, mass-produced credit cards thwart the idea of a device that allows you to transfer money to a card. What will a person think if you offer to add $100 to their card using a special device? If you still want to try it (out of pure scientific interest, of course), make sure the person is unarmed.
The history of banknotes in Europe dates back to the 13th century. The idea that a universal medium of exchange cannot be made of precious metal came from China with Marco Polo, the great traveler.
Notes were much more convenient than metal ones. They allowed precious metal coins to be stored in secure vaults and exchanged receipts with other merchants. Receipts, of course, allowed the latter, if desired, to receive metal coins.
And yet, the replacement of metal by paper was still a long way off. The first experiment of this kind was carried out by the Scottish economist John Lowe, who at the beginning of the 18th century was the comptroller-general of France's finances. By that time, banknotes had already been presented to the French, but were always backed by gold and silver.
The economic growth brought about by the exploration of America eventually turned into a recession when people realized that the tales of the vast wealth of the new lands were exaggerated. Lo was the founder and one of the main shareholders of the Mississippi Company, which traded with America. He was not interested in falling stock prices.
Law's continuous manipulation of the Mississippi company's stock and exchange rates led to a decline in the company's credibility. People refused to use banknotes and instead asked them for gold. To prevent panic and breakage, Law declared banknotes the only legal tender.
Unfortunately, this forceful method turned out to be even more damaging to the notes, as people lost what little trust they had in them. Nevertheless, the idea of using banknotes instead of precious metals was a strong one. He survived all the mistakes and schemes and, as a result, strengthened the economy of Europe.
After the first experiments, people learned how to manage paper money and control the issue. With any luck, this understanding will help us prevent crises like the Great Depression.
Creating and promoting the idea of cryptocurrencies has become a new Klondike for scammers. Cryptocurrencies satisfy two very important requirements that allow them to be used for profit:
On the one hand, cryptocurrencies are already quite popular. Most people have already heard or have an idea about what Bitcoin is. On the other hand, cryptocurrencies are not popular enough for people to understand how they work. Using the allure of cryptocurrencies and knowing how they work, a scammer can fool people and profit from their greed by telling them beautiful tales of "cooperation" or vague words about "free economy".
Either way, mass deception schemes are based on the Ponzi scheme. Such schemes may give the illusion that their activities have some financial value, but this is not necessary. A beautiful story about the advanced idea behind them increases the involvement of people. Thus, modern schemes use a trigger that allows ordinary people to believe that this particular scheme will make them rich.
For example, in the summer of 2015, a Ponzi scheme was operating in China. He invited people to take part in Litecoin cloud mining with high profits. The trigger here was the idea of cloud mining, which implied that there was a way to get additional profit from cryptocurrency mining.
Unfortunately, the cost of access to the pool was 500 LTC. This amount could be considered reasonable compared to the profit promised by the masterminds. The extra mining profit was based on those 500 LTC brought in by new users. At some point, as in any financial pyramid, the creators failed to pay the promised reward to the miners. The scheme collapsed and brought with it the Litecoin exchange rate.
Such schemes are not viable. In fact, they only redistribute the available money between the participants. The founders and those who came at the very beginning make huge profits, those who came later get the money, and those poor people who came last get nothing from this scam. They only give 500 LTC and get nothing. The pyramid is collapsing.
Another example of such a scheme is used by Russian investment fraudster Sergey Mavrodi. In the 1990s, he created a financial pyramid called MMM in Russia. After the pyramid collapsed, he was sentenced to 4.5 years in prison.
Sergei Mavrodi is currently implementing MMM in South Africa. The MMM website claims that its goal is to “provide financial assistance to each other on the principles of gratuitousness, reciprocity and goodwill. We use the BITCOIN infrastructure in our transactions.”
Offers interest from 20 to 100% per month. To get people to invest in his fund, he uses the "collaboration" trigger. This trigger is meant to maintain the illusion that something important and useful to society is happening behind the scenes, just like in the case of the Chinese pool. This illusion implies that the fund can actually provide such a large reward for investors.
We are coming to a point where cryptocurrencies are becoming too popular. The neighbor heard something about bitcoins. Her husband said he heard Alan Greenspan say there was potential for cryptocurrencies, and a colleague in the elevator upped it by stating that we can get rich the moment cryptocurrencies aren't massively used. “I need to ride the wave,” our potential investor says.
The ignorant always pay scientists. If your knowledge of cryptocurrencies fits on one A4 page, you know nothing about them. In this case, you should not invest money there.
If you do not get an education in this area when investing in some crypto investment fund, your money will remain with the guy whose knowledge about cryptocurrencies can make a book the size of Moby Dick.
Below you will find a list of the most important points that you should be guided by if you want to invest in any cryptocurrency project. If you want to keep your friends and family safe from hasty and thoughtless decisions, send them this list:
-If someone offers you to invest your own money in some cryptocurrency or cryptocurrency-related projects, find out the exact mechanism of his work and how exactly this project will be profitable. Always ask for details. If the person you're talking to can't give you a clear answer and doesn't understand how it works, don't invest.
-Find out who is behind the project and how long it has been in existence. Try to get as much information about the project as possible from different sources. If the project is relatively new, investing is risky. If the project is new and offers windfall profits, if you invest right away, you should not invest. Always remember that from the moment you hear about a good investment opportunity to the moment you actually receive your card, it should be at least 2 weeks. If someone tells you that you should do it immediately, see point 2.
-Review the data on cryptocurrencies and regulations for crypto-currency organizations in your country in these two weeks. This will help you assess the validity of the scheme and make an informed decision.
-Always ask the following question: "What is the value of this project?" If they are not there or its value is described in general terms, do not invest.
-Always ask the question: "Why is the interest rate so high?". 20% per month is almost 800% per year. This level of efficiency can only be achieved with an air-powered car or the latest medicine. The last recommendation is general, it belongs to Robert Cialdini. If you think everything is wonderful and beautiful, but there is some subtle anxiety, don't let go of your money. Remember, you can always refuse to do something simply because you don't want to do it.
Is it really that bad?
Not at all. Everything is wonderful. We have already seen, thanks to John Law, that brilliant and useful ideas go through a certain stage when scammers try to help themselves with your money. It's quite normal.
Fortunately, this is not a problem. There is a government to organize the fight against fraud. Either way, honesty wins out in the end.
Cryptocurrencies and businesses that overcome the flow of scammers, continue to be honest and open, fight against criminal activity, will open the way to new horizons opened by cryptocurrencies.
To sum it up, if you know that there is a strong idea behind a certain cryptocurrency and the development team proves that it can achieve its goals, you can invest in it. But remember that this is a venture capital investment. Act smart.
