HomeBitcoinCrypto industry must keep scammers from stealing another $16 billion

Crypto industry must keep scammers from stealing another $16 billion



Unsuspecting investors have lost $16 billion by buying into crypto projects they thought would be the next best thing. And that money is nearly impossible to recover. As the crypto industry established itself as a disruptor of currency and technology and as Bitcoin (BTC) began to gain traction in 2017, scammers took advantage of naïve investors interested in getting involved. 

Related: Crypto Crimes Rated: From the Twitter Hackers to Not Your Keyser, Not Your Coins

Spotting the scams

The crypto startup market is growing and expanding every day. There are startups working to create alternative banking opportunities, which raise capital through initial coin offerings, tokenize assets for easier use, create exchanges, and innovate in the decentralized finance space. Unfortunately, as what typically happens, many of the good projects are overshadowed by the few bad ones. That said, crypto scams are easy to spot if you know what to look for.

In examining some of the biggest scams in the crypto space, there’s a pattern of how these schemes are run. One type lures investors with the promise of incredibly high returns, and in some cases, up to 1% interest per day. This Ponzi scheme is typically run by an individual who claims they’ve created a special trading bot that can produce these returns, but in the end, they’re simply paying out what other investors are putting in without any valid product.

The second type is a pyramid scheme where the crypto project draws investors, promising large returns, using tokens on an exchange, and participating in the “next big thing.” But an investor can really only make money by referring to new investors, not from an actual product. Crypto scams may be one or the other or a combination.

Scammers have also created tokens that can only be used within their own exchange and are essentially worthless. Scams also trick investors with lots of hype, flashy promotions, buzzwords and jargon. Some investors lose their money because the projects collapse, causing a sudden price drop, and some have lost their money because the founders suddenly disappeared with it.

Since 2012, 132 different crypto scams have made off with over $16 billion in investors’ funds, according to our “Crypto Investor Scam Report.” Due to the unregulated nature of the industry, this money is unprotected and will be very hard, if not impossible, to get back. And what have been the consequences of these actions? According to the report, even though there have been 132 crypto scam projects since 2012, only 71 of the projects have had any kind of legal action taken against them.

Related: Did you fall for it? 13 ICO scams that fooled thousands

What the industry needs to do

While there are plenty of things an investor can look for when evaluating crypto projects for credibility and worth — such as assessing their white paper, evaluating their team, asking to see a working business model, and confirming that they want to provide value, not just hype — the crypto industry shouldn’t just leave that due diligence up to the investor. There are ways not to only keep crypto projects accountable but ways to make it easy for investors to learn more about projects they may want to back.

Transparency and disclosure

Right now, if an investor wants to learn more about a crypto project, its history, its team and its business model, they have to hunt it out on the internet — if that team has provided such information. One of the major failures of crypto scams is that investors are backing projects they know little about.

Instead of leaving it to chance or leaving it to investors to ask, the industry should be actively encouraging new projects to make their information public in one source or registry. If it becomes an industry standard, those willing to disclose company information will show they have nothing to hide. Those who refuse to disclose can be flagged for potentially fraudulent activity.

Better IR practices

The young crypto startup industry hasn’t necessarily had to consider establishing a set of investor relations best practices. Yet other companies in other industries have established methods by which they interact with investors to keep them fully informed on company actions and finances.

By building a culture of good IR in crypto, it sets the baseline for how crypto companies communicate with investors — and those unwilling may be flagged as scams. Similarly, it sets a baseline for encouraging investors to ask questions and get involved to find out how their money is being used.

Education and awareness

As seen above, major scams preyed on investors’ ignorance around the crypto space, as everyday people were lured into the promise of high returns without really knowing what crypto was about, thinking that it functioned like a Ponzi or pyramid scheme. The responsibility of educating the world about how crypto works falls on the shoulders of the industry, which needs to increase those initiatives to those outside the crypto, finance or technology space so that new investors don’t get taken advantage of.


Finally, the industry needs to hold scammers accountable. While some founders of these fraudulent projects have been brought to justice, there are many who are still at large or continuing their shady practices. Will the industry call them out? Getting to the point of scamming unknowing victims is actually too late. So, what kind of checks and balances like the ones detailed above will the industry put in place to expel bad actors before they’ve had the chance to start?

Attracting investors into the future

While $16 billion has already been lost, there are ways to keep it from happening again. That includes a commitment from investors to thoroughly assess any startups they want to back. But most importantly, it requires the industry to commit to accountability and transparency going forward.

The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Lihan Hyunwoo Lee is a serial entrepreneur and technologist who solves real-world problems with a data-oriented approach. He previously founded OpenSurvey, Korea’s largest mobile survey startup. He was also a co-founder of a leading food and beverages startup that deals with sensitive medical data. His current passion is using data analytics to help solve the transparency issue that plagues the crypto industry.


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