Bitcoin and pyramid scams: tips to avoid falling into the trap

The signs to detect deception with that and other cryptocurrencies. The hooks cybercriminals use to promise safe investments and high returns

Representación de la criptomoneda bitcóin en una ilustración tomada el 29 de noviembre de 2021. REUTERS/Dado Ruvic

Bitcoin and the furor over that currency and other cryptocurrencies have worked as a breeding ground for many fraudsters to orchestrate different types of fraud. One of those that has been growing in this context is pyramid scams, which refers to a business scheme in which participants have to recommend and attract more users with the objective that these new members produce benefits for the participants who originally recruited them.

“This type of system is only supported by the entry of those who are increasingly lower than the pyramid. In this way, when no more people enter the base of the pyramid due to signs of fraud, it collapses. And although there have been reports in the media about it, pyramid scams, which many deceptively use or claim to use cryptocurrency technology, are far from being eradicated,” warns Iñaki Apezteguia, a professor and crypto communicator.

Indications to detect a pyramid scam:

1. Promise of high and/or fixed returns

Every investment involves risk. If the investment is safe, then the return is low; and the more unsafe it is, the greater the return. This is a basic concept of finance, so any business that promises a safe investment with high or fixed returns should raise red flags.

2. Make it a necessary condition to recruit people

This is an ingredient that is not lacking in pyramid scams. The user is asked to summon new users who must also continue to recruit people. Pyramid scams seek to take advantage of the contact networks of members who add up. This scheme inevitably collapses when people stop entering.

Criminals often rely on the furor of cryptocurrencies to orchestrate their deceptions (photo: ITWeb)

3. They usually ask for investment in training or products

In some cases, the user is asked to invest in the purchase of products or training in order to better perform their task. This requirement is used in some but not all pyramid schemes.

4. The excuse of Bitcoin and the ignorance of users

Sometimes scammers talk about the possibility of winning a large amount of Bitcoins, taking advantage of the popularity that this cryptocurrency has. They take advantage of the general ignorance of the public and say that they send or will send this currency and then they don't. On the other hand, they link it to promises of profits which, as already mentioned, is something unfeasible in relation to any risky investment and in particular in relation to these currencies.

There is no promise of immediate return in Bitcoin. There is a proposal for a decentralized payment system consisting of a new type of virtual money, where people, without even having to know each other, can send money to each other through public addresses. People should know that Bitcoin cannot be issued from the air, nor can it be done by an administrative decision of a government or company,” says Apezteguia.

Bitcoins are a virtual currency that has been circulating for several years now. There is a protocol and guidelines in place that indicate that a maximum of 21 million units and no more will be produced. Its emission is supported by a mining process that requires energy resources, it is not high that it arises spontaneously.

The processes are registered in the blockchain or blockchain, which generates transparency and privacy in exchanges; and the movements of this asset take place through digital wallets. The point is that many users are unaware of these details and sometimes fall into hoaxes.

“It is key for people to understand that not everything digital involves cryptocurrencies and not everything that is cryptocurrency, it implies quick profit without any kind of effort,” emphasizes the specialist.

Investments that promise high and fixed returns should generate alert (Photo: Franziska Gabbert/DPA)

5. The issuance of new cryptocurrencies

Sometimes cybercriminals orchestrate their deceptions by saying that they will launch a new cryptocurrency and ask users to make an advance purchase. To talk about this topic, we must mention an important concept: ICO, which is the acronym in English for “initial coin offering”.

“Before a cryptocurrency creator makes the new currency available for free exchange on an exchange, he releases some tokens, usually to raise funds for the project,” they explain on Kaspersky's official site.

This is a necessary instance for the generation of a new crypto, the problem is that with that excuse, many scammers say that they are going through this process and thus deceive users. To identify whether it is a genuine or false ICO, you have to search for information from specialized sources, as well as visit the website of the site, read the white paper (the one that explains how the crypto works well) and note that it is not something that was copied and pasted from another genuine crypto or that lacks consistent information.

6. Difficulty getting the profits

It is common for users to not have a direct way to withdraw the money they earn. In the framework of pyramid scams, members are intended to “invest” what they have obtained within the system and do not provide a clear option for users to get their money.

7. Dazzle the user

Usually it seeks to dazzle the user by inviting them to meetings in hotels, bars or even to spend a weekend in a field where they offer training and incredible stories of improvement and exorbitant gains. Here must prevail the famous and well-known saying that “not everything that shines is gold”.

Precautionary measures

The first step is to take into account the previously mentioned indications and, at the slightest suspicion, avoid investing in potentially fraudulent schemes.

On the other hand, if you evaluate that the proposal is serious and you decide to invest in any cryptocurrency, you must ensure that the platform through which transactions will be made is reliable. In this regard, a thorough analysis must be carried out and consulted with specialized sources to avoid any vulnerability affecting investment.

It is also important to use all authentication protocols. “Once you choose a platform, make sure you employ all the security protocols available to you. Using authentication technology can reduce user friction and ensure smooth transactions, making it more likely that others will continue to do business with you,” says Rafael Costa, Director of Fraud and Identity at LexisNexis Risk Solutions.

Finally, we must keep up to date. The world of cryptocurrencies and technology in general is constantly evolving, which is why it is so important to always read and learn about these areas. There is no better way to take care of yourself than to be trained.

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