Of late, the digital assets space has without a doubt drawn extensive media coverage, with reports, for the most part, focused on two factors: the price rise of cryptocurrencies, and the scams involving cryptocurrencies. Notwithstanding, investors are fleeced to the tune of millions with the bait of high returns, or a fraudulent pyramid scheme camouflaged as a legitimate blockchain-based cryptocurrency.

China Issues Cryptocurrency Scam Warning in Public Interest

In a bid to educate its citizens on common cryptocurrency scams, China’s financial cybercrime cell – the National Internet Financial Risk Analysis Technology Platform (IFCERT) – released a statement on May 18, 2018, detailing the space’s common scams and other misrepresented digital asset platform.

The IFCERT’s also discovered a total of 421 digital currencies during investigations, all showing attributes of a fraudulent business model. However, the watchdog asserts that most of the platforms are hosted on overseas servers, making it difficult to track their exact location.

Overall, the fraud platforms were trifurcated into broad divisions.

Pyramid Scheme Cryptocurrencies

All attributes of multi-level marketing (MLM) scheme mark the primary component of this kind of platform, as noted by the IFCERT. Furthermore, promoters of this scheme provide a bogus guarantee of significant yields and claim to offer handsome commissions to investors who can further bring in more investors.

As demonstrated below, the top-tier members make the most profits, with the incentives decreasing as one trickles down the pyramid. In terms of benefits, investors are offered both a “dynamic (rewards in proportion to money invested)” and “static (fixed)” incentives.

Fraudulent ‘Hard Forks’

For this kind of digital currency scam, the IFCERT has noted an absence of “genuine code,” apart from the complete lack of a technical framework to successfully run a blockchain. However, promoters deceive naive investors, and promise guarantee returns on the guise of a ‘hard fork’, that would pump the coin’s value, and “never fall.”

(Source – IFCERT)

OTC-Only Platforms

As observed by IFCERT, the digital currencies issued by these platforms are incredibly phony, and not tradable on any cryptocurrency-exchange apart from their own.

These specific coins are allegedly controlled by institutional investors, who manipulate the digital asset’s price by purchasing large amounts in quick succession, thereby causing a “pump,” and deceiving investors who can mistake it as an actual store-of-value.

After all involved parties have “dumped” their tokens on unsuspecting investors, the latter finds out that withdrawing their money is either difficult or impossible.

The IFCERT states:

The fake virtual currency issued by this platform can only be traded on its website. The trading system is rough and its security is extremely poor.

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