Virtual Currency Scams Proliferate
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UPDATED: Feb 27, 2018
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Anyone who’s had money in bitcoin over the past few months has been in for a wild ride.
The virtual currency peaked at close to $20,000 just before Christmas 2017, turning some into millionaires overnight.
Then the coins lost 30% in value in one week around the end of January, as The Guardian noted.
The January declined wiped out $44 billion in theoretical bitcoin “value.”
As of the writing of this post, bitcoin is trading at $9,377. By the time this post is published, there’s no telling what it’ll be worth.
The Mother of Bubbles
As the Guardian reported, Nouriel Roubini, a professor of economics at New York University, called bitcoin “the mother of all bubbles” that was favored by “charlatans and swindlers.”
The New York Times quoted Wharton School Professor Keven Werbachm, who said,
The combination of credulous buyers and low barriers for scammers were bound to lead to a high level of fraud, if and when the money involved got large. The fact that the money got huge almost overnight, before there were good regulatory or even self-regulatory models in place, made the problem acute.
Prof. Roubini, who is credited with predicting the 2008 financial crisis, predicted that bitcoin was on its way to a crash that would see its value drop to zero.
As I wrote about in this blog post, bitcoin is especially popular with people who occupy the darker corners of the Internet.
Behzad Mesri, 29, was charged with computer fraud, wire fraud, extortion, and identity theft when he tried to extort a payment of $6 million in bitcoin from HBO in exchange for not releasing to the public episodes of HBO shows that hadn’t yet aired.
As the Times reports, bitcoin exchanges have been looted by hackers, and many virtual currency projects are Ponzi schemes, in which early investors receive the money put in by later investors — until the pyramid collapses, leaving most people with nothing.
Initial Coin Offerings
Bitcoin is the best-known virtual currency, but not the only one.
New virtual currencies are being launched every day, often via a process called an “initial coin offering” or ICO.
An ICO is usually accompanied by a document called a “white paper” that’s supposed to explain how a new cryptocurrency will be issued and what purpose it serves.
The original 2008 bitcoin white paper, by bitcoin’s pseudonymous inventor (known as “Satoshi Nakamoto”) is short, elegant, and mostly comprehensible even to those without an advanced technical background.
Many white papers, however, are written in gobbledygook.
While cryptocurrency “investing” (“gambling” is a more accurate term) has made some people rich, it has also wiped out others.
Newsweek reported in January that
Bitcoin and other virtual currencies have nearly halved in value since last month, prompting a popular cryptocurrency forum to offer suicide prevention support to any members who may have been impacted financially by the price crash.
Governments around the world are finally taking action to do something about virtual currencies before more people are hurt.
As the Times reported, the leaders of the US Securities and Exchange Commission and the Commodity Futures Trading Commission testified before the Senate banking committee about trying to police virtual currency markets.
US government agencies have also brought lawsuits to try to shut down some of the worst frauds.
But most virtual currencies operate without any government oversight and can be considered monumentally risky.
For the moment, people thinking about speculating in cryptocurrencies may not want to part with more money than they comfortably can afford to throw way.