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Digital Fraud & How to protect Yourself: From ICOs to Bitcoin Scams

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Digital fraud continues to grow apace. More worryingly, the increasing variety and sophistication of the scams themselves has seen the number of people falling victim to scams growing just as fast. And we are no longer just talking about standard phishing. Today’s digital criminals are highly developed and extremely quick to jump on the latest online trends to take full advantage of every opportunity.

As dispute resolution specialists we are often the first port of call for clients who have found themselves in particularly difficult situations. Unsurprisingly more and more of these situations involve digital fraud and we wanted to use this opportunity to outline some of the fastest growing and most regular scams and offer a little advice as to how you can separate scams from genuine opportunities.

1. Binary options (also known as all-or-nothing options, digital options and fixed return options) trading

A binary option is basically a financial option in which the pay-off is either a fixed monetary amount or nothing at all. There are two types of binary option:

§ A ‘cash-or-nothing’ option which will pay a fixed amount of cash if the option expires in profit

§ An ‘asset-or-nothing’ option which will pay the value of the underlying security

It is the ‘or nothing’ that’s attracted fraudsters and there are now hundreds of trading platforms operating outside the regulated financial markets.

The scam is simple. A fake company owns a website that makes them look like a legitimate binary options broker and offers users access to a ‘live’ trading environment whilst promising accuracy, transparency and guarantees designed to settle the nerves of a would be investor. The investor then makes an initial deposit which they will see grow online at which point they’ll be asked to deposit more.

Eventually, despite the appearance of healthy growth, the website will suddenly fold taking all of your deposits with it. Alternatively if you have asked to withdraw your investment, you may be asked to top up your account to take your balance to the minimum required to make a withdrawal … at which point the website will fold taking all of your deposits with it.

If you fall victim to a binary options scam, resolution can be tricky. As these are fake companies, it’s very hard to find out who the owners are never mind begin the process of recovering your money. Waters are muddied further by the fact they will most likely be operating outside the UK (Israel has the dubious honour of housing the majority of these fraudsters) and operating in an area with little or no regulatory environment.

2. Initial Coin Offerings (ICOs)

The easiest way to explain it is that it’s a type of crowdfunding that has grown out of the current growth in popularity of Bitcoin and other cryptocurrencies. However instead of providing a shareholding in return for an injection of capital, the company seeking investment will release a fixed number of its own crypto-tokens then sell those tokens to investors. Usually the investors will pay for these tokens in Bitcoin but some will accept the major international currencies.

There is a common misconception that an ICO is the same as an IPO (an Initial Public Offering) but there are actually two major differences:

§ In an IPO the shares purchased by an investor are representative of their voting power and their level of ownership. This isn’t always the case with an ICO and just having the company’s cryptocurrency doesn’t guarantee voting or management rights; they are just something to be exchanged for other currencies at a later date.

§ As IPOs are an integral part of the world’s trading exchanges, they are heavily regulated. As cryptocurrency crowdfunding is new it does not yet enjoy the same protection which means any involvement carries as much risk as opportunity for an investor.

As this is still a developing area and an area that’s creating a bit of a buzz in the tech market, digital fraudsters have been quick to take note and fake investment opportunities are springing up at an increasing rate. Experience of resolving disputes after the fact has taught us a few lessons as to how to tell a real opportunity from a scam so if you are attracted by an ICO we would urge you to:

§ Make sure your investment will provide all of the ownership and voting rights you want

§ Understand the risks and if you are uncomfortable making a significant investment via a platform that sits outside the usual market regulations, this may not be for you

§ Do your due diligence and make sure the company offering the ICO is a going concern, has a recognised legal entity and that the project you want to invest in has the required research and staffing behind it

§ Make sure any investment you make will be is deposited into an escrow wallet and that at least one of the keys to that wallet is held by a trusted third party

§ Ensure you have a complete and professionally drafted set of legal terms and conditions signed both by you and by the company you are investing in

§ Ask around or search the internet in case no one has ever heard of the company launching or there is no record anywhere of the company and/or the entrepreneurs behind it

§ Ask to see both the business plan and a record of any work-in-progress (WIP); a negative or evasive response should be treated as a red flag

3. Bitcoin scams

Having hit its highest ever price, Bitcoin is currently in greater demand than it has ever been which means criminals have never been as active in finding different ways to exploit it for their own gain.

As it is so attractive the range of Bitcoin scams has grown almost impinged and the rise and rise of social media has provided the perfect platform for scammers to promote every variation. The list of scams we have come into contact with includes:

§ Malware downloads

Hugely attractive Bitcoin transactions are used to persuade you to download damaging software designed to damage or gain access to your computer.

§ Bitcoin phishing ‘impersonators’

Criminals use the Bitcoin logo to gain a victim’s trust then, once that trust is established, a phishing website entices users to enter their private Bitcoin key to check it exists in their database then the key is then phished and the associated account is emptied.

§ Bitcoin-flipping

After you pay a joining fee to exchange bitcoins and double any investment you make within a very short time-frame you find your bitcoins have been simply stolen.

§ Bitcoin pyramid schemes (also known as Multi-Level Marketing or MLM Schemes)

A high level of return is promised for a low level investment but the size of the return is linked to you sending the links to your friends to get them to join too. However once a few hundred people have signed up paid the joining fee, the scheme folds.

§ Fake Cloud Mining Services

Bitcoin “miners” validate transactions in the blockchain using complicated mathematical equations in exchange for new bitcoins. Scammers promise the same service then collect the ‘mining fees’ without actually doing any mining. Initially they will probably pay out a few small amounts but these soon dry up as the scammer disappears with the funds.

§ Bitcoin Investment Schemes

Again these scams promise high levels of return in return for providing low levels of capital for ‘investors’ who purport to trade digital currency. Like cloud mining scams they tend to pay out a few small returns then the payments stop and the scammer absconds with everything their victims have invested.

§ Fake Exchange Scams

Bitcoin exchanges (marketplaces that trade Bitcoin for traditional currency or other cryptocurrencies) are legitimate but fake exchanges are springing up every day. The fake exchanges will ask users to deposit funds to purchase Bitcoin whilst enjoying lower transaction fees than regular exchanges. The only thing is as these exchanges aren’t real, they never realise the promised return.

§ Bitcoin Donation Scams

In the wake of recent events, this is without doubt the most cynical type of scam. More and more scammers are creating fake donation pages asking people to donate in bitcoin rather than via better policed platforms like PayPal.

So how do you protect yourself? With all of these scams there is a basic rule, if it looks too good to be true, it probably is. If someone sends you a hugely attractive offer out of the blue, you need to immediately be on your guard.

Here are 4 basic rules we would urge you to follow:

§ Never trust any unsolicited email or social media post

§ Never click on any associated URL however high the potential return is claimed to be unless you know and trust the sender (and remember it’s now easy to replicate a social media account)

§ Never engage with or provide personal information in response to an email or social media account until you have checked to make sure the sender is 100% genuine.

§ Never enter into any type of financial transaction on the back of an email or a direct message on social media until you have completed all off your due diligence.

And if you do fall victim never try to resolve the situation on your own.

These may be criminals but they are highly sophisticated criminals and will be hidden behind layers of cleverly created camouflage. Always engage an experienced lawyer with a proven success record in resolving cross-border multi-jurisdictional disputes involving digital fraud. If you are going to recover lost funds, putting the right strategy in place immediately will be key to your success.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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Richard Howlett is a lawyer at Selachii Solicitors in London. He acts for businesses and individuals in a range of disputes that include complex litigation, fraud, bitcoin and cryptocurrency.




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  1. beckyvn

    June 20, 2017 at 2:34 am

    I am is the victim of Bitcoin scam in just a week ago ! The story they (Scamers) make is : Bitcoin could be hacked ! As their explaination : When you send them a mount of BTC, they will hack it by the double (or 3,4… times) the amount by made many complicated techologys in transaction …
    Simple, If you send them 1 BTC, they will return you 5, 6 or even 10 BTCs !
    Greedy make us be blind. I lost 0,3 BTC for them.
    So, My lession is NEVER try to become a Smart ass in BTC. Don’t find any hacked method in the HACK FORUM / WEBSITE. They all scamers !
    Here are two websites which the Admin and fake members are scamers :
    1. http://www.crdforum.com
    2. http://hckleackedworld.com

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Bitcoin

Bitcoin Maintains Range Formation as BTC Dominance Grows

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Bitcoin’s price continues to trade in a narrow range formation as of Friday morning, extending a period of relative calm for the digital currency and potentially weakening the case for an imminent bearish reversal.

Steady Trading

Bitcoin is presently trading at $3,651.98, based on aggregate data provided by CoinMarketCap. That represents a gain of 0.6% over the past 24 hours. Over the past week, BTC has declined by a little more than 1%, though it has maintained a steady trading range north of $3,500 during that period. Prices peaked near the $3,750 range on Monday before the rally lost steam later in the week.

The hourly chart view, based on Bitstamp exchange data, shows weak underlying momentum. This raises doubts about the possibility of a strong weekend bounce back toward Monday highs. That being said, bitcoin’s weekly stretch of relative calm alleviates the risk of an imminent correction back down to December lows.

Interestingly enough, bitcoin’s stable trading range has been accompanied by a noticeable rise in trading volume. Since Sunday, virtual exchange trading has exceeded $5 billion. In the most recent 24-hour cycle, roughly $5.3 billion worth of BTC traded hands.

BitMEX continues to be the largest exchange market for bitcoin trades, though its share has dwindled significantly. As Hacked reported on Tuesday, the exchange is permanently closing U.S. accounts amid growing regulatory scrutiny.

Bitcoin Dominance Rises

At nearly $64 billion, bitcoin is easily the world’s largest cryptocurrency by market capitalization. Its share of the overall market has increased slightly since the beginning of the year as altcoins and tokens struggle to emerge from its strong gravitational pull. At the time of writing, bitcoin’s dominance rate was 52.4%.

The following chart highlights bitcoin’s share of the overall crypto market during the last 12 months. As you can see, BTC accounts for a bigger slice during bearish trends.

During bear-market trends, altcoins and tokens tend to mirror bitcoin’s trajectory. Although there are notable exceptions, particularly for coins like XRP and recently, Ethereum, the market is strongly correlated with BTC during periods of instability.

For bitcoin at least, the volatility regime has declined significantly over the past month. On Thursday, bitcoin’s 30-day volatility index fell to 4.17%, the lowest since Nov. 23. The volatility tracker from bitvol.info measures the extent to which the asset’s price varies over time.

Disclaimer: The author owns Bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.7 stars on average, based on 740 rated postsSam Bourgi is Chief Editor to Hacked.com, where he leads content development for one of the world's foremost cryptocurrency resources. Over the past eight years Sam has authored more than 10,000 articles and over 40 whitepapers in the fields of labor market economics, emerging technologies, cryptocurrency and traditional finance. Sam's work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Contact: sam@hacked.com Twitter: @hsbourgi




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Bitcoin

MIT and Stanford Professors are Creating the Answer to Bitcoin’s Scalability Issues

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Researchers from America’s most prestigious universities are coming together to create a new cryptocurrency that will overcome bitcoin’s greatest technical challenge: scalability. Although academics have a poor track record of solving real world problems, the researchers have teamed up with Pantera Capital to develop a cryptocurrency that could serve as a viable payment network in the future.

Academics Designing ‘Better Bitcoin’

According to Bloomberg, professors from seven U.S. universities have joined hands to create a new cryptocurrency capable of achieving faster processing speeds without sacrificing decentralization – a core tenant of the blockchain revolution. The so-called Unit-e cryptocurrency is the first project to be carried out by Distributed Technology Research, the non-profit group uniting the academics.

Among the schools represented are the Massachusetts Institute of Technology, Stanford University and University of California. They are joined by hedge fund Pantera Capital, which has an impressive track record in generating stellar crypto market investments. Read: How Pantera Capital Engineered a 10,000% Return Investing in Cryptocurrency.

Although several initiatives are underway to boost bitcoin’s transaction speed and scalability, the researchers say the cryptocurrency’s design has inbuilt restrictions that impede on its usefulness as an everyday payment system. The goal of Unit-e is simple but highly ambitious – namely, use blockchain technology to develop a cryptocurrency that can process transactions faster than Visa.

Unit-e is scheduled to go live in the second half of 2019. When released, it will process as many as 10,000 transactions per second, according to DTR. By comparison, Visa processes roughly 1,700 transactions per second.

The Bitcoin Scalability Debate

The issue of scalability is one of the biggest impediments facing bitcoin, so much so that dozens of alternative cryptocurrencies have been designed specifically to address this problem. Some proponents of the original cryptocurrency believe the debate over scalability could be put to rest once Lightning Network achieves full potential. The highly-touted bitcoin scaling solution has seen notable improvements in recent months, including a double-digit percentage gain in processing capacity.

As of Thursday, Lightning Network’s capacity has increased to 529.21 BTC, which is equivalent to just over $1.9 million at today’s prices, according to 1ML. That represents a gain of more than 3% since the last time we covered Lightning Network’s processing power on Dec. 26. At the time, the network saw a 13% surge in processing capability.

Lightning Network has achieved 20,586 channels, an increase of 31.8%. The number of nodes is up nearly 20% to 5,472.

At the core of Lightning Network is the desire to boost bitcoin’s transaction speed while lowering the cost of payments. This is done by creating a second-layer scaling solution that operates as a bidirectional payment channel. Basically, this creates a ‘running’ tab between two accounts, which eliminates the need to record every transaction on the blockchain.

Lightning Network has its fair share of detractors who claim the protocol promotes centralization and suffers from inefficiencies that could allow hackers to target channels holding a high volume of bitcoin. Bitcoin advocate Andreas Antonopoulos addressed some of these concerns in a YouTube Q&A last February. Click here for more.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.7 stars on average, based on 740 rated postsSam Bourgi is Chief Editor to Hacked.com, where he leads content development for one of the world's foremost cryptocurrency resources. Over the past eight years Sam has authored more than 10,000 articles and over 40 whitepapers in the fields of labor market economics, emerging technologies, cryptocurrency and traditional finance. Sam's work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Contact: sam@hacked.com Twitter: @hsbourgi




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Bitcoin

Bitcoin Price Clings to $3,600 as the Search for a Bottom Continues

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Bitcoin’s price continued to drift sideways on Thursday, as a lack of trading catalysts kept markets subdued following an active start to the week.

Stuck in a Range

After breaking out to the upside at the start of the week, bitcoin has managed to trade within a narrow range over the past 48 hours. The leading digital currency by market cap is currently valued at $3,628.23, down 1.3% from the previous day. Trading volumes remain elevated near $5.2 billion despite a sharp drop off in volatility.

Bitcoin’s 30-day volatility index, courtesy of bitvol.info, declined to 4.25% on Wednesday. Volatility has been in firm retreat since December, when it peaked at nine-month highs.

That being said, bitcoin’s narrow trading range reflects a lack of direction in the market as opposed to newfound stability. A failure to break above $3,700 in the short term could put BTC on the backfoot and vulnerable to fresh waves of selling. This is fairly consistent with the trading patterns we’ve observed since the onset of the bear market last year.

At current values, bitcoin has an overall market capitalization of $63.4 billion. Its dominance rate has strengthened to 52.4%, which reflects broad pressures on altcoins and tokens.

Read: Bitcoin’s Year of Accumulation

Search for a Bottom Continues

Although some analysts have already called bitcoin’s bottom, others are convinced that new lows are likely before the market makes a definitive turn. Jani Ziedans, an analyst at Cracked Market, believes bitcoin is demonstrating a lethargic base, which signals weak underlying demand. This continues to be the case insofar as bitcoin struggles in the mid-$3,000 range.

Morgan Creek Digital’s Anthony Pompliano has also stated that bitcoin will probably fall below $3,000 before the bottoming process finally concludes. This comes despite a more than 30% bounce from the December low near $3,100. Read more: Crypto Markets Search for Catalysts as Bitcoin Lightning Network Sees a Surge in Capacity.

Nevertheless, 2019 looks to be a year of accumulation for bitcoin as prices consolidate in the $2,000-$4,000 range. The anticipated influx of institutional investors, combined with the sharp rise in circulation on virtual exchanges, means trading in BTC is likely to grow as the year progresses. According to analyst Willy Woo, these and other factors may put bitcoin on the path to recovery by the third quarter.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.7 stars on average, based on 740 rated postsSam Bourgi is Chief Editor to Hacked.com, where he leads content development for one of the world's foremost cryptocurrency resources. Over the past eight years Sam has authored more than 10,000 articles and over 40 whitepapers in the fields of labor market economics, emerging technologies, cryptocurrency and traditional finance. Sam's work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Contact: sam@hacked.com Twitter: @hsbourgi




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