Over Half of All Crypto Is Fake, So How Do We Fight It?
Although bitcoin was the first cryptocurrency, hundreds of others followed it. If you’re investing in the altcoin universe, you likely want to research how active each cryptocurrency is on exchanges. Unfortunately, that technique might give bogus results.
Two Conflicting Reports, Both of Them Damning
Alameda Research recently published research showing that 68% of activity on crypto exchanges is fake. If there’s any positive news in that announcement, it’s that earlier findings from Bitwise Asset Management put the percentage of false activity somewhere between 80-90%.
Even if the latest research is more accurate, it’s still concerning.
News That Illuminates Fake Crypto Problems
Some recent headlines emphasize why the issues with fake crypto are so worrisome. For example, a college sophomore created a company called Gotbit that uses bots to artificially inflate crypto trading activity on the exchanges. The goal is to eventually get a cryptocurrency listed on CoinMarketCap.
If a cryptocurrency reaches that point, Gotbit’s intermediaries take care of the final steps of putting it onto CoinMarketCap. However, the cryptocurrency has to get listed on smaller exchanges first. Gotbit charges $6,000 per month and up for its so-called market-making services and is reportedly working on 30 projects.
Scammers are already trying to trick people into buying Facebook’s cryptocurrency now, even though it won’t launch until next year. Some of them set up a fake token presale. In another incident occurring in late June 2019, European authorities arrested six people in the Netherlands and the United Kingdom connected with allegations of a theft involving multimillion-dollars worth of cryptocurrency.
Those criminals allegedly used a tactic called “typosquatting.” It requires making slight alterations to a URL and creating a fake site that gives the impression it’s the real thing. The cybercriminals behind the false cryptocurrency presale for Facebook’s offering did the same by placing an accent mark in an address.
No Single Solution
The examples above are only a sampling of the crypto fakery existing on the web. People who hope to find one way to crack down on all or most of it will undoubtedly be disappointed. The founder of Gotbit acknowledges the unethical nature of his business, and he thinks the cryptocurrency exchanges know about the tactics of his company and similar ones. However, he believes they won’t do anything about it — and such false trading is hard to spot, but not impossible.
Some people respond to these scams by taking legal action. One Dutch billionaire who was fooled by deceptive cryptocurrency ads on Facebook filed a lawsuit against the social media company, alleging reputational damage. Even after Facebook prevented many kinds of crypto ads from appearing on the platform, some fell through the cracks.
Stricter regulations could also help prevent fake crypto issues, especially at the state level. That’s because several U.S. states are mulling over possibly regulating cryptocurrency exchanges. It’s worth noting, though, that many crypto scammers register their websites in countries with few or no regulations to follow.
If people commit to being more personally aware, that could help, too. They can start by remembering the old saying that cautions if something seems too good to be true, it probably is. Take, for example, a malware-loaded app that promised to give people free cryptocurrency if they shared unique URLs with friends. Thankfully, many individuals in the crypto community go to sites like Reddit and warn others about the scams they find.
So far, there are no apps or tools to help consumers detect crypto scams or strange trading activities. Artificial intelligence (AI) could soon help, though. Sectors like retail and banking already use it to identify potential fraud, and it could probably find things that are amiss in the cryptocurrency sector, too. But at this stage, nothing on the AI front really stands out when it comes to identifying crypto scams. (And lo and behold, South Korea just reported that its citizens lost $2.3 billion due to crypto scams in the last two years alone.)
Education Is Indispensable
One of the realities that’s almost certainly making it easier for criminals to scam cryptocurrency users is that it’s still relatively new, and many people are not as educated as they should be about it. That issue could get even worse once Facebook rolls out its Libra product next year. The marketing emphasizes how anyone can transfer money quickly with the help of the currency and popular apps like Messenger or WhatsApp.
Scammers often capitalize on urgency. They hope people won’t carry out the necessary research to potentially conclude something is a scam.
Two of the most effective things people can do to stay protected from scams is to educate themselves with a variety of reputable sources and think carefully before taking action. Those two precautions are simple but effective in stopping people from becoming victims.
Featured image courtesy of Shutterstock.