Phishing, Ponzi, Pump and Dump

The world of digital finance holds great promise, but is at the same time perilous for those who are not sufficiently vigilant. It is only too easy to fall prey to the myriad of scam and fraudulent tactics out there, so in this week’s Crypto Terminology: A to Z series, stick with us as we bring you through three common types of scams frequently seen in crypto.

Fraudsters are becoming increasingly sophisticated in their methods to acquire personal data from their victims. Imitation websites, seemingly familiar links that end up downloading malware, emails from phony support teams claiming to belong to a project and entity you frequent and more have fooled many crypto investors and enthusiasts into divulging sensitive data. Victims of phishing scams have not only lost credit card information, addresses and private keys, but also thousands or millions in funds in some severe cases.

According to blockchain and crypto analytics firm Chainalysis, Ponzi schemes accounted for the loss of approximately $4 billion in the crypto industry in 2019. This is a 300% increase from 2018, which saw slightly under $1 billion in losses for the same reason. Monetary authorities often warn investors to stay vigilant and look out for signs that suggest a Ponzi scheme, such as unrealistic growth numbers or impressive returns that promise little to no risk at all. Infamous Ponzi examples in the realm of digital assets include the 2018 Bitconnect case and the more recent Plus Token scheme that occurred in 2019.

An investor or investment firm holding significant influence in the crypto market, such as a whale or a fund may pump up the price of a thinly traded asset (a token or security) by aggressively purchasing it. As price spikes gather momentum and attract publicity, more investors pour their funds into this asset, driving its price further upwards. 

At this point, when the value of the asset hits a new high, the investor or entity that initiated this upward price trajectory will then dump the asset via a massive sell-off, cashing in on the artificial gains at the expense of unknowing investors who are left holding the bag.