NB: I wrote this article for a “police cryptocurrency lecture” as an orientation for young police officers. I decided to post it here after it had already served its purpose.
First off, it is worth mentioning that cryptocurrency is a broad subject and it will be impossible to discuss it in whole with a single lecture. However, this is a basic introduction in form of enlightenment as a good way to get started with the knowledge of cryptocurrency, and more importantly, it is leaned towards ‘fraudulent activities and internet scam’.
To start with, we need to break down the term “Cryptocurrency” for simpler understanding.
- Crypto – is short for “cryptography”, and cryptography is computer technology used for security, hiding information, identities and more.
- Currency – simply means “money currently in use”.
Juxtaposing the two terms, it’s easy to conclude that cryptocurrency is an electronic money created with technology controlling its creation and protection while hiding the identities of its users.
Today cryptocurrencies have become a global phenomenon known to most people. While still somehow geeky and not understood by most people, banks, governments and many companies are aware of its importance.
BITCOIN AS THE MOST POPULAR CRYPTOCURRENCY
There are a lot of cryptocurrencies, more than anyone can ever think of. And daily, several new cryptos are born. But bitcoin, being the first cryptocurrency that gained real exposure and traction, is undoubtedly the most popular cryptocurrency in view today. And whenever the word “crypto” is mentioned, bitcoin comes to mind.
However, we can owe the success and popularity of bitcoin to two fundamental things:
- Well qualified and experienced development team: The only decentralized currency which does not belong to anybody. Hence decisions and development always takes place in favor of this technology and not more making the developers rich.
- As the first currency: Bitcoin has taken on so much pressure from a technical angle and has decently matured over the years. It is the only currency which has scaled to the current levels and can withstand the heavy transaction load in the long run. The roadmap is clear and concepts have already been tested, just waiting for consensus for implementation.
Also, huge institutional money and technical advancements will always keep Bitcoin at the top.
HOW BITCOIN (& OTHER CRYPTOCURRENCIES) WORK
As a new user, you can get started with Bitcoin without understanding technical details. All you have to do is create an account on bitcoin wallets like Blockchain.com. Bitcoin wallets are more like Nigerian banks where you open an account to save your money.
Once you have created a bitcoin wallet account, it will generate a bitcoin address which is similar to a Nigerian bank account number. This address is where bitcoin will be sent to in case you are to receive payment.
A bitcoin transaction is a transfer of value between Bitcoin wallet addresses. There is a general log of bitcoin transactions called blockchain explorer where bitcoin transaction history can be viewed.
PROPERTIES OF BITCOINS (AND HOW THEY MAKE IT PRONE TO SCAMS)
1. Bitcoin is Simple to Set Up:-
Unlike the stressful procedures people go through to open a bank account in Nigeria, opening a bitcoin wallet (which is more like a bank account), takes nothing more than 5 minutes and it is done online. This simply means you need no passport photograph or biodata to get an account setup, just with email and password, you’re good to go. With this, any criminal can easily hide behind a bitcoin account and misbehave as he wishes.
2. Bitcoin is Anonymous:-
Unlike Nigerian banks, that know all details about their customers: financial record, addresses, phone numbers, ways of managing money e.t.c. It is all altogether different with Bitcoin, as the wallet doesn’t need to be connected to any expressly distinguishing data. Two users can send bitcoin to each other without either party knowing who the other is or what country he’s from.
Fraudsters can easily hide behind this property to defraud unsuspecting victims.
3. Bitcoin Is Limitless:-
Billions of dollars can be transferred from one bitcoin wallet to another without questioning. Unlike bank transfers where transfers beyond a particular amount will take extra procedures or denied. Bitcoin transfers are not individually monitored and there’s no general limit for transactions.
This makes money laundering flourish with bitcoin (and other cryptos).
4. Bitcoin Transactions Are Irreversible:-
Unlike the conventional banking system in which you can easily report a transfer and get it reversed, bitcoin is totally different. Once the transfer is done, it is 100% irreversible.
Fraudsters use this to their advantage as they lure innocent users to send bitcoin to their address by promising them something too good to be true in return. The unsuspecting user then transfers bitcoin to the fraudster and by the time the user realizes he’s been defrauded, it’ll be too late as the transfer cannot be undone.
5. Bitcoin Is Permissionless:-
You don‘t have to ask anybody to use cryptocurrency. It‘s just a system that everybody can use for free. After you have it set up, you can receive and send Bitcoins or other cryptocurrencies. No one can prevent you. There is no gatekeeper. This makes it lawless.
This is why some countries like China, Ecuador, Vietnam, Russia e.t.c have bitcoin banned.
COMMON BITCOIN (CRYPTOCURRENCY) SCAMS
Contrary to physical bank setups, bitcoin wallets are situated online and all the money you have in a bitcoin account are secured behind the wallet dashboard with an email and a password.
Hackers can easily set up a “clone” website that looks like the wallet website and blast out the link for people to access. Since the website looks very similar to the real website, an unsuspecting victim will then go ahead and input his/her login details into the fake website. The hacker will then get these details and proceed to the real website to login with the user details and transfer all the coins in there.
How This Can Be Avoided: Bitcoin wallets are aware of this, so they set up something they called “2FA Authentication”. This is an extra layer of security that requires not only a password and email address but also something that the user has on them.
For instance, if you activate 2FA authentication for your account, the system will send you a code to your email/phone number to proceed with the login. If you are unable to provide this code, you will not gain access to the account. This shuts out any hacker trying to gain access with just email address and password.
2. Fraudulent ICOs (Initial Coin Offerings)
Seduced by the astronomical price rises bitcoin has experienced since its inception, many people venture into the world of cryptocurrency looking for the next big thing. After hearing words like “if you had bought bitcoin in 2009, you would be a billionaire by now”, people are out there looking for the “next bitcoin” and thinking if they buy another cryptocurrency now, they’ll be very rich in near future.
So, fraudulent people set up fake cryptocurrencies and spice it with some slick marketing and a little bit of hype, to convince people to buy a cryptocurrency that doesn’t actually exist.
How to avoid this: Thoroughly research any ICO (Initial coin offering) before buying in. Look at the team behind the project, its white paper, the purpose of the currency, the tech behind it and the specifics of the token sale.
Note: ICO means initial coin offering. It means that someone offers investors some units of a new cryptocurrency (Like shares). They buy it at very cheap prices hoping the price will increase in the future and then they’ll sell it.
3. Ponzi & Pyramid Schemes
A Ponzi scheme is a simple but alarmingly effective scam that lures in new investors with the promise of unusually high returns. Ponzi scam is nothing new in Nigeria, with the likes of MMM that was in trend in late 2016, it is difficult to see someone that has not heard of Ponzi.
But why bitcoin Ponzi is different from MMM is that; MMM transactions were done in naira which made it traceable. But bitcoin Ponzi schemes are done with bitcoins, which means, no one knows no one and even the owner of the scheme is faceless.
The owner of the scheme can easily disappear at any time with investors’ money leaving no single trace.
Only greedy individuals fall for this.
Fraudulent humans pose as Blockchain Customer Care agent (just like saying GT Bank Customer care agent). Then unsuspecting victims run to them for help as regards their account. They then tell the victim to send login details for them to look into the issue, by doing this, they can easily transfer all the money in the account to another address.
5. Cheating scams
People pose as bitcoin buyers online, claiming they buy bitcoins and pay naira in return. But once the seller transfers bitcoin to their address, they disappear. Since Bitcoin transactions are faceless and irreversible, the victim is doomed.
This is one of the oldest bitcoin frauds, yet it still happens on a surprisingly regular basis. Scammers try to win your trust in many ways. In order to dupe you, some might send fake IDs or even impersonate a respected member of a local community.
This can be avoidable by only exchanging bitcoins on reputable bitcoin exchange platforms with escrow services like Paxful and bitkoin.africa or selling to reputable platforms like Bitdelia or Nairaex.
NOW, SHOULD CRYPTOCURRENCIES BE AVOIDED OR GENERALLY TAGGED SCAM?
Not at all. Just realize that any burgeoning technology will attract unscrupulous individuals—especially if the said technology can lead to extremely high money returns.
The properties of bitcoin that make it profitable are the same properties that make it prone to scam. And of course, we cannot trust unGodly individuals not to use the loopholes to defraud others.
The key to staying safe in cryptocurrency is “not being ignorant”. There are always unfortunate individuals that take the plunge and will fall victim to fraud. Things that seem too good to be true probably are.
Some legit cryptocurrency day traders do make vast amounts of money buying, selling and trading bitcoin and other altcoins since the very early days of cryptocurrency.
Using websites like Paxful.com for bitcoin exchanges, individuals can make vast amount of money brokering bitcoins without scamming anyone.
Some rich investors also buy bitcoins in bulk and keep, then wait till the price increases before selling it off.
Apart from that, there are online platforms where people do work and get paid in cryptocurrencies. Some of them are:
Coinworker: Users can earn bitcoin for completing surveys.
Steemit: You get paid cryptocurrency for writing articles.
Grand Bux: Members earn cash for each advertisement they view on the site along with many other income options.
BTC Clicks: Users can earn Bitcoins for Viewing websites and other Bitcoin-related advertisements.
TaskWall: A site that pays bitcoins for completing all sorts of tasks like downloads, surveys, paid to click, promotional offers and more!
So we can justify bitcoin scams by saying; whatever has advantages, has disadvantages as well.
The market of cryptocurrencies and crypto as a subject is fast and wild. Nearly every day new cryptocurrencies emerge, old die, early adopters get wealthy and investors lose money. Every cryptocurrency comes with a promise, mostly a big story to turn the world around. Few survive the first months, and most are pumped and dumped by speculators and live on as zombie coins until the last bag holder loses hope ever to see a return on his investment.
The adoption might be dirty. But this doesn‘t change the fact that cryptocurrencies are here to stay – and here to change the world. This is already happening. People all over the world buy Bitcoin to protect themselves against the devaluation of their national currency, people make money with it, it allows seamless international transfers and gives almost everyone a world of financial freedom, that’s if we take a look away from the scam.