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Phishing and Ponzi Schemes: How to Avoid Online Scams

August 21, 2023

7 min

Phishing and Ponzi Schemes: How to Avoid Online Scams

The Internet is an excellent environment for developing scams such as phishing or Ponzi schemes. The spread of Bitcoin meant that these schemes also began to exploit the popularity and lack of understanding of cryptocurrencies.

In recent years, people and governments are beginning to understand bitcoin and the blockchain more and more, and to distinguish legitimate projects from those without substance.

Centralised cryptocurrency services such as exchanges play a key role in this regard because they facilitate access to the technology, as they are integrated into the mainstream economic and legal system.

Moreover, being expert players, they filter the market by working only with solid partners and projects, thus fostering a healthy and safe market and environment.

Together with regulators, these companies also help to avoid the criminal activities that emerge in these situations. They do this by enforcing anti-money laundering regulations and verifying the identity of their users.

When, however, we are not under the protection of these services, how do we recognise those malicious players who exploit cryptocurrencies in the wrong way and who we can encounter in different corners of the internet?

Let’s take a look at the main types of online scams and how to avoid them.

Fake Exchanges

These are usually sites or apps that replicate other exchanges, imitating their interface.

They usually lure users with exaggerated promotions to get them to enter their credentials.

How to avoid fake web exchanges?

To distinguish these exchanges, simply compare their url to the real exchange. To avoid accidentally stumbling across a copy of your favourite exchange, save it to your favourites or smartphone home page.

The Young Platform URL is always https://exchange.youngplatform.com/The text after the slash (/) may vary, but the important thing is that everything before it is spelled exactly like this: exchange.youngplatform.comNo www, no numbers, just the optional https:// at the beginning.

How to avoid fake exchange apps?

First of all, it is advisable to avoid unofficial stores and versions of apps, i.e. apks, because they are not verified by anyone.So download your apps from Google or Apple stores, which take care of certifying the legitimacy of the developer.

Phishing: sms, emails and social media

Phishing is a practice that affects not only bitcoin, but any kind of service. You may have received emails or text messages from someone claiming to be Paypal, a bank or a site you use, asking you for passwords or making you do something deceptive.

The messages usually refer to some problem with your “account”, or some excuse to get you to enter your details on a fake site.

In some cases, there will also be attachments, probably viruses or malware, which may also be disguised as familiar extensions such as .pdf or .doc.

On social media, this phenomenon occurs through impersonation. In other words, fake profiles of people known or unknown contact you or post misleading content with big promises.

How can you avoid falling for phishing?

As you know, it is best not to even open these emails or messages, report them and delete them.

On social media, however, there are a few ways to recognise fake profiles, such as the lack of a verified profile tick on Twitter or Facebook. Also, try searching for the name of the profile in question to see if the original profile comes up. In general, just double-check and be careful.

Malware and Ransomware

Malware can be downloaded onto your computer or smartphone from fake websites and phishing sites, but also from various types of spam. Malware is malicious software, the most common of which are viruses and ransomware.

Viruses are software that damages or deletes files on your computer when you open the object to which they are attached. They are so-called because they are dormant, to begin with, and once activated they self-replicate and infest your entire device.

Ransomware, on the other hand, usually locks the device in use or access to data and demands a ransom in exchange for unlocking it.

How to protect yourself from malware?

  • Install a reliable and comprehensive antivirus
  • Avoid clicking on advertisements or suspicious sites
  • Don’t download files from suspicious emails
  • Back up your files so you can recover them in case of attacks

Very important: get into the habit of using complex, ever-changing passwords and storing them securely. The same goes for your private keys if you have a cryptocurrency wallet.

Pyramid Schemes, Ponzi Schemes or Multi-level Marketing

These are 3 terms for more or less the same thing. They are the oldest type of financial scam, also because they are not necessarily just on the internet.

  • Ponzi schemes are pyramid schemes involving a form of investment.
  • Pyramid schemes are about selling a product or service.
  • Multi-level marketing (MLM) is a legitimate business model that succeeds in enduring, although it is often only through legal expedients. It is usually derived from a pyramid scheme.

The pyramid structure is common to all three models. They base the reward on the number of people involved in the scheme. At the base of the pyramid, there are the newcomers who often have to pay an entry fee and receive the lowest reward, while at the top are the accomplices of the scam who get most of the proceeds.

In Ponzi schemes, the scammer pays returns to the old investors with money from the new investors. When the scammer can no longer bring in new investors, the money stops flowing and the pyramid collapses, leaving the late entrants often at a loss. OneCoin is an example of a crypto Ponzi scheme.

ponzi scheme

Pyramid schemes and MLM on the other hand usually employ people who have to sell a product. These people in turn have to recruit other people in order to make money and move up the ladder. The most common outcome is that the new sellers get stuck with mountains of unsold products and go into losses. This is often because the products are of poor quality, or the salesperson has been hired without having the necessary skills, because the important thing is to bring people on board.

Pyramid schemes and MLMs often exploit unemployment, frustration in the workplace and people’s desire for economic independence. They promise high earnings, a high position in a short time and self-employment, in short, to be “your own boss“. As if this could happen with the snap of a finger.

How to avoid falling into a pyramid scheme?

In general, by understanding how these businesses work, one can avoid them, first of all by being wary of any form of easy money.

The best way to steer clear of such schemes, as far as cryptocurrencies are concerned, is to thoroughly research information about the currencies you buy. We’ve prepared a guide to this.

If the value of the cryptocurrency or form of investment in question is purely dependent on new investors or members joining, chances are you’ve stumbled upon a scam scheme.