Crypto Mining Scams: a Multi-Billion Industry — Source: Nefture
The $4.4 billion OneCoin crypto scam was a crypto mining scam.
The latest billion-dollar Ponzi scheme to date, Novatech FX, was also partly related to a crypto mining scam, AWS Mining.
These schemes have become a favored marketing tool for crypto Ponzi operations, drawing in countless victims with promises of easy wealth through passive incomes.
The irony is striking: while legitimate bitcoin crypto mining operations are shuttering one after another due to soaring energy costs and reduced revenues from the latest Bitcoin halving, crypto mining scams are flourishing.
Crypto mining scams exploit the complexity of blockchain technology and the hopes of their victims.
Here’s how they work and why they thrive.
How Crypto Mining Scams Work
Cryptocurrency mining, particularly Bitcoin mining, requires the use of powerful computers to solve complex mathematical problems, thereby securing the network and confirming transactions. Miners are rewarded with new coins for their work, making it a lucrative process.
In a normal setting, anyone with the right hardware and technical know-how can participate, though the barriers to entry, such as electricity costs and high-powered hardware requirements, make it challenging for individuals.
Since generating wealth from crypto mining is not a sham but rooted in the very fabric of how cryptocurrencies are produced, it provides the perfect foundation for successful crypto scams.
Crypto mining scams typically follow a few different models, each designed to defraud investors with varying degrees of sophistication. The most common include cloud mining frauds, Ponzi schemes, and fake mining hardware.
Cloud Mining Scams
In legitimate cloud mining, companies rent out their mining equipment to users who, in turn, receive a share of the mined cryptocurrency. This allows people to participate in mining without having to buy expensive hardware.
However, the cloud mining space is rife with scams, where companies either don’t actually own mining equipment or run a Ponzi scheme, using new investors’ money to pay off earlier participants until the whole operation collapses.
Source: TrendMicro
Scammers set up slick websites, impersonate legitimate mining companies, show off fake pictures of mining facilities, and post falsified earnings reports to attract new customers.
Braiins Pool Impersonators — Source: Braiin Pools
Victims often don’t realize they’ve been duped until their promised payouts either stop, by which time the scam operators have vanished with the funds, or were never forwarded to begin with.
A company may claim to offer cloud mining services, perhaps with the promise of attractively high returns, in exchange for an up-front payment. The promised returns may never materialize, as the company owns no mining equipment.
There are instances where scammers openly market their app as a cloud crypto mining platform, yet clearly state in the Terms of Service that the app is actually a game, with no financial returns to be expected from any money invested.
Source: TrendMicro
Another type of cloud mining scam was reported last year by Kaspersky, where victims received an email claiming their accumulated cloud mining earnings were about to expire. The message urged them to act quickly or risk having the substantial funds redistributed to other users of the so-called “automated cloud-mining platform.”
Source: Kapersky
To unlock this scammer-sent blessing, victims are told they only need to pay a measly $60 fee. However, after paying, they receive nothing in return and have handed over their money and personal information to a scam network, which could then use this information to further exploit them through other means.
A certain amount of cloud mining scams are essentially a type of crypto Ponzi scheme. An example is HashOcean, which owned no crypto infrastructure but paid a generous signup bonus to attract new members.
Source: CryptoNews
Ponzi Schemes in Crypto Mining
Some mining scams operate like traditional Ponzi schemes. They promise investors guaranteed high returns from mining operations but rely on recruiting new members to pay off earlier investors.
These schemes often collapse when the flow of new participants dries up, leaving later investors with nothing.
The OneCoin Case
OneCoin, for instance, was a notorious crypto scam that masqueraded as a revolutionary cryptocurrency.
Ruja Plamenova Ignatova, self-dubbed crypto queen, OneCoin founder — Source: Variety
It promised huge returns through its mining operations and token sales.
However, OneCoin was not a real cryptocurrency and did not have a functioning blockchain or mining infrastructure. It operated on the Ponzi scheme model, using funds from new investors to pay returns to earlier investors. The scheme amassed billions before it was exposed, and many investors lost their money when it collapsed.
The AWS Mining X Novatech Case
AWS Mining provides another example of a crypto mining scam.
Promoted as a legitimate cloud mining operation, AWS Mining promised high returns from investing in cryptocurrency mining. However, it was eventually revealed that AWS Mining was merely a Ponzi scheme. The funds collected from new investors were not used for actual mining but were redirected to pay earlier investors and line the pockets of the scheme’s operators.
When AWS Mining began to unravel, it resorted to deceptive tactics, such as fake stories about mining facilities catching fire, to cover up its fraudulent activities. Tens of millions of dollars were lost before the scheme was exposed.
Furthermore, it was used in an even more damaging scheme: the NovaTech FX one-billion-dollar crypto Ponzi scheme.
Learn more on this case here:
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Fake Mining Hardware and Software
While crypto mining scams primarily aim to deceive victims by falsely promising wealth while siphoning their funds, a notable sub-category of these scams involves fake mining equipment.
In some scams, fraudsters sell non-existent or defective mining hardware. These scams often target novice miners looking for a quick entry into cryptocurrency mining.
Sellers advertise top-tier mining equipment at suspiciously low prices, tempting buyers with promises of massive returns. Once the transaction is made, buyers receive either faulty hardware or nothing at all.
A similar scam involves fake mining software, where malicious programs are disguised as legitimate mining applications. Instead of mining cryptocurrency for the user, these programs steal personal information, wallet credentials, or use the victim’s computer to mine cryptocurrency for the scammer without the user’s consent.
A 2021 Kaspersky report on cryptocurrency scams involving fake mining equipment provides a detailed look into these schemes using Bitmain as a prime example.
During the early 2020s, a surge in demand for mining equipment created an opportunity for scammers to exploit the shortage with sophisticated tactics. Victims, whether established crypto miners or hopeful newcomers, receive phishing emails via Google services that seem to originate from the reputable manufacturer Bitmain.
These emails are designed to look authentic, using Google’s infrastructure to bypass spam filters.
The emails lead victims to a fake website, bitmain[.]sa[.]com, which mimics the real Bitmain site. This fraudulent site promotes Antminer S19j mining machines, urging immediate action due to limited stock. The site uses HTTPS for a semblance of security but is entirely fake.
Source: Kapersky
To place an order, victims must register and provide personal information. They then proceed to make payments in cryptocurrency to a wallet address provided by the scammers. After payment, victims find their accounts inactive, with no record of their order, and their personal information potentially used for further exploitation.
How Non-Tech-Savvy Investors Fall for the Allure of Printable Money
Crypto mining scams exploit several key factors that contribute to their success, particularly among non-tech-savvy investors. Understanding these can shed light on why these scams are so pervasive and damaging.
Complexity of Cryptocurrency Mining
The technical jargon associated with crypto mining — terms like hash rates, algorithms, and block rewards — can be overwhelming for the average investor.
Scammers capitalize on this complexity, selling mining contracts or equipment to those who don’t fully understand the technology, relying on their authoritative but misleading claims.
Ensnaring Tactics
Crypto mining scams often promise easy returns and low entry costs, preying on investors’ desire to participate in the lucrative mining world. Investors are lured by the promise of passive income or guaranteed profits, which is a major red flag.
Guaranteed Returns
Scammers frequently claim guaranteed profits or fixed returns from mining activities. Given the unpredictable nature of mining, including variables like mining difficulty and Bitcoin price, these guarantees are impossible. A legitimate mining operation cannot assure specific returns due to these fluctuating factors.
Source:Build Trust Through Unverified Reviews
To build credibility, scammers inundate their websites with fake reviews and positive testimonials, creating a veneer of legitimacy to mislead potential investors.
This deception extends beyond their own platforms; they also target high-profile review sites like Trustpilot. There, they purchase a deluge of positive reviews to drown out any negative or critical comments, effectively manipulating the public perception of their scam.
Informal Communication Channels
Scammers often use informal communication channels to reach out to their victims for of course practical reasons but also for psychological manipulation purpose:
Informal channels such as social media direct messages, emails from free services, or messaging apps are particularly effective for scammers because they feel more personal and less official. This casual nature can lower the recipient’s defenses, making the scam appear more genuine and trustworthy. Scammers exploit this by crafting messages that seem friendly or urgent, which can create a false sense of familiarity and trust.
Source: The Age
The immediacy of informal communication allows scammers to pressure victims into quick decisions. By inducing a sense of urgency, such as a limited-time offer or immediate action required, scammers take advantage of the informal and rapid nature of these platforms to prompt hasty responses. This psychological pressure can lead victims to act without conducting proper due diligence.
How to Protect Yourself From Crypto Mining Scams
Despite the risks, there are steps investors can take to safeguard themselves from falling victim to crypto mining scams.
1.First and foremost, due diligence is key. Before investing in any mining operation, investors should research the company behind it, scrutinize their claims, and look for independent verification of their operations. Legitimate cloud mining services will often have detailed information about their hardware, facilities, and track record.
2.Another red flag is guaranteed returns. Mining cryptocurrency is inherently risky and volatile, and no company can guarantee a steady stream of profits. Promises of fixed returns, especially when accompanied by high yields, are almost always indicative of a scam.
3.It’s also important to be cautious of unsolicited offers. Scammers often use social media, email, and messaging apps to promote their fraudulent schemes. If a mining investment opportunity seems too good to be true or comes from an unknown source, it’s likely a scam.
4.Lastly, verify equipment sellers. When buying mining hardware, stick to reputable vendors and double-check reviews from trusted sources. Avoid deals that seem too good to be true, and consider using escrow services or payment methods that offer buyer protection.
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Crypto Mining Scams: A Multi-Billion Industry was originally published in Coinmonks on Medium, where people are continuing the conversation by highlighting and responding to this story.