In recent years we have seen many Bitcoin & other Cryptocurrency scams emerging in India. But little is known to our so-called novice and enthusiastic Crypto investors.
A Chennai-based woman once invested 18 lakh rupees in hybrid crypto called “WOW coin”. She was somehow convinced by a guy on Facebook to invest in a WOW coin for higher returns.
Unfortunately, she has come to know that the coin doesn’t exist and the website where she invested is a fraudulent website that is not functioning now.
The woman was lured into getting unimaginable profits and was completely brainwashed.
They have gone even a step further, where they made her open a trading account and were sending reports of her investment on a daily basis.
It was one day when she realized that it was a big scam and by the time, the entire scam was unveiled, there was neither the website nor the owner found.
Her greedy thoughts and actions have doomed her financially. It is an interesting story published in the Times of India. You should read the complete story to understand how crypto scams work in India.
These crypto scams are a threat to the nation and its financial policies. Hence do not fall into the trap of illegal high returns. One or the other day you will be caught amid a big financial crisis.
How do Bitcoin scams (Pyramid / Network scams) work?
There are various types of bitcoin scams or crypto scams working in India. One of them is the Pyramid scam or network scam.
It is somewhat similar to the multi-level marketing strategy but varies a lot from the conventional scams. When I first heard about it, the concept itself blew my mind.
It is so, sophisticated that the people who indulge in this scam are difficult to be caught. But unknowingly, it will end up arresting the innocent common people who fell into the trap of these scams. BEWARE!
So the story starts here:
- They start a neat website with all the information about that coin.
- The system works in such a way that if you refer the coin to a friend, and he starts investing, then you get a share in his returns.
- So the more people you refer, the better will be your returns. You will also be promoted to a new position after your referral number increases to a point.
- Once you are promoted to a new position, you will get even much higher returns. The returns will be deposited regularly into your virtual account created on THEIR WEBSITE.
- They say that you can convert them into bitcoins whenever you want and can even transfer them to your bank account.
- In simple words, you refer to one, the one will refer to the other, then you will get a share from the returns of one and the other. Wow! It means a one-time investment with multiple sessions of returns.
- The website also provides the complete levels of this pyramid game and also provides info on the returns you might get at each level of the pyramid.
- The information on the website seems to be so genuine, that even you and I will fall prey.
- They also lure you with impossible returns on your investments. Their plan for the future will be beyond expectations and will attract you to invest.
- Of course, all this seems to be so legitimate and working. As a result, you will take the next step.
- BUT, THE SADDEST PART IS, THERE IS NO UNDERLYING BUSINESS FOR THESE SCAM CRYPTOCURRENCIES.
Note: Have you checked their contact address on their website and tried to contact their office? Do it first before you invest.
It is a starter-staker-and the non-staker scam. Let me explain in detail.
Starters
In a pyramid scam, a set of people will publish a white paper on their new coins or tokens introduced into cryptomarkets. They are the Starters.
Startes are the people who are highly informative and are technically more advanced. They are good at coding and also have a cunning business mind back of their faces.
Starters usually do not identify themselves in the public. They remain unknown. But they promote their tokens or coins a lot on social media platforms.
Most of them will be blockchain experts and they know everything about cryptocurrency.
Then comes the part of stakers.
Stakers:
Stakers are people who promote the coins on various social media platforms and adopt multi-level marketing strategies. These are the people who first get attracted by the information on the website.
Principal stakers
A set of people called principal stakers are the primary people who start buying the coins or tokens first.
The sad part is that they know that it is a scam, and they also know when to exit.
Principal stakers are orators. They have a big voice and a huge fan following. They adopt the coins and promote them.
Usually, some of them become country heads. They arrange big conferences and parties to promote the coin.
They also offer huge rewards and promote trading the coin in the crypto-markets. Their main work is to constantly promote cryptocurrency.
“CRYPTO TO THE MOON”. Yes! They will take you and me to the MOON.
Followers
Followers are the people who have huge respect for the principal stakers. They just follow the orders of the principal stakers.
Followers will be from all over the world. Each principal staker will have millions of followers.
The followers organize multiple conferences and meetings in their local provinces and conduct seminars to attract the general public.
The general public will start investing in the scam through the followers.
Also read:
Is Ethereum much bigger than Bitcoin?
Non-stakers
Non-stakers are the general public. They do not have any information on the new cryptocurrency.
They are blind enough to hear and follow what the followers say. They get attracted to the massive return chart that these followers show.
The non-stakers are the main losers in this game. They are the last people to know that it is a scam.
By the time non-stakers know about this scheme, the followers already will earn huge returns from it. As a result, they show their returns sheet and bank balances to attract the non-stakers.
How the scams are organized?
Step 1
The starter starts a new crypt scheme to earn money. They also launch a new coin or token in the name of the scheme.
They are a bunch of people, who will not reveal their identity. You will find fake names with fake addresses on their websites.
They show a virtual underlying business to the scheme and will say that they will invest all the money that you provide into the business and will distribute the returns.
The business that they show will be linked to cryptocurrency and blockchain technology.
Eg: They say that they will invest your money into Bitcoin mining and will distribute the returns.
The returns will be provided in the form of their native crypto-tokens which can be swapped with other crypto-currencies.
Step-2
The principal stakers join the pool and start promoting the business on social medial platforms. They are usually non-residents of that country living in an unknown area.
They launch multiple seminars and youtube channels promoting the business and their cryptocurrency.
They gather millions of followers.
Step-3
Followers organize multiple meetings in their provinces to attract the general public. They invite special guests to talk about cryptocurrency and also arrange group callings with their country head.
It improves confidence in the general public or the Non-stakers. As a result, the non-stakers start investing in the scheme.
There will be a huge inflow of funds, which will be re-distributed to the stakers and the non-stakers.
Remember, the funds which they get will be re-circulated to the stakers and non-stakers.
The distribution will be in such a way that a major portion will be taken by the starters and a lesser portion will be distributed among Stakers (Principal stakers and followers) and non-stakers.
Step-4
Everyone in the group or scheme will earn good returns by the end of the cycle. Yes, you heard it right. By the end of the first phase or first cycle, everyone will get some returns.
The people who invested first (Starters and principal stakers) will get their investment and will also earn huge profits by the end of the first cycle.
People who invested late will be in the middle of their investment, but continue getting regular returns.
As a result, the confidence in the participants will increase.
Step-5
Now the second phase of the cycle starts. The principal stakers and the followers get messages from the company, saying that they are starting the second phase, where if they re-invest their money, they gonna get 2X to 3X returns than the first phase.
Now the cycle again continues and even the non-stakers who did not get their whole investment will re-invest a HUGE AMOUNT to get much higher returns.
Step-6a
This is one of the endings of the many cryptocurrency scams or bitcoin scams.
The starters will loot the money and will run away one FINE DAY. Now the Principal stakers have to run the show.
They cannot quit, as they are known to every investor in the scheme. Hence he will run the show by simply re-distributing the investments.
One fine day, he will also raise his hands revealing that the entire SCHEME IS A SCAM.
By that time, the principal stakers will be in a safe position, where he will get his investment back.
But there will be millions of non-stakers (general public) who lost their entire investments.
Step-6b
Meantime, some principal stakers after the end of the first cycle, start their pyramid scam, building their group. The non-stakers still think that they are investing in the main scheme which they started in the first cycle.
But after some time, the principal staker loots the entire money and will disappear. By the time non-stakers know this information, the principal staker will disappear from this world.
Step-6c
The second cycle has a different ending. It is more recent and advanced.
The company will introduce its crypto coin or token. They ask people to buy and trade the tokens or coins to increase liquidity.
As a result, you will see more of a community trading in this cryptocurrency. Moreover, they will also introduce coin burn to token burn, to increase the price artificially.
In time, your investment will become 100X. You will be wondered, how it has grown.
One main drawback is you will not be allowed to swap the coin or convert it into fiat currency.
When asked, the company says that it is in the developing phase, hence they have to stake coins for some time. Moreover, they also inform you that they are in talks with various crypto exchanges all over the world.
Once everything gets settled, they will allow the withdrawing and swapping of the crypto assets.
But in the meantime, there will be a RUG PULL AND ALL YOUR STAKED COINS WILL BE LOST, MAKING YOUR INVESTMENT ZERO.
How to recover my lost money?
Money once lost is lost. It is very tough to recover your money. Even the cybercrime police are helpless in this situation.
Moreover, you will be held reasonably responsible for such illegal acts.
PREVENTION IS BETTER THAN CURE. NEVER INVEST IN THESE SCHEMES. NO ONE GIVES ANYTHING FOR FREE.
Bitcoins and Cryptocurrency for beginners
Who will be the losers?
BIG LOSERS will be the Non-stakers. Because they will lose most of their capital. What they get is not even a return. They will end up getting a part of their investment.
They are the last people to reap profits from the pool and are the end users to know the information.
Do the Stakers gain money from this?
Literally, no! You heard it right. All their returns will be in the form of cryptocurrency (because the company provides returns in the form of crypto assets)
Now if they have to withdraw the cryptos, they should have a registered crypto account. But if they withdraw such a huge amount they are liable to capital gains.
Unfortunately, by the time this article is written, income tax laws are not clear regarding this issue.
But speaking legally, they are subjected to money laundering and can be punished.
Moreover, the non-stakers will not have any crypto accounts. So, they do not deal with cryptocurrency. Instead, they deal with fiat money.
As a result, the stakers will provide their own money for the crypto returns they get. As a result, the staker will lose his own money also along with the cryptocurrency he has.
What are the legal issues with these scams?
The main disadvantage in India is the government has not provided any strict laws regarding crypto earnings.
But on a general note, the earnings from cryptocurrency are subjected to capital gains. The percentage of tax on these gains is still unclear and has to be revealed by the government.
But withdrawing huge returns into fiat money through illegal accounts is an act of money laundering and will be subject to legal proceedings against you.
Caution:
Do not participate in such illegal crypto scams. Any money invested in cryptocurrency or any other such business is considered an investment and will bear capital gains tax with it.
If you are not showing these investments in your income tax returns, you are cheating the financial system in your country.
One or the other day you will be caught.
How to protect myself from these scams?
Always invest in genuine exchanges. There are many crypto exchanges in India, which are working towards a better user interface with genuine intent.
Invest your money in reputed cryptocurrencies (Bitcoin, Ethereum, Cardano, Polkadot, etc..). Be away from new coins and tokens. We may not judge or estimate its future.
For more information read our article on investing in cryptocurrency in India.
Our devoted team of financial experts and seasoned writers work tirelessly to curate content that is both instructive and easy to understand. We cover a wide range of topics, including blockchain technology principles, analyzing different cryptocurrencies, decoding market trends, and investigating investing techniques.
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