Exit scam: how to spot one

What is an exit scam?

Exit scams are where an organization, business, or person continues to accept money or commodities for a product, while knowing that the product will never reach the buyer (or investor). By the time the victims realize they won’t be getting the product or service they paid for and were promised, the scam artists have already disappeared. Master scam artists can work months or even years on a well-executed exit scam.

Since the surge of online shopping and services, exit scams exploded in popularity. The internet is a hard place to regulate, and scam artists run rampant trying to entice would-be victims into buying into a phony deal. The rise of cryptocurrency has only proven to exacerbate the online dangers.

Exit scams in the cryptocurrency world

Regarding crypto coins, an exit scam is when an organization or individual creates a cryptocurrency project, promotes the currency until a monetary threshold is reached, then disappears with their investor victims’ money. It’s not always individuals hawking the latest crypto coin. Some crypto-trading exchanges have vanished off the face of the earth after a few months, or years, of operation.

A cryptocurrency exit scam is similar to normal exit scams in how a lot of time and effort is spent convincing the target audience of the validity of the coin. The creators of the crypto scam coins and exchanges typically hold a majority of the currency. Once the token reaches a specific price threshold, the scam artists will sell their stockpile of tokens before the price inevitably crashes, then lie low.

Several prominent social media influencers have been embroiled in cryptocurrency controversies that are suspected to have been potential exit scams. Instead of using time to attract investors, influencers can leverage their considerable fanbases to purchase the currency at the initial coin offering, falsely inflating the price of the token. The fanbases’ loyalty to the influencer helps blind them to red flags.

Examples of cryptocurrency exit scams

The issue with cryptocurrency is how it’s a fledgling industry that lacks any meaningful regulation. Banks and other financial institutions have the safety net of government schemes to bail them out when a situation turns catastrophic. Cryptocurrency does not have the same federal safety precautions. If investors lose their money in a scam, that’s it. They won’t be able to claim their money back, as there’s no federal regulations to help them out.

The financial hit to investors is devastating and potentially life-changing. Here are examples of some of the most notorious exit scams involving cryptocurrency.

PlusToken exit scam

The 2019 PlusToken exit scam is a classic example of a Ponzi scheme. PlusToken promised that the money contributed by investors would be used in developing new crypto products. All profits made would be paid back to investors via the PlusToken cryptocurrency. Like all Ponzi schemes, new investor money was used for the payout to the early investors.

In June 2019, the owners of PlusToken withdrew all the cryptocurrency gathered from investors, an estimated $3 billion worth, and left a single message on their site: “We have run.” As of July 2020, over 100 co-conspirators for the PlusToken scam had been arrested.

Bitsane exit scam

Bitsane started in 2016 as a crypto exchange. It gained a rush of users for being one of the few exchanges at the time to accept the cryptocurrency Ripple. By 2019, the exchange averaged over $5 million of value everyday and had just under 250,000 active users.

In May 2019, users found that they weren’t able to withdraw their cryptocurrency. The owners of Bitsane claimed technical issues. June arrived, and the website and all social media accounts linked with Bitsane vanished. Some users claim to have lost up to $150,000.

Modern Tech exit scam

Modern Tech tried to release two cryptocurrencies at the same time: Pincoin and iFan. Modern Tech promised their users a beefy 48% return of their investments every month, along with the typical promise that their money would be made back in record time.

In what was a quick turnaround of events, investors found, almost immediately, that they could not withdraw any of their cash from Modern Tech. Modern Tech shut down their business and predictably disappeared before local Vietnamese authorities could get involved.

How can you recognize an exit scam?

While scam artists spend a considerable amount of time and resources into crafting their trap, they’re still human and can be figured out. Here are some red flags that show you’ve stumbled across a crypto exit scam.

• Rapid investment returns. The general rule of thumb when it comes to spotting an online scam is: if it’s too good to be true, it usually is. While some investments can indeed make returns on a quick turnaround, cryptocurrency exit scams rely heavily on reiterating the speed in which your initial investment will be returned. Be wary of any cryptocurrencies that encourage you to bring others into the fold – this is a good sign of a potential Ponzi scheme.
• Lack of quality checking. One of the best ways to determine the legitimacy of an organization is to analyze the language they use with promotions. Is their white paper poorly written and contains multiple errors, both factual and grammatical? It could be a sign of a scam.
• No team available. Scam artists use false names, or omit any kind of identity altogether. If you come across a new cryptocurrency and show some interest in investing, see if there are any team members you can find online. Explore some online forums and see if anyone has managed to contact the dev team. If there are no methods of contact, it could be a sign that the creators don’t want to be found, or known.

Tips on how to avoid becoming a victim

Scam artists are opportunists always looking for a victim. Unfortunately, the prevalence of online scammers have forced the general populace to be hyper aware of anything that sounds too good to be true. Criminals will even try to trick you with fake online defenses. For example, VPN scams exist that will entice you with impossible protective claims.

Ultimately, preventing yourself from becoming a victim of a cryptocurrency exit scam relies on your personal knowledge. The best defense against these types of scam is to have a proactive attitude when it comes to your cybersecurity. Take the time to educate yourself to recognize the signs of a scam or cyber attack. Invest in a protection service like NordVPN and you can protect your online activity from any spies or snoopers looking to see what you’re doing.