How To Not Get Scammed In The Crypto Market – VICE

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Hacking. Disinformation. Surveillance. CYBER is Motherboard’s podcast and reporting on the dark underbelly of the internet.

A strange press release went out on September 13. Retail giant Walmart, it seemed, would soon be accepting cryptocurrency. “The eCommerce giant intends to give its millions of shoppers across the world an opportunity to seamlessly make payments with cryptocurrencies,” the press release said. The press release was bullshit.

The world of cryptocurrency is rife with scams. pump and dumps, fake coins, massive hacks. Members of a professional eSports influencer house have been accused of running a crypto-based charity scam, a hacker recently made off with $600 million in Bitcoin, the SEC is investigating a crypto backed fraud case that’s alleged to have screwed investors out of billions.

The list goes on and on. What is it about these digital currencies that makes them so vulnerable to getting ripped off, and how do you keep yourself safe?

Here to help us navigate the murky waters of cryptocurrency and its many scams is Motherboard Senior Editor Jordan Pearson.

Subscribe and never miss an episode of Cyber. It’s available on iTunes, Google Podcasts, Stitcher, or anywhere else you get your podcasts.

What follows is a transcript of the episode.


Jordan, thank you so much for coming onto the show 


Of course thanks for having me. 


All right. So can we start with this Walmart thing? I know that it kind of broke this morning and it’s an ongoing story, but can you tell us what we know? 


Yeah, I mean, well, we don’t know much as is the first thing I’ll say other than the facts of what happened which is, you know, this morning, a press release appeared on one of those business newswires that says Walmart is accepting Litecoin in particular which, in the crypto world, was kind of immediately like, like the bullshit detectors are going off because Litecoin is like a Bitcoin clone that started in 2011 and aside from people holding on in the hopes of like making money somehow one day, it’s essentially a dead project.

Like the guy who created it, sold all his coins like a few years ago. So immediately this is very strange, but Reuters picked it up. I think CNBC picked it up. And eventually, you know, it turned out, it was confirmed by Walmart that it was fake, confirming the suspicions of what most people in crypto sort of intuited, just because of how bizarre it was.

So, Walmart put out a press release, said “this was fake,” global Newswire, which was the PR wire, put out something that said, “journalists, please disregard this.” And that’s really it, you know, the, the price of Litecoin shot up by, you know, about a hundred bucks or something,  for about half an hour and maybe someone managed to make some money in that time, but then just went right back down.


All right. So it seems like every time I see a story about cryptocurrency right now, it is something like this. And I thought one of the selling points of crypto in the early days was that it’s supposed to be more secure, maybe you’re less prone to this kind of thing. That’s absolutely not the case, correct?


Yeah. I mean, definitely. I think this is sort of a point for people who are maybe newer to the crypto space,  to sort of have, you know, potentially a tough lesson to learn, but a lesson nonetheless, which is, you know, the cryptocurrency itself was not really at issue here. Nobody hacked the blockchain or something like that. It’s like, it’s the same thing that affects any number of other things in the world, including  penny stocks and stuff like this, which is some scammer  put out some false information that got the public all excited.

There’s some things about crypto that maybe make this more appealing, such as transfers are instant.  So there’s no one really to  block the thieves’ money moving in most cases. And this can happen really quickly, so you can make out like a bandit in a short amount of time and no one ca,  in theory, really stop you.

But in terms of the scam itself, the pump and dump as these things are called, it’s not really unique to crypto. But I think the reason these things are so popular is because of all the externalities that involve crypto. Including the internet itself and how things happen on the internet, the speed at which information travels online.A lot of this creates a more friendly environment for scams.


All right. So we’ve kind of talked about the pump and dump. What other kinds of scams do you see in the crypto space there? 


There’s a lot of different scams. Impersonation scams are pretty common. You’ll see this on Twitter where right under a famous person’s tweet, like under Elon Musk or under, you know, some famous crypto person, you’ll see accounts that look very similar and they’re advertising crypto giveaways, but you have to send them some money first or something like this.

So these kinds of scams are rampant,  and also just like phishing, a lot of social engineering I would call it, that, crypto maybe in some ways just makes a little easier for scammers. So, you know, if you’re in like the discord of a project that’s launching, an enterprising scammer might throw a link into the discord,  that some people before they can really figure out what’s going on, you know, click on it and send some money to it. This sort of thing happens pretty often.  

But even beyond the social engineering side of it, like there’s scams that are a lot more complicated and can be really hard for novices to see coming. There’s a whole world of new tokens popping up every day on, you know, things like Binance, SmartChain, or  Uniswap because these places are really cheap to create a new token.

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So you’ll even see things like, like duplicate listings on Uniswap. So just trying to trick people. Basically like, a new coin is launching so some scammer will just very quickly and essentially for free create a new listing that just looks almost identical and maybe we’ll gather a few people. And this hasn’t even really gotten into the technical hacks and scams and what are called rug pools, which are extremely rampant right now in of the emerging DeFi space or decentralized finance 


What’s a rug pull?


So a rug pull is kind of like the next evolution of what we might’ve called an exit scam many years ago. So this type of scam is often done by developers themselves and it is going on in this sort of roiling market right now. I don’t even know that exact number, but thousands is a safe bet, of new tokens that are popping up. Because, like I mentioned, they’re really cheap to create, and anonymous founders are the norm and churning communities of trading activity,  like thousands of people in discord. And in this environment, the people behind the project can be a threat.

So what happens is the people behind the project, due to technical reasons, they need to maintain this pool of funds to ensure trades can happen on decentralized exchanges. So. Basically users contribute to what are called liquidity pools due to some incentive that would make them do that.

And what happens is developers will exploit some access they have that’s baked into the contract or a vulnerability of some sort and just drain the pool, take everybody’s money, tank the project, and leave. And this is a very common scam right now. And other times they may take advantage of what are called token burns. So when this happens, a developer’s trying to reduce the supply of tokens in circulation, in theory, making the price higher of all the remaining tokens by sending them to a dead end address, which is like an address that’s like dead. It might even have like “O X O O dead” on the end, just so you know it’s not someone’s real address. But in reality, they might be sending it to themselves if you’re not careful. And often these kinds of scams just end in total project abandonment.  

So this is the type of thing that people have to look out for when they’re sort of exploring the deeper, more dangerous waters that the crypto market right now.


As someone that would want to get involved in the crypto market, there are the big names. 

There’s Bitcoin, there’s Etherium. Why would you ever get involved in a new and upcoming coin? Cause it just sounds like your chances of getting screwed over are pretty good. What’s the incentive? 


Yeah. Well for sure. You’re exactly right. The incentive I think is just money really. Everyone is seeking eye popping returns. One way that you can make money in this space is, you know, invest in Bitcoin, buy some here and there. But like that, that’s almost like buying the index fund at this point in terms of safety. But if you want real returns, what you can do is drop a few thousand dollars into a token that’s worth like 0.0025 cents. If that goes to like 50 cents a token, all of a sudden you’ve made a wild amount of money.  

So really chasing that kind of return, is why people do this. And it comes with a lot more risk just by, you know, the nature of a lot of these projects and the market.


It sounds like a lot of people trying to chase the dream of having an invested in Bitcoin when it first started. Right? 


Yeah. I think that that’s probably a decent way of looking at it. Those days are gone. 


Yeah. Yeah. It’s a whole different thing now. All right. Is it possible to participate in this market right now without getting scammed?. 


Yeah, I think definitely, definitely. I mean, that’s not to say you won’t get unlucky or make bad decisions or lose all your money. But, you know, definitely you can, you can do it without getting scammed, strictly speaking.

I think if you stick to the big names. I mean like Bitcoin or Ethereum, these huge coins and buy through reputable services. I think you’re pretty unlikely to get scammed, like get taken by a scammer.  But if you’re delving more into the, sort of the more risky waters, you can also protect yourself by doing research on projects, who’s behind them, you can see if the code has been audited by one of these businesses that audits code for these projects.

Probably the best way is, if you’re technical, is to look through the contract code yourself.  And even if you’re not technical,  someone else may have already done it for you and posted it online.

So you can definitely do that and just basically do your best to do your due diligence.  But like, I mean, obviously it always comes with a degree of risk. 


All right. So who typically benefits from investing in the crypto market? Is it usually big players and then people that set up the coins themselves.


I mean, I think, you’ll find a lot of stories of people who’ve invested any amount, you know, making money, in addition to finding a lot of stories of people who’ve invested any amount and losing it all. But as I sort of mentioned before, like it’s really all about really massive returns. So in terms of who benefits most, definitely the whales, you know, people who invest just a shit ton of capital into this so when it doubles, which is possible or triples, they’ve not doubled or tripled a few thousand dollars, but a few million or many millions of dollars. 

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So this ratchets up to like a really, really crazy scale. And the whales in Bitcoin are absolutely massive and really out of scale with some of the other players that are trying to get into it now. If you look at El Salvador, you have El Salvador bragging about how they have a few hundred Bitcoins that they bought. Maybe a couple of hundred more. But then you have MicroStrategy, a company that invests in Bitcoin and just bought like a few thousand more Bitcoins to add to their already gigantic pile. So like, they’re going to be the real winners if it increases—these whales that have literally thousands and thousands of Bitcoins.

To buy that today is just not possible for even a country. 


So another question I have here is a lot of these stories reminds me of the early days of the stock market and the kind of the birth of finance capital, you know, things like the South Sea Bubble, that kind of stuff.

We can argue about how well it’s gone, but these financial institutions and markets get regulated and scams become less prevalent. So over the past few years, we’ve seen this huge push to legitimize the market. Do you think that that’s even possible?  


I guess it depends on what you mean by legitimize. If you mean get rid of all scammy projects or like the possibility of scams,I think you’re talking about regulating on a massive scale that we are probably unlikely to see. I mean, in terms of like, you know, Bitcoin, I would say it’s pretty much on track to being, you know, quote unquote legitimized, if not already. You know, it’s mentioned in the infrastructure bill. Coinbase is a publicly traded company with a massive IPO. This stuff has been around for more than a decade, probably isn’t going away, and in general  I see a societal trend, just personally, I see a societal trend towards legitimizing forms of gambling more generally. Not coincidentally as procarity is at an all time high, along with the wealth gap in society.

Everyone is chasing huge returns and even if you’re already super wealthy, you may just want to maintain this kind of escape hatch for your money, for whatever reason. And Bitcoin can be that. I see a lot of reasons for this to stick around and for people to have incentives to buy in. So I definitely do see Bitcoin and some maybe some of the other larger names, I’m not sure, be quote unquote legitimized, but there’s all I think there probably is always going to be this scammy fringe of Bitcoin. I don’t see how you can really totally get rid of it.


Well, this begs a few other questions, but I want to ask them in a slightly different format. We’re about to go into Cipher. Jordan, will you join me on the other side of this ad break? 


Yes, I will see you there.


All right. Welcome back everyone. I am Matthew Galt, and this is Cipher. It’s that wonderful part of Cyber where we decipher the week’s biggest tech stories. Jordan is sticking around because he wrote a lot of really incredible  cryptocurrency stories in the past week that I want to talk about that I really think fit this theme that we’re going for today.

And the first is about Coinbase, which you just mentioned. Coinbase goes Nuclear After SEC Threatens to Sue Over Crypto Loans. What is going on here, Jordan? First of all, I guess what is Coinbase? 


So Coinbase is a cryptocurrency exchange. That  has been around for a while, was kind of like among the OG crop of cryptocurrency exchanges and recently went public. It’s publicly traded, had a massive IPO. So it’s like, kind of like Blue Chip Silicon valley company. That’s a cryptocurrency exchange. So in a lot of ways, it’s sort of like the flagship for the industry. In the U.S. anyway. 


All right. And why is the SEC going after them? 


So apart from all this other stuff we’ve already talked about on this episode, there’s this whole other thing going on called cryptocurrency loans. There’s billions of dollars locked up in cryptocurrency loans already. And the way that this works is, basically, you know, some service— BlockFI is a really big one. They offer something called the BlockFi interest account. So similar to your bank account, like a savings account where you’re depositing money into a savings account and the bank is essentially lending that money out, and giving you interest because you were nice enough to lend them money. That money’s protected by federal insurance basically.

So cryptocurrency loans have sort of taken this idea. So you lock up some of your cryptocurrency in this account, they loan it out to whoever, and you get a return on the money that you’ve deposited. Basically these returns are much, much higher than you would get with your bank account, like much higher. So Coinbase wants to get into this,  And the SEC basically said “no way.” They threatened to Sue Coinbase if they launched this. Apparently they’ve been talking about it for like six months, but Coinbase sort of decided to go ahead anyway. Up until they were threatened with a lawsuit if they actually launched it.  And you know, they’re kind of like, “Oh, we don’t understand this could be a security. Like what is a security?” Type vibe. “Like, we don’t even know?”

They didn’t actually say that, but they’re kind of like pleading ignorance on this. And yeah, that’s really where it’s at. Like they’ve gone public essentially with a regulatory fight with the SEC in order to launch these crypto loans. And by the way, three state regulators within the last couple months all came out and were like, these are securities. Block Fi is offering unregulated securities in our jurisdiction and you have to stop. And that’s the exact same product that Coinbase wants to launch.

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Which is crazy when you think about it, because Coinbase is a huge company. So you can just imagine like, thousands or millions of Americans,  you know, locking up their life savings or however much, in like an uninsured interest account because these crypto loans in Coinbase are not insured like your savings account is. And then lending it out to whoever. What could really go wrong in that situation?


Do you have any money tied up in crypto Jordan? 


I actually don’t and never have, despite my many years of reporting on it. 


Interesting. Just want to flag that for the audience.  Okay. So the next story. We talked about El Salvador just a minute ago. McDonald’s Accepts Bitcoin In El Salvador As Crypto Becomes Official Currency. Jordan, what is going on in El Salvador? 


So El Salvador recently became the first country in the world to make Bitcoin an official currency. So, El Salvador, for about 20 years, its currency has been the U.S. dollar. Which means that El Salvador doesn’t set its own monetary policy, the U.S. Fed sets El Salvador’s monetary policy. Until recently, you know, their new president, who’s a young guy, he’s like 40, he’s also embroiled in numerous corruption scandals. He’s kind of Trumpian in how he, like, sort of denigrates the media. 

So he has sort of pushed through this Bitcoin law, which makes debts and El Salvador payable in Bitcoin. Any business that is technically able to has to accept Bitcoin. The government has released its own Bitcoin wallet and anyone who signs up for it is given $30 in Bitcoin. 

This has been pretty controversial there. There’s a lot of protests about it, but also places like McDonald’s have started accepting Bitcoin, which is pretty wild from a Bitcoin history perspective. McDonald’s, one of the largest corporations in the world, you can go there in El Salvador and pay for your, you know, your food in Bitcoin. That’s been one of the effects there.


That’s so funny to me because the price of Bitcoin, correct me if I’m wrong, is so unstable. I remember Steam was an early adopter and then I think in 2017 they stopped accepting it saying the transaction fees were too high and the price fluctuates too much.

Is that still kind of the case? 


That is definitely the case. Like, I mean, it wasn’t that long ago, like a couple of months ago that Bitcoin, like its price, reduced by half like 50%. Which is not good if you’re someone who’s, depending on some stability there.  

But I almost think Bitcoin’s issue here has sort of flipped in terms of whether it is or isn’t a good way to pay for things in your daily life. Like before it might be that like, you know, people were worried about Bitcoin’s price dropping and businesses were like, “Oh man, you know, we just lost a bunch of money then if we, if we accepted Bitcoin.”

But I think the issue now is almost like, if you asked most Bitcoiners, would they want to part with their Bitcoin for pretty much anything they would say no. Because like, I mean the narrative has just changed so much from the days when people were talking about Bitcoin as a way to pay for a cup of coffee or something like that.

Like now it is, in my mind, definitely seen as a speculative investment. For example, like, let’s say today, you paid $5 in Bitcoin for a coffee. Well, in a week, maybe it turns out you paid $10 for that coffee because Bitcoin doubled in price.There’s an incentive to not give it away in exchange for goods and services because of its current nature as a speculative asset. So it’s a weird place to be in historically speaking. 


I’m sure there will be no unforeseen consequences to all of that. All right. Let’s go out on this. Very quickly. This is something we wrote back in July, you and I, but I, but I really wanted to let this be the last word for this episode. Dogecoin Co-Creator Says Crypto Is ‘Right-Wing, Hyper Capitalist.’

Jordan, what is Dogecoin and what is its founder talking about? 


A lot of people listening to this probably already know what it is, but Doge is a cryptocurrency that’s loosely based on Bitcoin in some way. Basically it was started essentially as a joke, by this guy, Jackson Palmer and his co-creator. It was like the original meme coin, basically.

You could tip people on Reddit and Doge. It’s mascot was a Shiba Inu meme, dog. And It’s sort of trundled along over the last few years,  with a lot of highs and lows. But basically itss co-creator,  Jackson Palmer, he sort of ghosted and like completely exited the space a few years ago and really disavowed his own creation and like cryptocurrency in general. One of the last things he said before he left was basically like, you know, doge is suddenly worth a lot of money and this is like everything wrong with the cryptocurrency market.

So he came back on Twitter and sort of just let out this tweet thread that was sort of out of nowhere and immediately went viral where he let his thoughts on crypto be known, which is, as you said, he sort of wrote it off as like right-wing, this right wing hyper capitalist thing.


Jordan, thank you so much for sticking around through Cipher and walking us through all these,  all the highs and lows of the crypto market. 




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