Possible scam alert

Just when I thought I’d found the best possible interest rate just for depositing a Bitcoin or two, I saw an ad on BitVisitor for a website called Grow Coins that claims you can get a daily return on your deposit from 8 to 10.5 percent.  That’s daily return.  They want you to commit the funds for fifteen days and at the end of that time period you will have made a 120 to 157.5 percent return.  In just two weeks.

Think about what kind of annual rate of return that would be.  With fifty-two weeks in a year, multiply 120 percent by 26 and you get a “conservative” annual return of 3,120 percent.  What kind of fool I must be putting my Bitcoins into CoinLenders* for a measly 22 percent annual return!

I hadn’t gotten quite that far with the math when I got just a tad suspicious.  I also remember my unfortunate experience with Mining United.  After I’d had to kiss my half Bitcoin goodbye forever, someone on the Bitcoin Forum pointed out that a return of 37% over a few days was not sustainable nor good business practice.  If only I’d thought of that!

TradeFortress is the guy behind CoinLenders and if you look him up on the Bitcoin Forum, he has an extremely good reputation, and he is also quick to point out a scam when he sees one.  So I sent him an email and asked if he’d heard of this Grow Coins site.

“That’s an obvious ponzi / HYIP scheme” was his brief reply.  I had to look up “HYIP.”  It stands for High Yield Investment Program, and it’s basically a type of Ponzi scheme in which early investors are promised unsustainably high returns which are paid from the deposits of future investors.  In a Ponzi scheme the early adopters benefit at the expense of the suckers who throw their money in after them, undoubtedly encouraged by the early adopters’ glowing testimonials.

I feel compelled to point this out for a couple reasons.  The first is that I highly recommend BitVisitor as a great Bitcoin earning site.  In fact, hardly a day goes by that I’m not surfing through the various sites that will pay me to look at them.  This does not mean every single site you’ll encounter on BitVisitor is either good or even legit.  Anyone can purchase advertising on BitVisitor.  It is up to the viewer to exercise discernment about the individual websites.  Personally I find most of the sites uninteresting.  But some of them are not looking out for your best interest.  Some of them are in reality gambling sites masquerading as investment opportunities.  And actually, that comparison is truly uncharitable to the legitimate gambling sites.  I may not personally agree with gambling, but for the most part, the gambling sites are very clear and up front about what they are.  The ones which lie and cheat and steal are worse, and a lot of these scam sites are exactly that.  Depositing any money with them is gambling–the difference being that the deck is stacked against you and you don’t realize that’s what you’re doing.

The other reason I want to point out this potential scam is that it can be difficult to sort out the legit sites from the scam sites at first.  Many people will advise you that if it sounds too good to be true then it probably is.  In dealing with fiat money that adage has served me well.  However in the Cryptocurrency world there are a few opportunities I’ve encountered and gotten involved in that to me really did seem too good to be true, and yet they turned out to be true anyway.

It’s just that the parameters are different in the Cryptocurrency world than in the fiat world.  In the Cryptocurrency world, it is possible for an ordinary person to earn a 22 percent annual rate of return from depositing funds into a Bitcoin “bank.”  In the fiat world, though, that would be considered too good to be true.  It’s also possible in the cryptocurrency world to earn the equivalent of between $20 and $50 for 1000 words online, whereas that is about impossible in the fiat world.

In other words, there are some better opportunities in the cryptocurrency world.  But even those have limits.  If you apply the parameters of the fiat world in judging opportunities in the cryptoworld you are likely to reject some truly excellent legitimate opportunities.  However, if you assume that opportunities in the cryptoworld are infinitely better, well, then you’re going to get burned in a scam.

So how do you tell the difference?  For me, some of it is from experience.  I got burned once and I hope I learned my lesson.  But there are a few red flags to look for that could mean the operation is a scam.  There are also some steps you can take to protect yourself.

The first step is to do the math.  In the cryptoworld, depending on what the investment is, you can reasonably expect the possibility of an annual return of up to fifty percent.  That’s a very rough ballpark figure, and the higher the return is, generally the higher the risk is.  It tends to be stocks which yield those returns, but at the same time, their value could drop to half what you bought it for or go down to zero within hours so you have to do your due diligence before you buy.  But in any case those rates of return are possible.

Now, if you had been fortunate to have bought shares of ASICMINER during the initial public offering you could have snagged them at 0.1 BTC each.  If you had kept them all this time, each share by now has paid out many times that amount in weekly dividends.  However you were taking a huge risk when you bought those shares.  The company could have been successful, or it could have totally flopped.  The founder of the company was optimistic and had good reason to be, but there were a lot of unknowns and he was straightforward about that.  He certainly was not promising annual rates of return of a thousand percent or more!  But yes, if you’d taken that risk back then, you’d be sitting pretty today.

If you happen to identify and invest in the next ASICMINER, then yes, annual rates of return in the thousand percentile is possible.  But no legitimate start up company seeking investor funds is ever going to promise that kind of return.  If you see that kind of return advertised to just any visitor on a website that is a major red flag.  An annual rate of return of ten, twenty or thirty percent is indeed possible.  Any higher than that and you’re taking on some pretty intense risks.  The higher it gets, and especially when it gets ridiculous, the greater the likelihood of it being a scam.

The second step is to check it out on the Bitcoin Forum.  Sometimes you can look up the name of the venture in the search box and it will call up threads where others have talked about it already.  If I had done that when I’d encountered Mining United, I would have learned all I needed to know and kept my Bitcoins far away.  If the search doesn’t turn up anything, you can start a thread where you ask if anyone has heard of this and if so, what do they think.  There are a lot of experienced Bitcoiners on the forum who are more than happy to help out a newbie and point out the characteristics of the website in question that they consider to be red flags.

The third step you can take is to simply wait.  Things tend to happen fast in the Bitcoin world, and it seems that scams come and go very quickly too.  Mining United lasted for just a bit over a month.  It’s worth waiting at least one month to see if the venture you are considering is even around.  If you have Bitcoins that are burning a hole in your virtual pocket, then use them to buy a 30 day CD on CoinLenders.  That will keep them safely out of reach for a month.  Then when the CD matures and the funds are released back to you, then see if the website even exists anymore.  If it doesn’t, then you can be sure your funds would have disappeared with it had you “invested” them.

About a month or two ago I encountered a hardware vendor site which was also selling mining contracts as this site took out ads on BitVisitor.  The site looked really good and professional, and I was tempted by the mining contracts.  I wasn’t going to buy any until I’d thoroughly checked out the business on the Bitcoin Forum.  I was going to find out who the people were, then look them up and see what their reputations were and really do some research.

I never did get around to doing that research–it wasn’t enough of a priority–and as they quit advertising on BitVisitor I soon forgot about them.  Just a few minutes ago I looked them up, even typed in the url I remembered.  There is no trace of this site anywhere on the search engine, no evidence that such a company even ever existed.  I’m sure glad I’m not waiting on a mining contract to produce something!

This could be my cynicism about mining in general, but I would say that any offer to sell you a mining contract needs to be thoroughly looked over with a hefty dose of skepticism.  I consider mining contracts themselves to be suspect and therefore red flags.  In theory some could be legitimate, but then you want to make sure they have provided for the inevitable increases in mining difficulty.  I personally won’t get involved in mining contracts mainly because I don’t know enough about mining to properly discern them, and I don’t really have the interest to go and educate myself.  If you want to purchase an interest in mining, I would recommend purchasing mining backed assets on the Bitcoin Trading Corp**.  You still could lose funds, but the site is pretty good about filtering out the scams.

The bottom line in all this is that there are plenty of scams out there.  They do advertise on BitVisitor and other legitimate advertising sites.  You do need to be careful about which sites you are going to trust.  Just because they pay you a few microbits for visiting their site doesn’t mean they are out for your best interests.

*Update: CoinLenders no longer exists as a viable Bitcoin “bank.”

**Update:  The Bitcoin Trading Corp is closing.  Havelock Investments is another reputable site dealing in various Bitcoin denominated securities.

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