FACEBOOK ANNOUNCED IN a blog post Tuesday that it was banning cryptocurrency advertising from the platform entirely. The company said that many ads for cryptocurrency investment opportunities, like initial coin offerings, were “not currently operating in good faith.” Facebook has a point. Take Prodeum for example, a Lithuanian cryptocurrency startup that appeared online Thursday. By Monday, it was gone.
Ultimately, blockchain scams aren’t much different from other types of investment fraud. Whether you dress it up as an ICO or a hedge fund, the grift generally works the same: Convince unassuming individuals that you can make them rich, then steal their money. While the SEC has yet to aggressively go after much of the cryptocurrency market, it does regularly file complaints against hundreds of other scams designed to rip people off. Humans have been trying to swindle each other out of money for thousands of years. Cryptocurrencies are just the latest opportunity to do so.
“Fraudulent scams like Ponzi schemes and sponsors who pocket investor’s money have been around for a long time. Fraudulent ICOs can be used to repackage old frauds in a new wrapper,” says Todd Kornfeld, a securities attorney at the firm Pepper Hamilton.
That’s not to say that the cryptocurrencies aren’t a particularly volatile and shady thing to invest in now. A recent hoax claimed that some guy scammed his way into over $1 million by convincing people Chuck E. Cheese tokens were bitcoins. The story wasn’t true, but you can see now why it was so easily believed—the cryptocurrency marketplace is full of plenty of crazier scams.