{"id":28007,"date":"2014-10-17T03:57:29","date_gmt":"2014-10-17T03:57:29","guid":{"rendered":"http:\/\/ci027cfe64b0162697"},"modified":"2014-10-17T03:57:29","modified_gmt":"2014-10-17T03:57:29","slug":"scammer-mcscammerson-1413518249","status":"publish","type":"post","link":"https:\/\/bitcoinmagazine.com\/business\/scammer-mcscammerson-1413518249","title":{"rendered":"Scammer McScammerson"},"content":{"rendered":"
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How to spot a scam<\/strong><\/p>\n

In the wake of this morning\u2019s Bit-Trader.biz announcement<\/a>, I thought it was time to finally write an article about spotting scams. I\u2019ve been \u201cdoing\u201d Bitcoin fo-re-ver. You haven\u2019t heard of me because, for the most part, I\u2019m a lurker \u2013 and I like it that way. But recently, I\u2019ve come out of the closet a bit more loudly in public.<\/p>\n

For a little background on me \u2026 I\u2019m a marketer. I have handled large brands, small brands, and everything in between. Nowadays, I run my own home security company, Alarm Grid<\/a>. I\u2019m the director of marketing and an avid Bitcoiner. Those are probably the two activities that I spend the most time on these days. I occasionally jump into the limelight, like last week, when I spoke at Refresh Miami on mobile payments<\/a> next to one of the co-founders of Square in an absurd outfit consisting of a suit, a bowtie and a hat that said \u201cEA$Y\u201d on it. Such a costume lends to me an air of credibility that suits the internet Monopoly\u00ae money we invented and are using.<\/p>\n

I\u2019m in the middle. The photo is from the Miami Herald.<\/p>\n

I have seen every scam come and go: every Ponzi scheme, every so-called hack, and the plain old professional thieves like Neo & Bee. Every time people get scammed, the mantra is the same. The afflicted take to Reddit<\/a>, cry foul, talk about how someone should have warned them. Then the commenters start saying things like, \u201cserves a person who believes [insert something] right.\u201d The thing is, in the aftermath of a scam, everyone whose hackles were raised when they first heard the scam\u2019s pitch comes out in droves claiming that they knew from day one. Just like when Bitcoin went up, everyone and their mother came out of the woodwork saying things like, \u201cI was just about to invest, but then I didn\u2019t.\u201d<\/p>\n

These sorts of statements are antithetical to my personal investment philosophy. But they are also the kinds of statements that indicate a mindset that is ready to be scammed. Very simply, I do not believe one should investing in vehicles that they do not understand. There is a lot of information out there. Some of it is knowable, and some of it is unknowable. There is a spectrum of knowability in there, and somewhere on that magical spectrum as it is applied to public companies in the US is where insider trading begins. If someone is making money on knowable things, their returns will be predictable. If they are making money or even just predictions with regard to unknowable things (like, for example, the day and hour that Bear Stearns will collapse), then they are being fed information. But that\u2019s just how I feel. I don\u2019t believe in oracles.<\/p>\n

So anyhow, if you\u2019d like to further explore why I think what I think, feel free to ask any questions in the comment section below. I\u2019ll be around to participate. That said, let me share with you some really simple principles that have kept me from getting scammed over the years.<\/p>\n

\u201cIf It\u2019s Too Good to be True\u2026\u201d What That Phrase Actually Means<\/strong><\/p>\n

You\u2019ve heard this before. But what does it mean for something to be too good to be true? In the investment world, it\u2019s pretty simple. You have a few baselines that you can measure against. One of the most important is the S&P 500. This has a highly consistent 10-ish\/year rate of return over 30 years. It\u2019s a bit volatile, however, and goes up and down with the markets. That said, its returns are consistent. There are plenty of criticisms of investing in the S&P, but as a benchmark, it\u2019s pretty much the best we have.<\/p>\n

So when someone tells you that they have an investment opportunity for you, how can you know it\u2019s \u201ctoo good to be true?\u201d<\/p>\n

It\u2019s not a universal law, by any stretch of the imagination. But if it returns more than 10, or anywhere near 10 per year, that\u2019s a big red flag. Professional money managers (in spite of what they say) have a hard time returning anything near or above the S&P over long periods of time.<\/p>\n

If you\u2019ve ever wondered what a Ponzi looks like, consider looking at one of the greatest Ponzis ever executed. Madoff\u2019s returns were about 15\/year. Many Bitcoin scams promise between 15 and 20 or more each month. People were screaming Ponzi for years when it came to Madoff. In the real world a 15 return is unheard of. Madoff\u2019s return was unprecedented.<\/p>\n

A very simple way to gut check this is to apply the very simple rule of 72. If you divide the percentage promised by 72, you can get a good approximation of how much money you will make in an investment. In the case of Madoff, 72\/15 per year = doubling every 4.8 years. At between 15 and 20 per month, you\u2019re talking either 72\/15 or 72\/20 per month = doubling every 4.8 months or 3.6 months. So consider, while real-world investors were suspicious of a doubling of their money every 4.8 years, many Bitcoiners put their money into products that promise to go through 22 doublings in that same time period. So Berney would have turned your $1,000 investment into $2,000 over a nearly 5 year time span. Over that same time period, Bitcoin-Trader.biz \u2013 the most recent scam to be uncovered \u2013 was claiming that they could turn your $1,000 investment into just under $2.1 billion over the same 5 year time period. I\u2019m not going to cast aspersions, but sometimes if you just run the numbers, the scams are obvious. Just for comparison, if you bought $1,000 worth of Bitcoin at $.20 and sold it at $1,000, you would have made about $5 million. And I think we can all recognize that that is absurd growth (also a pretty good explanation for why financial institutions are pretty suspicious of BTC).<\/p>\n

Does It Guarantee Returns?<\/strong><\/p>\n

No one can guarantee anything unless they are doing something that is riskless. There are a few examples of quasi-riskless investments out there, but they are either 1) exploiting inefficiencies that will be closed once a certain amount of money is thrown at them, or 2) returning at or just above inflation. Arbitrage, by the way, falls under number 1. And while a lot of Bitcoiners believe that they are engaging in arbitrage, most of the time, arbitrage is regarded as (almost) risk-free. Bitcoin\u2019s markets have a high chance of failure, themselves, which means that even keeping one\u2019s money in there exposes it to high levels of systemic risk. So even Bitcoin arbitrage isn\u2019t arbitrage.<\/p>\n

If someone tells you that you will, almost guaranteed, get some high rate of return on your money, it is probably a scam. What\u2019s a high rate? Well, remember, a riskless investment will probably return about what US inflation returns (3-ish percent). An incredibly high-yield, risky investment might return 10-12. Understanding this with regard to legitimate investments will help you get a really fast understanding of your exposure to risk in any investment.<\/p>\n

By the way, I see the debates about inflation being a false number coming. I can smell them. Even if you believe that, I don\u2019t care. Take the debate elsewhere, this isn\u2019t the forum.<\/p>\n

Is Your Money Illiquid?<\/strong><\/p>\n

A lot of investment schemes tie your money up for a period of time. In Bitcoin, a lot of these are Ponzis. But there are a lot of products in the real world that do the same thing. Non-trade REITs<\/a>, for example, are a great way to run what looks legitimate but acts a lot like a Ponzi scheme. Oftentimes, wealthy people invest in them because their financial advisor recommends the product and they promise big returns. You can\u2019t pull your money out of the product because it requires that you stay invested for some defined term. Locking your money in is a great way to bide time. While some legitimate investments will lock up money, this is a pretty big red flag.<\/p>\n

Are You The Sucker? Because Someone Is the Sucker\u2026<\/strong><\/p>\n

I feel like it\u2019s stage 3 of becoming a Bitcoiner. Everyone buys mining rigs. They spend a ton of money on some rig they read about on the internet that promises that bitcoins will shoot forth like one of those infinity-coin boxes in Super Mario Brothers. That\u2019s not how things work.<\/p>\n

I believe in the efficiency of markets. Remember what I said about knowable and unknowable information? Well, money is not made by information that everyone can know. Why are mining companies selling you their rigs if they could have made more money simply running the rig? And don\u2019t get all high and mighty on me here. You\u2019re buying the rig which is a validation of that point. You purchase the rig because you believe that mining companies are selling the rig at a price that is so low that you will be able to make money on the purchase.<\/p>\n

When I first heard about mining companies selling rigs, the first thing that came out of my mouth was very simply, \u201cthose people won\u2019t get their miners for about 8 months.\u201d And I was right. How did I know? Well, I knew because the place where people make their money is in the unknowable information. Do you know how to make an ASIC? No? Well, then you won\u2019t be able to compete with others who do. Just a fact.<\/p>\n

In every transaction, there is a trade going on. Hopefully, that transaction intersects at the point where you get a certain amount of value from the purchase, and the seller gets an equivalent amount of value by taking payment for the product or service. In the case where the company is doing something because they are \u201cgood guys\u201d who want to help \u201cmake others rich\u201d you are on the wrong boat. They are going to be getting a lot of value from your payment, and you will not be getting a lot of value from their product.<\/p>\n

Opportunities Are Created Not Happed Upon<\/strong><\/p>\n

Remember, I\u2019m an entrepreneur. I\u2019m a little biased here. But let me tell you about how I\u2019ve turned my investment of a small amount into an investment of a slightly larger amount. I showed up to work every day, I worked 18 hours a day for two years, I lost friendships and other significant relationships, I lost a lot of contact with my family, I stopped watching television and playing video games. I sleep in my car sometimes just to catch up on sleep so that I can go back into the office and work. Some entrepreneurs have it a little bit easier, but, I think if you read about the good ones (not that I\u2019m equating myself with them), most have very similar tales of woe. For those who don\u2019t have the itch, being an entrepreneur is awful. It\u2019s not fun.<\/p>\n

So what if I told you you could bypass all that heartache and pain and get wealthy? There is something appealing to the idea that we can all make money or create opportunity without giving up anything. For value to be created, something has to be sacrificed. In the Bitcoin system, it\u2019s energy. In some ways, while more metaphorical than it should be, that\u2019s one of the big philosophical problems I have with Proof of Stake systems that are not acknowledged as centralized systems. In order for value to be created, someone has to sacrifice something.<\/p>\n

If someone tells you that they are giving you an opportunity to earn untold wealth, and all you have to do is sit back and enjoy the ride, 99 times out of 100, it\u2019s a scam. Those aren\u2019t real odds. My guess is that the odds of it not being a scam are even far worse.<\/p>\n

The Best Scammers are Often Scamming Themselves; Many of Them are Really, Genuinely Good People<\/strong><\/p>\n

The reason this article came into existence at all was because last week at Coins in the Kingdom<\/a> I made some noise about the Bitcoin-Trader.biz people. I just let everyone know that it was a Ponzi, I made sure to say it every time I saw a person talking to their reps at the center table. I\u2019d walk over and just kindly inform them that I believed this to be a very blatant Ponzi. What was my proof? Math doesn\u2019t lie. The two representatives behind the counter were probably genuinely good people. Both of them said that they had lots of money in Bitcoin-Trader. So with today\u2019s announcement, I\u2019m guessing they are in a pretty bad place.<\/p>\n

The truth is, anyone can be scammed. We are all susceptible. Many early Bitcoiners have been through the ringer \u2013 scammed multiple times. The two representatives at Coins in the Kingdom were pitching what appears on the surface to be an obvious scam. Why were they so brazenly opposed to acknowledging it? I wish I knew.<\/p>\n

I see what I think are obvious scams in this community all the time. But for the most part, these people are not going around trying to scam people. Some of them are \u2013 Trendon Shavers AKA Pirate was running a straight-up, unapologetic Ponzi. But there are scams out there that genuinely good people don\u2019t know they are running. I\u2019d say a lot of crypto coins based on personality cults fall into this category. The point here is that just because you met someone who is nice or competent, it doesn\u2019t mean they aren\u2019t pitching a scam.<\/p>\n

Always be vigilant. Always be skeptical. And don\u2019t be nice to scammers. Call them out. Because, there are a lot of people who don\u2019t know quite what they\u2019re getting into when they come to Bitcoin. And while it\u2019s a good opportunity to learn for most of us, wouldn\u2019t it be better if we could just ferret out the scammers at the outset?<\/p>\n","protected":false},"excerpt":{"rendered":"

How to spot a scam In the wake of this morning\u2019s Bit-Trader.biz announcement, I thought it was time to finally write an article about spotting scams. I\u2019ve been \u201cdoing\u201d Bitcoin fo-re-ver. You haven\u2019t heard of me because, for the most part, I\u2019m a lurker \u2013 and I like it that way. But recently, I\u2019ve come […]<\/p>\n","protected":false},"author":3654,"featured_media":28006,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[4],"tags":[75,3576,1342],"class_list":{"0":"post-28007","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-business","8":"tag-bitcoiners","9":"tag-coins","10":"tag-investment"},"author_data":{"id":3654,"name":"Joshua Unseth","nicename":"joshua-unseth","avatar_url":"https:\/\/bitcoinmagazine.com\/wp-content\/uploads\/2024\/12\/bitcoin-schmitcoin-promo-image-1-5-96x96.png"},"featured_image_url":"https:\/\/bitcoinmagazine.com\/wp-content\/uploads\/2024\/11\/scammer-mcscammerson.png","_links":{"self":[{"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/posts\/28007","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/users\/3654"}],"replies":[{"embeddable":true,"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/comments?post=28007"}],"version-history":[{"count":0,"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/posts\/28007\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/media\/28006"}],"wp:attachment":[{"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/media?parent=28007"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/categories?post=28007"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/tags?post=28007"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}