Staying Safe in This Brave New World

27.12.2017 |

Episode #9 of the course The basics of Bitcoin by John Saddington


History has shown us that whenever and wherever new wealth is being created, the crooks and the unscrupulous are not too far behind.

In this distinctly financial market and economy, there have been many new and deceptive attempts at defrauding folks of their honest money as they explore this new technological landscape. This course was never about financial investing, and nothing in this course should be interpreted as financial advice, but the old and wise adage for all of us still persists:

Only invest what you can afford to completely lose.

You’ve probably heard this before (your father may have even said that to you once or twice—I know mine did!). Beyond that, there are two particular growing types of scams and/or questionable behavior within the bitcoin and cryptocurrency space that I want you to look out for.


The Initial Coin Offering (or ICO)

Due to bitcoin, exciting new developments in every single field and market imaginable now have real potential. As such, entrepreneurial and industrious people are studying and analyzing opportunities to apply bitcoin and blockchain technology to existing (and future) problems within our world.

I believe every industry under the sun will inevitably be changed by blockchain. You’re going to start seeing (or have already seen) bitcoin- and blockchain-based projects in agriculture, medicine, bio-informatics, robotics, artificial intelligence, journalism, new media, sports, manufacturing, and many, many more. So, a lot of people are trying to be the first to capitalize on those opportunities, and they are financing these operations through Initial Coin Offerings (or ICOs) which is a type of crowdfunding via the use of cryptocurrencies.

At a very high level, these organizations are selling a percentage of the newly issued (or soon-to-be issued) cryptocurrency tokens at a discount in exchange for fiat currency (legal tender) or other more stable digital currencies, like bitcoin. You, the potential owner of these tokens, are then promised a future value or utility when the project materializes or when it reaches market scale and profitability. This is very similar to buying game tokens at your local video game arcade, except there’s a possibility that the machines may not end up working when you arrive.

As a result, the US Securities and Exchange Commission (SEC) has reached clear decisions around ICOs and begun finalizing regulations and guidance for investors. But as this is a new field and new technology, there aren’t many safeguards or even restrictions on who can and who can’t invest, and as a result, many “bad actors” have created fake projects to fool people to send them real currency (or bitcoin) in exchange for vaporware.

For instance, the SEC recently closed down a project that was defrauding investors. The company, PlexCorps, had raised $15 million through their ICO and falsely promised a 13-times return. Many other ICOs make similarly false promises.

This doesn’t mean you shouldn’t investigate these exciting new opportunities, as there are many legitimate projects out there, but it’s best to view most, if not all, projects with skepticism.


A New (Yet Old) Take on the Ponzi and Pyramid Scheme

There has also been a rise of a new type of ponzi and pyramid scheme that looks and feels exactly like one, except that the rabid enthusiasm around cryptocurrency and bitcoin has clouded many tempered minds.

These types of schemes have been well documented historically, and the SEC has provided very clear guidance that is still applicable. If any operation or service includes the following, then you should avoid them at all cost:

1. low risk, high returns

2. very consistent returns

3. unregistered investments

4. unlicensed sellers

5. complex or secret strategies

6. paperwork problems

7. difficulty receiving payments

There are already more than a handful of ponzi and pyramid schemes out there that are touting low-risk, high, and consistent returns based on bitcoin and cryptocurrencies. You should steer way clear of these. This brave new world includes a ton of new and exciting opportunities, but it can (and will) catch you sideways if you’re not careful and considerate of your financial decisions.

Tomorrow, we’ll conclude our course with the most important element in your bitcoin education: community!

Talk soon,



Recommended reading

SEC Guidance on Ponzi, Pyramid Schemes

Official SEC Statement on Cryptocurrencies and Initial Coin Offerings


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