CRYPTO CURRENCY---A SCAMMER’S PARADISE?
CRYPTO CURRENCY---A SCAMMER’S PARADISE?

One of the “safest” havens for scammers is the area of unregulated activities, especially in the financial world. The world of crypto currencies, which is just over 10 years old, is still the Wild West, almost totally unregulated. Even regulators don’t always protect against scammers. Let’s not forget The Great Recession of 2008. Even though there was some regulation, there was certainly not enough to protect the public. In fact, when certain regulations were lifted in 2000, it opened the floodgates for the unbridled securitization of home mortgages in America. New and innovative investment vehicles, especially when unregulated, open the door for scammers to scam and fools to rush in. Even people who are not fools have been scammed in the crypto currency space. The big problem is there is little recourse at the current time to prosecute crypto currency scammers because there are few regulations governing them.

So if you’re not familiar with what crypto currencies are, let me explain them to you. Currencies issued by countries are called fiat currency. The United States dollar, the euro, the Japanese yen and the Swiss franc are all examples of fiat currency. In fact almost every nation in the world has its own currency. The major exception to this rule is the fact that the members of the European Union use only one currency throughout all of their countries, except the UK, which is now trying to remove itself from the European Union. All the other countries basically use The Euro. In the industrialized nations where inflation is low, the fiat currencies keep their values. This may not be true in other countries, such as in South America, where inflation has caused the value of some of the countries’ currencies to deteriorate. So if you’re an American or European you know that your currency, the cash that you have, has a value that is stable. Each currency is backed by the full faith and credit of the country that issues it.

Now let’s discuss crypto currencies. What are they, really? The best way to describe crypto currency is to state that it is a value on a ledger sheet. There is no physical coin, no piece of paper that you can hold in your hand. It is as if you had money in a bank account that you could move around from place to place electronically but never be able to withdraw it as cash. The value of a particular crypto currency at any particular second is based on what the rest of the holders of that same crypto currency believe its worth to be. That value is determined by trading activity on any one of over 200 crypto currency trading platforms. I know, this is very confusing and hard to grasp. It is no different from any other collectible that has no specific intrinsic value such as a sculpture or a piece of art or someone’s autograph. By themselves without any demand, they are worthless. The value comes from the fact that there is demand for signatures, pieces of art, or pieces of sculpture. If you own a letter with my signature on it, it is probably worthless. If you own a letter with George Washington’s signature on it, it is worth an awful lot, but only because others create a demand for George Washington’s signature. So the value of crypto currency is based on supply and demand, but not the standard supply and demand formula like there would be for a physical item such as crude oil or grain. The supply and demand is in most cases totally controlled by those who hold the currency. If demand by traders or people who want to possess the currency increases, the price goes up. If the supply of currency from people who want to sell it increases, then the price will go down. So that, in essence, is what a crypto currency is.

Almost everyone has heard about bitcoin, the first crypto currency ever created. A ledger that keeps track of crypto currencies and their transactions is called a block chain. All you need to know at this point about the block chain is that every transaction for every crypto currency is somehow tracked on a block chain ledger. The block chain ledger is not kept in one central location, like a bank ledger, but rather, the block chain ledger is kept by everyone who owns the crypto currency accounted for in that block chain. That is why it is nearly impossible for someone to “cook the books” on the block chain ledger. That is its inherent safety. However, that does not mean that some individuals have been able to hack certain block chains and steel the crypto currency stored in that block chain.

Believe it or not there are thousands of crypto currencies now circulating around the world. I don’t mean thousands of one crypto currency but rather thousands of different crypto currencies.. So, you may ask, why are there so many crypto currencies? Each crypto currency allegedly serves a purpose. There are crypto currencies that represent stores of wealth, like bitcoin. There are crypto currencies that facilitate the use of the block chain such as Ethereum. There are even crypto currencies that act as tokens that can be used to book discount travel. The fact is that if you can come up with an idea and purpose for use of the crypto currency you would wish to create, you can just go create it. Certain states in the US have facilitated the organization of crypto currency organizations and if the crypto currency purpose can be properly defined, the crypto currency is not considered a securities offering and therefore is not regulated by the Securities and Exchange Commission. Obviously, to get a crypto currency to develop one needs to promote the crypto currency and convince investors to initially buy into the crypto currency. If the crypto currency is able to properly serve the purpose for which was created and people begin to embrace the use of that crypto currency for that purpose, the value of that crypto currency would probably increase, because the demand for the crypto currency would exceed the supply.

Certainly, if you wanted to look on the Internet, you can find offerings for crypto currencies on a regular basis. How can you be sure, however that the person offering the crypto currency is not a scammer? There have been some very large crypto currency scams where the developers have collected money and then stolen it. There is a crypto currency that was originally created to provide funds to arbitrage one crypto currency on competing exchanges where there were price differentials. It appeared to work famously for about eight months and then, the developers completely crashed the internal exchange where the crypto currency was traded. Subsequently, they, without the permission of the people who owned that crypto currency decided to convert it to some other crypto currency which is worth about 1/10 what the crypto currency was worth before the conversion. This appears to be the direct theft of funds from those people who had purchased the original crypto currency. So this appears to have been one of the many crypto currency scams out there.

That does not mean that every crypto currency effort is a scam but since there is little or no regulation, it would be considered a scammer’s paradise and that means you need to be extremely careful people. Even those who have experience with crypto currencies and financial markets have been scammed. If you see an offering of crypto currency and you decide that it is something you should consider, do everything you can to vet the individuals involved and even after that, assume that this is very, very high risk and that the likelihood of getting your money out would be slim, even if it wasn’t a scam.

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