Cryptocurrencies. Modus Operandi

Monday, January 25, 2021

Since 2009 and the creation of Bitcoin, maybe the most known of the cryptocurrencies on the markets and the one that has the highest market capitalization, several other currencies have gradually seen the light. I will name a few here: Ethereum, Ripple, Litecoin, Monero, Namecoin, Nem, Peercoin, Dash. Only a few of these currencies didn't last thru the years. It is very important to note that a couple of the currently inactive cryptocurrencies were deemed to rely on Ponzi schemes and many times, cryptocurrencies can be deemed to be fraudulent. This is not always the case as the core idea behind cryptocurrencies remains to provide consensus by the members of the said community who need to verify other miners and their transactions. Let me clarify the terminology for those who are not familiar with this lingo.

What is a Ponzi scheme? (Investopedia video here) Named after Charles Ponzi in the post WWI era, it is possibly not the first account of such an investment fraud. And with developing technologies, scams also evolve. The game plan is fairly elementary: the swindler convinces investors they will receive high returns with little to no risk and what he/she does is simply to finance oldest contributions with newer investments. There are in fact no profits recorded. As long as regular inflow keeps being registered, little to no investigations will be made and the crook can get away with their trickery. A more recent example of Ponzi scheme is the case of Bernard Madoff who falsified trading reports to show profit earned on investments that didn't exist. You can read more on the Madoff instance here.

Again, most cryptocurrencies, even if not regulated / audited by financial institutions and/or governments, have their transactions validated through peer to peer networks, use cryptography for more security, and rely on consensus mechanisms for a transaction to be verified and added to the blockchain digital ledger. This is similar to the accounting books of any financial institution, where transactions are listed. Which means that, after estimating your possible benefits based on the equipment and software at your disposal, you will need to create a mining wallet. After all the revenue needs to go somewhere, right? Then join a mining pool for performance purposes: more miners teamed up to "crack the code" will in fact authorize the operation and the proceeds will next be split between the members of the group. One of the most efficient web pages to supply updated prices, market overview and services needed to trade in cryptocurrencies is Coinbase. You can check their website here.

Currently, mining requires extremely powerful computers, and the first miner or mining pool to have found the requirement to update the books, will be rewarded with a minted cryptocurrency amount. There are several types of mining and I will not go into them now. I will just briefly expose them to you: cloud mining is when you let a mining company do the works for you. For a fee obviously. It doesn't seem very profitable and I would be very careful before choosing this type of mining. Then you have web mining, which occurs when you use someone else's computer to do your mining. While this isn't used to mine Bitcoins, Monero miners rely on web mining a lot of times. I am not so sure you should revert to that solution either. And of course, there is mobile mining, which is certainly not fruitful, because a lot of CPU power is needed for the mining to be efficient. You can find a comprehensive video by 99Bitcoins here to understand the mining process.

http://usa.chinadaily.com.cn/epaper/2013-06/03/content_16560367.htm

In the next article of this series, I look into the possible prospective for cryptocurrencies and their connection to the criminal worlds. Make sure to check the next piece on the topic of cryptocurrencies.