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[TOP STORY] The profusion of crypto fraud is tainting legit companies

SIMON BROWN: I’m chatting now with Ricki Allardice – he’s head of product at upnup. Ricki, I appreciate the early morning time. You sent through [a note] recently around, I suppose, fraud, scams, all the dodgy stuff happening in the crypto space. I remember back when initial coin offerings (ICOs) were all the rage. They seemed to have faded away. Last year it was NFTs [non-fungible tokens] – they’ve faded away. You’ve got some ideas on how to potentially spot a scam, because there are a lot of scams out there frankly tainting the few that aren’t.

RICKI ALLARDICE: Hello, Simon. How are you doing? Thank you for the introduction. Absolutely. The scams are just a flavour of the year. As you said, in 2017 we had the ICOs, and they moved to NFTs. And it really is a flavour of the same scam, just painting itself in a different light. I would urge most people to just stay away from altcoins if you want to avoid the scams really. It’s the safest way to do it.

SIMON BROWN: Those altcoins – is that everything beyond Bitcoin? Do we maybe throw Ethereum in there? Bitcoin is the granddaddy in the room.

RICKI ALLARDICE: Yes, absolutely. And you should separate Bitcoin from crypto. They’re not the same. Bitcoin is trying to achieve a very serious thing, which is to build an independent financial rail, which competes in central banking, and it does that very, very well.

Bitcoin] transports billions of dollars across the network every day, whereas the altcoins are just a new drift, a new way to extract value from retail investors and siphon those off to much smarter investors, who then buy Bitcoin anyway.

To your point about Ethereum, it is the one that that enables all the scams. So particularly I would stay away from Ethereum.

SIMON BROWN: That’s a good point. I remember in the early days – it wasn’t that early, a decade or so ago, I suppose – when Bitcoin was around. Part of the [premise] of Bitcoin is that only 21 million coins will ever be mined. It’s going to take some time to do that, but it’s a limited supply. Of course, as soon as all the other cryptos and altcoins come, it becomes an infinite supply. That then kind of destroys the thesis.

So point is go back to that core thesis of Bitcoin and of crypto generally.

RICKI ALLARDICE: Absolutely. That’s it. People get confused because they think these things are the same and they really aren’t. Bitcoin is backed by real energy to the people who work the complex mechanism, which means people have to expend the energy to mine Bitcoin, so there’s no free lunch.

Whereas with altcoins, people do what’s called pre-mining, where they just create these tokens, bring them to market, sell them in the market to unsuspecting investors in the case of the ICO [initial coin offering] boom in 2017, and then have massive exit liquidity where they can just sell these tokens on to these retail investors and then, once again, go and buy Bitcoin.

So it really is a scam.

There might be 2% to 3% of these projects that are not scams, but how would a retail investor know that? You’ll have to spend weeks to months researching each coin to actually know if it is useful or not. And even then you might get it wrong, as many money managers have got it wrong and been scammed themselves over the years.

So really the safest way to do it is just to stay humble, accumulate small bits of Bitcoin over time and just focus on what you’re good at in life. Focus on your job. You shouldn’t have to be a professional investor just to invest in cryptocurrency.

SIMON BROWN: I take your point. You can do all the research that you want essentially as a second job, and at the end of the day you still might not come out.

What about the point of exchanges versus hardware wallets? I’ve got some cryptos; I keep mine in a hardware wallet. I’m not trading them. They kind of sit there as a long-term investment.

RICKI ALLARDICE: Well, the reality is if you are leaving your crypto on an exchange you’re still facing massive risk. So you should absolutely move your crypto off an exchange onto a hardware wallet or even onto a software wallet on your phone, which is free. You can download it for free. But if you are leaving your cryptocurrency or your Bitcoin on the exchange, that’s nothing but an IOU on the exchange, as we’ve seen with FTX. They made off with $10 billion worth of client funds. Incidentally, no one’s been arrested yet, which boggles the mind.

But these people are not looking after your assets, really. When the rubber hits the road your money has gone, when these things get liquidated or when they go insolvent.

So the safest way to do it is to just to hold your Bitcoin yourself, and that’s specifically what Bitcoin is designed for – it is to be a digital bearer asset that you can hold in your own self-custody, and then no one can scam you. It’s that simple.

SIMON BROWN: Yes, it’s your own self-custody. No one has been arrested. They’re sitting in the Bahamas and giving interviews and probably sipping a cocktail.

Ricki Allardice, head of product at upnup, I appreciate the early morning.

Listen to the full MoneywebNOW podcast every weekday morning here.

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