The clampdown against crypto scams is underway

Open up the Google Play Store, type in the word bitcoin and you're in business. Some of the top cryptocurrency-themed Android apps promise their users that they can get them in on the recent boom in prices.

Except, they won't. Despite being download thousands of times, many of the apps promising free bitcoin or bitcoin mining mining don't really do anything – let alone make you money. "Most of these apps are fake miners," Lukas Stefanko, a malware researcher at security company ESET said towards the end of last year. "Their main purpose is to display in-app ads each time a user starts to allegedly mine bitcoin." He concludes that they are "without any relevant functionality".

While the apps aren't necessarily doing any harm other than leaving unsuspecting downloaders disappointed, they're part of a bigger surge in fraudulent attempts to make money from the buzz around bitcoin, cryptocurrencies and Initial Coin Offerings (ICOs).

The clampdown begins

Now, a clampdown against these bad actors is underway. Yesterday, Facebook announced it is banning advertisements for cryptocurrencies and ICOs after seeing a rise in fraudulent advertisements being purchased. "There are many companies who are advertising binary options, ICOs and cryptocurrencies that are not currently operating in good faith," Rob Leathern, Facebook's product management director wrote in a blog post. But Facebook's move shouldn't come as a surprise.

The ICO bubble rose to prominence during the middle of last year, and since then more and more firms have been trying to get in on the action, often with pretty outlandish claims. Samsung is said to be building hardware for cryptocurrency mining. An ICO was proposed for an AI blockchain. Kodak launched its own cryptocurrency. And even Arsenal football club jumped on the bandwagon.

"Over the past six months, it has become abundantly clear that the ICO market as a whole is out of control," says Kevin Werbach, an associate professor of legal studies and business ethics at the University of Pennsylvania.

Dodgy ICOs

Some of these crypto offerings have turned out to be outright scams. On January 29, the Ethereum-based Prodeum vanished from the internet (leaving its website with just the word 'penis' written on a white background). The plan for Prodeum, before things went wrong, was to use the blockchain to track vegetables through supply chains. It wanted to raise around £4.5 million through its sale of tokens but ended up with around £8. Other ICOs have been more successful before also disappearing. At the end of November another Ethereum startup vanished after making £264,000.

Following Prodeum's disappearing act, regulators in the US have taken action against another ICO. The US Securities and Exchange Commission (SEC) announced that it believes an ICO from AriseBank is a "scam". The company, which is based in Dallas, US, says the sales of its coin have raised around £423 million. During its promotional phase, the ICO was endorsed by boxer Evander Holyfield. After an initial investigation, the SEC froze the firm's assets and those of its two co-founders, Jared Rice and Stanley Ford. The SEC claimed the firm was attempting to raise funding while "misrepresenting the company as a first-of-its-kind decentralised bank offering its own cryptocurrency". The SEC has also revealed it is investigating Bitfinex and Tether, one of the biggest cryptocurrency exchanges.

Spreading regulation

Regulators around the world are also getting wiser to cryptocurrency schemes. German regulators have previously frozen the assets of a firm called Onecoin Ltd, which was responsible for the coin of its own name. The leaders of Deutsche Bank have also tried to perturb potential crypto investors by warning of a "total loss". And in the UK, the Financial Conduct Agency has warned that investors are being targeted by cryptocurrency and bitcoin scams online.

South Korea has gone the furthest in imposing controls on cryptocurrencies. It's one of the biggest markets for trading, but new regulations say that anonymous crypto trading may no longer occur; digital wallets storing cryptocurrencies must be in the same name as the bank account holders they belong to. As other countries look to regulate the emerging markets, South Korea's model could become a benchmark. Bitcoin's price dropped as the rules came into effect.

"A big reason that regulators are moving more aggressively now is that it’s increasingly clear the market took their prior inaction as a green light for anything an ICO team could convince a lawyer to endorse," Werbach says. "Much of the ICO community misinterpreted regulators trying to get it right for a blanket endorsement."