Bitcoin has become the talk of the town and everyone wants a piece of the pie. But it is easy to fall for Bitcoin Scams if you don’t know what you are doing or if you are new to the cryptocurrency space and looking to invest your hard earned money. There have been several Bitcoin scams that have already collapsed, and some busted by authorities since the start of 2018 already. It is therefore more then crucial now than ever to learn more and educate yourself before venturing into any cryptocurrency platform. This post outlines the six Bitcoin Scams to stay away from.
What Is a Bitcoin Scam?
For most cases, it may be pretty obvious what a scam is – but with bitcoin, things become murkier. Bitcoin itself is an unregulated form of currency that essentially is a mere number that is only given value because of an agreement. It’s basically like a moneybag with a lock on it – the code of which is given to the recipient of the bitcoin (an analogy drawn by Forbes in 2017).
Bitcoin’s meteoric rise in prices over the last year has awakened mainstream interest in the original cryptocurrency. With prices looking bullish once again, investing in bitcoin has never been as popular, but the rise in interest has not been without consequences. One of the downsides of new investors entering the market is the increase in the number of scams, frauds, and stories of retail investors who lose their coins to shady ventures. From ICO scandals to wallet theft and fraud, regular consumers can fall prey to crime easily.
Bitcoin scams have been famously criminal and public in nature. With no bank as a middleman in exchange, things become more complicated; so hackers and con men have had a heyday.
It may seem as though it’s the wild west for investors, but it doesn’t have to be. While there are certainly risks in the market, the opportunities may be irresistible for some. However, being cautious is always a must, and there are clear signs of scams that investors can look for. By avoiding these traps, users can better their chances for success and protect their investments. These are some of the most common scams, and how they can be avoided.
Hardware Wallet Theft
For users who are concerned with security and privacy, a hardware wallet – a physical device that stores their private keys – is an increasingly popular option. Usually, as small as key-chain USB drives, these wallets offer an offline way to help crypto investors protect their bitcoin even further. However, there have been reports that some of them have built-in vulnerabilities that open them to hackers that could easily steal all a user’s holdings.
This is far from the only issue, however. According to Ofir Beigel, owner of 99Bitcoins.com, “one scam entails selling hardware wallets to users with a ‘pre-configured’ seed phrase hidden under a scratch card. The new user is told that he should scratch the card … and set up the wallet with the compromised seed.” This creates a backdoor that allows hackers to simply drain funds once a wallet is activated. These scams are becoming more common, but they can easily be avoided by only accepting wallets from trusted sources.
Malware has long been the hallmark of many online scams. But with cryptocurrency, it poses an increased threat given the nature of the currency in and of itself.
Recently, a tech support site called Bleeping Computer issued a warning about cryptocurrency-targeting malware in hopes of saving customers from sending cryptocoins via transactions, reported Yahoo Finance.
“This type of malware, called CryptoCurrency Clipboard Hijackers, works by monitoring the Windows clipboard for cryptocurrency addresses, and if one is detected, will swap it out with an address that they control,” wrote Lawrence Abrahams, computer forensics and creator of Bleeping Computer.
The malware, CryptoCurrency Clipboard Hijackers (which reportedly manages 2.3 million bitcoin addresses) switches addresses used to transfer cryptocoin with ones the malware controls – thus transferring the coins to the scammers instead. And, according to Asia Times, even MacOS malware has been connected to malware scams involving cryptocurrency investors using trusted sites like Slack and Discord chats – coined “OSX.Dummy.”
Despite their decentralized nature, most cryptocurrencies are still bought and sold at exchanges. While this makes it easier to find the coins investors desire, there is still no regulatory body overseeing these exchanges in many countries. Thus, many investors have been left penniless when the exchanges they signed up for turn out to be traps. In December, several South Korean exchanges were exposed, leading to promises of stiffer regulations by the country’s authorities.
These scams are not hard to spot but can be costly if not avoided. One of the biggest red flags is the promise of unrealistic prices. Exchanges that promise heavy discounts on bitcoin use this strategy to lure in unsuspecting victims. Additionally, users can check exchanges’ URLs. Web addresses should always begin with HTTPS, a sign that traffic is encrypted. Visiting unsecured websites is a bad idea, but alert investors can avoid losing thousands by looking for the right signs.
One of the best results of the cryptocurrency boom has been the rise of the initial coin offering as a way for companies to raise capital. With thousands of new blockchain-based companies entering the market with unique ideas and exciting projects, users can now back their favorite businesses easily. However, this massive explosion of ICO opportunities has inevitably raised the spectre of fraud.
There are several ways scammers can separate investors from their bitcoin. One popular method involves creating fake websites that resemble ICOs’ and instructing users to deposit coins into a compromised wallet. Other times, it’s the ICOs themselves at fault. Centra Tech, for example, a blockchain venture backed by several celebrities, has been sued in the US. The company stands accused of portraying fake team members, misleading investors, and lying about their products. The best way to avoid these scams is close research that involves picking apart the white paper, reviewing the team behind the venture, and key board members or investors. Before making any investment, it’s vital to learn as much about the company as possible to avoid any unpleasant surprises.
Cloud Mining Schemes
Mining is the only way to extract new bitcoins without buying or exchanging them, but it has become an incredibly resource-intensive activity. Due to the unique way new coins are mined, it takes massive amounts of processing power and electricity, and thus money, to mine a coin. However, many companies now offer regular users the ability to rent some server space to mine coins for a set rate.
Some companies offer “lifetime contracts” that keep costs the same and supposedly offer outstanding returns. However, as the difficulty of mining increases, the same investment will return smaller amounts each time. Moreover, some companies make bold claims regarding their returns without being transparent about the true costs and diminishing returns. Others simply operate Ponzi schemes that can lead to massive losses. It’s vital to look into opportunities and understand the risks and costs associated with mining before investing.
Pump and Dump Scam
While this type of scam is certainly not relegated to just bitcoin (thank you for the education, “The Wolf of Wall Street”), a pump-and-dump scam is especially dangerous in the internet space.
The basic idea is that investors hype up (or “pump up”) a certain bitcoin – that is usually an alternative coin that is very cheap but high risk – via investor’s websites, blogs, or even Reddit, according to The Daily Dot. Once the scammers pump up a certain bitcoin enough, skyrocketing its value, they cash out and “dump” their bitcoin onto the naïve investors who bought into the bitcoin thinking it was the next big thing.
Bittrex, a popular bitcoin exchange site, released a set of guidelines to avoid bitcoin pump-and-dump scams.
While “stackin’ penny stocks” may sound like an appealing way to earn an extra buck (thanks to its glamorization by Jordan Belfort), messing in bitcoin scams is nothing to smirk at.
How to Avoid Bitcoin Scams
With the inevitable rise of bitcoin in current and coming years, it is becoming increasingly important to understand and be on the lookout for bitcoin scams that could cost you thousands.
There is no one formula to avoiding being scammed, but reading up on the latest bitcoin red flags, keeping information private, and double checking sources before investing in anything are good standard procedures that may help save you from being duped. After all, knowledge is power.
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