Identifying Bitcoin scams
Bitcoin is attractive to scammers for the same reason it’s attractive to you: it’s fast, it’s international, and it’s irreversible. So as Bitcoin usage has grown, we have seen more and more Bitcoin scammers disappear with user funds.
The following are some of the most persistent Bitcoin scams.
Bitcoin Ponzi, HYIP or MLM schemes
These schemes attract people with low or no subscription fees and promises of sky-high returns on their deposits. They often rely on existing investors signing up new ones, which is the only source of revenue or growth. As with all Ponzi schemes, early investors get paid with the money from later investors.
Inevitably when new investors stop signing up and depositing, the scheme collapses, since no more funds can be paid out.
What to look out for
These are some of the warning signs that you might be dealing with an illegal scheme:
- Promises of very high returns/interest
- Guarantees that you "can't lose money"
- Little verifiable information on company and owners
- Difficulties in withdrawing your funds
- Social signup links with high bonuses
- Sense of urgency to "invest now"
Bitcoin phishing scams
Phishing scams are common in the online world. This is when a scammer creates emails, messages, login pages and/or websites that resemble a legitimate company. Once users enter their information (like login username and password) on the fake website, the scammers have access to the users’ accounts. If it is an account where Bitcoin is stored, the scammers can easily make off with the money.
Where users have the same password used on multiple sites, the scammers can often gain access to other sites with more sensitive information.
How to prevent phishing scams
- Don't click on suspicious emails
- Ensure the correct spelling of the website address
- Use a unique, strong password for every website account
- Use a reputable password management tool
- Enable two-factor authentication on sites that support it
- Report suspicious emails to your email provider (as phishing)
- Report suspicious websites to the respective web hosting company
Bitcoin mining scams
Bitcoin is generated through the process of mining, which confirms Bitcoin transactions on the Blockchain. Mining requires great amounts of energy, expensive equipment and upfront capital. Bitcoin mining investments emerged out of this need, whereby many users can invest in a mining scheme and get a percentage of future mining proceeds.
There are some legitimate Bitcoin mining schemes, but there are far more mining scams than legitimate outfits. Since it is difficult for most investors to confirm if a mining scheme actually owns mining gear (or does any mining at all), there are many websites that claim to mine but simply take investor funds, pay high returns for a while to build trust and then simply disappear.
Avoiding mining scams
These are some of the things to be on the lookout for:
- Inability to see or verify the proof of ownership of any mining equipment
- Inability to see or verify their public mining address and ownership
- New website (look it up with archive.org)
- High referral commissions
- Guaranteed profits
Bitcoin wallet and exchange scams
There are some websites claiming to be wallets meant to store Bitcoin. Others claim to be exchanges, where one can trade Bitcoin. Others yet claim to do both, but many of these are in fact scam sites.
They simply get users to sign up and deposit Bitcoin or local currency for a while to build trust and then after a while make off with the money.
Things to be on the lookout for
- Only deal with reputable, registered companies
- Make sure you can verify the identity of the employees/owners
- See if they are mentioned in reputable local or international news publications
- Treat anonymous and new exchanges, apps and browser extensions with caution
List of known Bitcoin scams
Since it is very easy to set up a scam website, it is impossible to always have an up to date list of scams. You should do your own research and learn to look for suspicious schemes.
However, here are some sites that research/comment on scams:
If you are putting your money anywhere, it's up to you to do your own research and investigation (Google and Reddit can take you far). And remember: if something sounds too good to be true, it probably is.