Common bitcoin scams (and how to avoid them)

8 common crypto scams to keep an eye out for

Checklist: How to detect a crypto scam

Unsure whether a particular crypto website is a scam or not? Use this checklist to help sort legitimate providers from those platforms you’re better off avoiding altogether.

Please note that this checklist is far from foolproof, as it’s possible for a website to pass several of the above tests with flying colors and still be a scam. The important thing to remember is to do your due diligence before providing any personal or financial information to any website or app.

1. Phishing

The first scam on the list is one that you may well be familiar with already, as it’s also been widely used to target customers from major banks.

Known as “phishing,” this type of scam occurs when you receive an unsolicited email that looks as if it’s from your bank — or, in this case, from your crypto exchange or wallet provider. This email contains a link that takes you to a site that looks almost identical to the exchange or wallet you usually use, but is actually a scam site.

Once you enter your account details on this unofficial page, the scammers have everything they need to log in to your real account and steal your funds.

How to avoid phishing scams:

• Always double-check URLs to make sure you’re visiting the genuine website.
• Don’t click on suspicious links that are emailed to you.
• Never disclose your private key.

2. Fake exchanges and wallets

See our vetted list of legitimate cryptocurrency exchanges.

How to avoid fake exchange and fake wallet scams:

• Stick with well-known and popular exchanges.
• Thoroughly research any exchange or wallet before creating an account — who is the team behind the exchange or wallet? Where is the company registered? Are there reliable reviews from other users confirming its legitimacy?
• Don’t let yourself be pressured into depositing funds or providing any personal information.
• Don’t just randomly pick a wallet from the app store — only download apps and software from legitimate wallet providers and exchanges.

3. Old-school scams

Cryptos may be based on new technology, but there are still plenty of scammers using old tricks to con unwitting consumers.

The classic example of this is an unsolicited phone call or email from someone claiming to be with the IRS. This fictional tax man will try to convince you that you owe the IRS money and you’ll be facing legal action if you don’t transfer them a certain amount of bitcoin as soon as possible.

The tried-and-tested “Nigerian prince” scam has also migrated into the world of cryptocurrency. So if you’re ever contacted out of the blue by someone overseas promising you a share in a large sum of digital currency if you help them transfer funds out of their own country, use your common sense and recognize it for the scam it is.

How to avoid old-school scams:

• Use your common sense.
• Don’t trust unsolicited emails or phone calls.

4. Fraudulent ICOs

This has led to the rise of fake ICOs which, with some slick marketing and a little bit of hype, can convince people to buy a cryptocurrency that doesn’t actually exist. For example, one report found that 78% of ICOs in 2017 were scams, while a separate report put that figure at above 80%.

Finally, if you’re dreaming of getting rich quick from a crypto ICO, be aware that for every ICO success story there are many, many more failures, even if the project isn’t a scam.

How to avoid fraudulent ICOs:

• Thoroughly research any ICO before buying in. Look at the team behind the project, its white paper, the purpose of the currency, the tech behind it and the specifics of the token sale.

5. Ponzi or pyramid schemes

How to avoid Ponzi/pyramid schemes:

• Look out for cryptocurrency projects that encourage you to recruit new investors to enjoy bigger profits.
• Never trust a scheme that promises returns that sound too good to be true.

6. Malware

Malware has long been a weapon in the arsenal of online scammers. But thanks to the complicated and highly technical nature of cryptocurrencies, much of which isn’t well understood by most people, malware now poses an even bigger threat.

Rather than stealing credit card and bank account details, crypto-related malware is designed to get access to your web wallet and drain your account, monitor the Windows clipboard for cryptocurrency addresses and replace your legitimate address with an address belonging to a scammer, or even infect your computer with a cryptocurrency miner.

How to avoid cryptocurrency malware scams:

• Update your antivirus software regularly to protect yourself against malware.
• Never download and install programs unless you’re 100% sure they’re from a reputable, legitimate provider.
• Don’t open suspicious attachments.

7. Mining scams

Learn more about some reputable bitcoin cloud mining providers.

How to avoid cryptocurrency mining scams:

• Thoroughly research any cloud mining operation before signing up. Does it use https? Does it have a public mining address? How long has it been in business? Can you find any legitimate reviews from other users? Does the site have a registered domain name? Can the company provide proof of equipment?
• Be extremely wary of companies that “guarantee” profit.

8. Pumps and dumps

Cryptocurrencies are often dismissed as a speculator’s dream come true that are ripe for a little bit of market manipulation, which has led to the rise of what are known as “pump and dump” schemes. This is where large groups of buyers target an altcoin with a small market cap, buy that coin en masse at a particular time to drive its price up (which attracts a whole lot of new buyers fueled by FOMO — a fear of missing out) and then sell to take advantage of the significant price rise.

This sort of thing is illegal in traditional securities markets, but is a common occurrence in the largely unregulated world of cryptocurrencies. In fact, there are several online groups and forums dedicated to this exact practice, so it’s important that you stay savvy and know how to steer clear of these scams.

How to avoid pump and dump scams:

• Be wary of low-market-cap cryptos that normally have a low trading volume but that suddenly experience a sharp price rise.
• Keep an eye out for “fake news” on social media that hypes particular coins.
• Carefully research the credentials of any cryptocurrency before buying.

Simple tips to help you stay safe

There are plenty of other simple steps you can take to protect yourself against fraud, such as:

Disclosure: At the time of writing the author holds ADA, ICX, IOTA, POWR and XLM.

Tim Falk

Tim Falk is a freelance writer for Finder, writing across a diverse range of topics. Over the course of his 15-year writing career, Tim has reported on everything from travel and personal finance to pets and TV soap operas. When he’s not staring at his computer, you can usually find him exploring the great outdoors.