8 common bitcoin scams (and how to avoid them) | finder.com

Common bitcoin scams (and how to avoid them)

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Our guide to how to spot bitcoin scams and stay safe when trading and using cryptocurrency.

Cryptocurrencies are complicated, very confusing to new users and lightly regulated all of which makes them an ideal target for scammers.

But with a little bit of know-how and some good old-fashioned common sense, you can do plenty to protect yourself against cryptocurrency scams.

Keep reading for the lowdown on the most common bitcoin scams and how to avoid them.

Disclaimer: This information should not be interpreted as an endorsement of cryptocurrency or any specific provider, service or offering. It is not a recommendation to trade.

8 common crypto scams to keep an eye out for

Watch out for scams

In December 2017, the chairman of the US Securities and Exchange Commission (SEC) issued a statement about the lack of investor protection for those buying cryptocurrencies:

A number of concerns have been raised regarding the cryptocurrency and ICO markets, including that, as they are currently operating, there is substantially less investor protection than in our traditional securities markets, with correspondingly greater opportunities for fraud and manipulation.”

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

In a similar vein to phishing scams, keep an eye out for fake bitcoin exchanges. They might walk and talk like a reputable exchange, but they’re merely a front to separate consumers from their hard-earned cash.

Some will entice users with promotional offers that sound too good to be true. Others pressure users into creating an account and depositing funds, perhaps even offering “bonuses” to those who deposit larger amounts. But once they have your money these platforms might charge ridiculously high fees, make it very difficult to withdraw funds or simply steal your deposit altogether.

Other scammers have turned their attention to creating quite sophisticated fake wallet apps that, once downloaded to a user’s smartphone, can be used to steal critical account details. These apps have even made it into official, legitimate app stores like Google Play, so it pays to do your research before downloading anything to your phone.

BitKRX

In December 2017, the bitcoin community and South Korean authorities exposed a fake exchange known as BitKRX.

By posing as a legitimate exchange and passing itself off as a branch of KRX, a large and reputable trading platform, it was able to ensnare innocent users.

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.

”Fake

Poloniex is a large, prominent and legitimate crypto exchange. However, in 2017 it was the target of a sophisticated scam that saw at least three fraudulent Poloniex trading apps listed on the Google Play store.

Two of the apps, “Poloniex” and “Poloniex Exchange,” were downloaded more than 5,500 times before they were removed from the store. These apps asked Poloniex users to enter their account credentials, thereby giving fraudsters a way to perform transactions on behalf of users and even lock victims out of their own accounts.


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

Seduced by the astronomical price rises bitcoin has experienced since its inception, many everyday consumers venture into the world of cryptocurrency looking for the next big thing. After all, if “the next bitcoin” ever actually arrives, getting in at the ground floor could see early-adopters earn a fortune.

And if you want to get in on the ground floor, the easiest option for the average person is to buy coins or tokens in an ICO. There’s a huge appetite for new digital currencies in the first half of 2018 alone, ICOs raised a total of $11.69 billion and with many new buyers having limited knowledge of how the crypto industry works, it’s the perfect breeding ground for scammers.

Pincoin and iFan

In April 2018, the Pincoin and iFan ICOs, run by the same Vietnam-based company, are believed to have cheated more than 30,000 investors out of a combined total of $660 million.

iFan was meant to be a social media platform for celebrities and Pincoin promised 40% monthly returns to investors. Both were later shown to be multi-level marketing (MLM) scams.

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

A Ponzi scheme is a simple but alarmingly effective scam that lures in new investors with the promise of unusually high returns. Here’s how it works: a promoter convinces people to invest in their scheme. These initial investors receive what they believe to be returns, but are actually payouts from the money deposited by newer investors. Now satisfied that the scheme is legit, those investors who received payouts pump more of their money into the scheme and encourage others to do the same.

Sooner or later, the scheme collapses when the promoter runs off with the money or it becomes too difficult to lure new investors. These types of pyramid schemes are nothing new and can be easy to spot, but that hasn’t stopped some crypto buyers from being scammed in a handful of high-profile incidents.

Bitconnect

In January 2018, bitcoin investment lending platform Bitconnect shut down its lending and exchange services amid allegations it was a Ponzi scheme. Launched in early 2017 with promises of returns of up to 40% per month, the platform was quick to attract criticism from the wider crypto community and soon drew the attention of regulators.

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

Bitcoin mining rig scans

Cloud mining allows you to mine cryptocurrencies like bitcoin without having to purchase the expensive hardware required to do so. There are several legitimate cloud mining services that let users rent server space to mine for coins at a set rate.

However, there are also plenty of cloud mining scams out there. Some promise astronomical (and implausible) returns and fail to disclose a range of hidden fees, while others are fronts for Ponzi scams and are simply designed to part you from your money.

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.

”GVT

In January 2018, a fake Twitter account purporting to belong to cybersecurity guru and crypto enthusiast John McAfee tweeted support for the GVT cryptocurrency, naming it “coin of the day.”

For some in the crypto community, this was good enough reason to buy some GVT, and just four minutes after the tweet was posted the price of GVT had jumped from $30 to $45 and trading volume had doubled. Fifteen minutes later, the price was hovering around the $30 mark once again, after early buyers “dumped” and ran.

On closer inspection, the Twitter account was revealed to be bogus and not associated with McAfee at all. Instead, it was simply a key player in a pump and dump scheme devised and implemented in a chat room called “Big Pump Signal.”


Simple tips to help you stay safe

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


Disclaimer: Cryptocurrencies are speculative, complex and involve significant risks – they are highly volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of future performance. Consider your own circumstances, and obtain your own advice, before relying on this information. You should also verify the nature of any product or service (including its legal status and relevant regulatory requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may have holdings in the cryptocurrencies discussed.

Picture: Shutterstock

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

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24 Responses

  1. Default Gravatar
    StephenOctober 19, 2018

    Is bitcoin evolution a scam? I see articles on Yahoo stating what great returns it offers. Is this true?

    • finder Customer Care
      JoshuaOctober 20, 2018Staff

      Hi Stephen,

      Thanks for getting in touch with finder. I hope all is well with you. :)

      We currently don’t have an article about bitcoin evolution. For the meantime, what you should do is check the legitimacy of this coin. Check as well what other people say about it and examine their website. Usually, the level of professionalism of their website would tell you if they are legit or not.

      Like any investment, before you purchase a coin, gather as much information as possible to ensure you are making the right decision.

      I hope this helps. Should you have further questions, please don’t hesitate to reach us out again.

      Have a wonderful day!

      Cheers,
      Joshua

  2. Default Gravatar
    FrancesOctober 16, 2018

    Hi, I joined up with bit coin in September, paid through credit card, I changed my mind overnight as I didnt think I would be computer wise enough and thought I had a cooling off period, however they told me I had still to give all identification documents first and then withdraw. Did all this and applied and was told accounting dept says no as there was no voice approval.Keep on emailing, phone numbers ring out, do I have any chance of getting my deposit back, have I been duped. Credit card Company say cant help. Thank you.

    • finder Customer Care
      JoshuaOctober 20, 2018Staff

      Hi Frances,

      Thanks for getting in touch with finder. I hope all is well with you. :)

      Getting your deposit could be difficult especially if your communication is only limited online. What I can suggest is for you to check the terms and conditions of the seller of the bitcoin. Check whether they have specified in their website how you can obtain your initial deposit. Generally, once you have made a purchase, you won’t be able to get back your money. What you can do is simply sell the bitcoin you purchased so you can at least get your money.

      Please continue getting in touch with the seller. If you are still unsatisfied with the response of your seller, you might want to seek the help of the proper authority.

      I hope this helps. Should you have further questions, please don’t hesitate to reach us out again.

      Have a wonderful day!

      Cheers,
      Joshua

  3. Default Gravatar
    GeoffreyOctober 15, 2018

    Please I need you guys to me find out if the company ‘crypto-block.org’ is genuine or not? And if its worth investing into. Thanks

    • finder Customer Care
      nikkiangcoOctober 16, 2018Staff

      Hi Geoffrey,

      Thanks for reaching out.

      As of the moment, our page doesn’t have a dedicated review page for crypto-block.org hence we cannot give information if this is genuine or not.
      Just the same, we’ll have our team review this and check if we can get this topic on our pages in the future.

      Sorry, we couldn’t be of help at the moment. Feel free to come back to our page if you have other questions about cryptocurrency.

      Regards,
      Nikki

  4. Default Gravatar
    TaylorOctober 9, 2018

    Hi, I was just wanting to know cause I’ve bee speaking to someone on Facebook who wants me to invest $50 in bitcoin and send it to another wallet address? Does anyone know if it’s a scam?

    • finder Customer Care
      nikkiangcoOctober 12, 2018Staff

      Hi Taylor,

      Thanks for your inquiry and for visiting our page.

      Facebook is a very convenient way to buy and sell anything including bitcoins however there are marketplaces to buy and sell bitcoins. Here is our guide on how to buy bitcoin in the US. Please read through the page and message us again should you need further assistance.

      Regards,

      Nikki

  5. Default Gravatar
    RickyOctober 4, 2018

    I am talking with someone online that promises that if I buy Bitcoins and they give me an address to their mining machine and it will connect my wallet with his mining rig and it will get me a gain of 30% per day and he will be paid 50% of the profit for doing so?

    • finder Customer Care
      JoshuaOctober 8, 2018Staff

      Hi Ricky,

      Thanks for getting in touch with finder. I hope all is well with you. :)

      I can’t provide a personalized and direct advice for your situation. However, it is important to be careful when transacting with people online especially those whom you don’t personally know. Please remember as well that it is not that easy to earn from mining. It is designed in such a way that adding a new block to the blockchain requires a lot of work. I would suggest that you read our guide on crypto mining to get an idea of what that person is talking about.

      Do your own research and gather as much information as possible before you make a decision.

      I hope this helps. Should you have further questions, please don’t hesitate to reach us out again.

      Have a wonderful day!

      Cheers,
      Joshua

  6. Default Gravatar
    ToniSeptember 28, 2018

    I have a guy whom I have conversations with for over a year. He wants to send me loney via Arab bitcon. I do not want to fall into a trap and have myself hacked.
    How can I know it is legit?

    • finder Customer Care
      JoshuaOctober 1, 2018Staff

      Hi Toni,

      Thanks for getting in touch with finder. I hope all is well with you. :)

      There’s no straightforward answer to your question. However, you would need to ensure that your transaction won’t put you at great risk. Before sending your coins or money to this person, make sure that you are not in a disadvantaged position. Think if this person won’t do his part of the deal, what can you do to get your money back? If the risk is too high or the other person won’t give you some kind of security, then it would be better to avoid the transaction.

      Of course, the decision is up to you. Just be careful when dealing with people whom you don’t personally know.

      I hope this helps. Should you have further questions, please don’t hesitate to reach us out again.

      Have a wonderful day!

      Cheers,
      Joshua

  7. Default Gravatar
    DehoSeptember 26, 2018

    So I was asked to download xapo app and the bitcoin wallet then I was told to verify it then send the him the login details.. well I need to know if this is a scam. Now however I’m not gonna do any of this but I need to know to report the perp.

    • finder Customer Care
      JoshuaOctober 1, 2018Staff

      Hi Deho,

      Thanks for getting in touch with finder. I hope all is well with you. :)

      It is important not to share your login details to anyone especially those whom you don’t know. If you believe that it was a scam, you may report it to the proper authority.

      I hope this helps. Should you have further questions, please don’t hesitate to reach us out again.

      Have a wonderful day!

      Cheers,
      Joshua

  8. Default Gravatar
    ArthurSeptember 17, 2018

    I recently enter a crypto mining acvpunt and see alot of money how ever do I have to pay the fees and taxes to get that money or does it come out of the account that’s has profited

    • finder Customer Care
      JoshuaSeptember 19, 2018Staff

      Hi Arthur,

      Thanks for getting in touch with finder. I hope all is well with you. :)

      As a general rule, as long as you made an income from crypto mining, you would need to pay tax for that. We have a comprehensive guide on how to calculate your tax on your crypto profit here.

      Basically, you can already obtain your bitcoin earning and then, pay the tax afterward.

      I hope this helps. Should you have further questions, please don’t hesitate to reach us out again.

      Have a wonderful day!

      Cheers,
      Joshua

  9. Default Gravatar
    LadySeptember 8, 2018

    What is the current scam regarding bitcoins and cellular carriers such as AT & T or T Mobile…..please explain how it works.

    • finder Customer Care
      JoshuaSeptember 10, 2018Staff

      Hi Lady Linda,

      Thanks for getting in touch with finder. I hope all is well with you. :)

      I’m not too sure which scam you are referring to. However, one of the most common scams which involve cellular carriers is impersonation scams. A sender tries to convince you that they are a representative of a company and asks money from you to get something in return.

      The bottom line is that if a person is trying to get money from you and offers you too good to be true promises, then it is more likely to be a scam. Do your research and gather as much information as possible to prevent getting scammed.

      I hope this helps. Should you have further questions, please don’t hesitate to reach us out again.

      Have a wonderful day!

      Cheers,
      Joshua

  10. Default Gravatar
    $martAugust 9, 2018

    Hi. Please I am new with the cryptocurrency and I am looking for a real and cheap website even good games to start mining . I have heard about scam a lot so I need help to stay clean of them..

    • finder Customer Care
      JoshuaAugust 20, 2018Staff

      Hi Smart,

      Thanks for getting in touch with finder. I hope all is well with you. :)

      There are just so many things you need to learn to help you make better decisions when it comes to dealing with cryptocurrencies. For this reason, please be sure to read this page. It includes helpful tips and information to help you get started.

      Cryptocurrency 101: The Complete Beginner’s Guide

      While we don’t have a list of websites or games where you can trade crypto, you might want to check our list of exchanges. On that page, you will read, “Exchanges are where you buy and sell cryptocurrencies, so they’re an integral part of the market. But no two are alike, and it’s worth doing your research before picking one.”

      Regarding mining, you might want to read, “A simple step-by-step guide to mining bitcoin (BTC).”

      Yes, scams have undoubtedly plagued the crypto market today. To be sure that you are making the right decision, please review this page. You may also read other resources to learn more about bitcoin scams.

      I hope this helps. Should you have further questions, please don’t hesitate to reach us out again.

      Have a wonderful day!

      Cheers,
      Joshua

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