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

Common bitcoin scams (and how to avoid them)

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

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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.

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

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39 Responses

  1. Default Gravatar
    NoobdenialAugust 3, 2019

    How do I know this isn’t a subtle long con that lures people in with what sounds like solid common sense explanations…and then gradually guides them into a ponzi scheme or pump and dump or suggest getting XRP….criminal.

    • Avatarfinder Customer Care
      fayemanuelAugust 4, 2019Staff

      Hi Noobdenial,

      Thanks for leaving a comment we appreciate your feedback. This will certainly help us.

      Kind Regards,
      Faye

  2. Default Gravatar
    AlecMay 19, 2019

    How can I know if the website cryptostats.trade is a legitimate trading site & not just fraudulent?

    • Avatarfinder Customer Care
      BellaMay 19, 2019Staff

      Hi Alec,

      Thanks for your inquiry.

      You’re actually already on the correct page on where you can get helpful information and may use our checklist to help you detect a crypto scam. Please note that we are a comparison website and we can not vouch for a company as we do not represent any of the providers on our page.

      I hope this helps.

      Kind regards,
      Bella

  3. Default Gravatar
    PreciousMay 17, 2019

    I invested R1000 and got a profit of R15000 in one week, someone who said he will help is the one who told what to do and I did as he instructed me. He sent me a link I should use to send money into from my trading account. I did that, so now in order for me to get my profit he’s saying I should deposit R1500 which is a 10% of my profit – then I can withdraw that R15000. What’s suspicious is that, he now even deleted his Facebook acc and when I asked him why, he just said someone was trying to hack it.

    Please help.

    • Avatarfinder Customer Care
      nikkiangcoMay 18, 2019Staff

      Hi Precious,

      Thanks for your question.

      I’m sorry to hear that. From your statement above, it looks like the person you transacted with used old school scams to fish off money from you. However, no one will know of its legitimacy until proven. Rule of thumb, be safe, do research and always transact with known reputable companies, not with people who just randomly emailed, called or messaged you on a social media platform.

      With care,
      Nikki

  4. Default Gravatar
    AmyApril 11, 2019

    I have a person emailing me masking their email as their own. It’s an obvious fake claiming I’m accessing porno sites and they have video of me doing things while watching these videos. I’m a woman and its an old email address being forwarded to my email so I can answer client questions. The only info they provide is their bitcoin address—— BTC Address: ****************** ——- They are trying to extort money from me. Can we locate who they are with the BTC address?

    • Avatarfinder Customer Care
      johnbasanesApril 12, 2019Staff

      Hi Amy,

      Thank you for reaching out to Finder.

      Yes, there is a way for you to locate someone using their BTC address. You may need to contact local law enforcement for further assistance on doing this. Hope this helps!

      Cheers,
      Reggie

  5. Default Gravatar
    ReggieMarch 24, 2019

    I would like to report a fraud company called Spring Investment. They scammed me out of $2000 please be aware of them and spread the word.

    Thank you.

    • Avatarfinder Customer Care
      johnbasanesMarch 25, 2019Staff

      Hi Reggie,

      Thank you for reaching out to Finder.

      Thank you for your feedback. The team will be aware of this moving forward. Hope this helps!

      Cheers,
      Reggie

  6. Default Gravatar
    ReggieMarch 6, 2019

    I invested with this company called Spring Investment. They said they been around for 3 years there located in Los Angeles, California. Wanted to see if somebody could help do some research on this company and see if they’re legit.

    • Avatarfinder Customer Care
      JoshuaMarch 6, 2019Staff

      Hi Reggie,

      Thanks for getting in touch with Finder. It’s always wise to do a background check to a company you want to make an investment with.

      Regarding your question, I went to Spring Investment’s website and their page looks professional. Their website is also secured. They have live chat support as well as contact us page. However, these do not guarantee that they are legit. You would need to make your independent research on this, Reggie. Moreover, I would highly recommend as well that you read the guide above to know how to spot common scams when you see them.

      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
    mchodoJanuary 8, 2019

    I signed up with one company,of investing bitcoin,they have a plan, I started with plan 1 which you invest 10usd by bitcoin after 24hrs – after 2weeks I withdrew 35 usd, I remove my 10,and continue with their money. I withdrew again and again. Now I have 400usd on that account, when I try to withdraw they said you have to upgrade. You can withdraw all money – is it true??????

    • Avatarfinder Customer Care
      ValJanuary 10, 2019Staff

      Hi Mchodo,

      Thank you for reaching out to finder!

      It seems like you are looking at a page for bitcoin common scams. AS we know, cryptocurrency does have a lot of process involved once you have invested on it.

      For this matter, they might need more information on what is evidently happening to your money and or investment. We recommend for you to contact the company where in you invested the bitcoin. They might have a customer support team who can help you about your concern and discuss with them in detail what is happening to your coins.

      Hope this helps!

      Would you need additional assistance please feel free to chat with us using the chat box at the lower right hand corner of the page.

      Regards,
      Val

  8. Avatarfinder Customer Care
    JoshuaDecember 30, 2018Staff

    Hi Milton,

    Thanks for getting in touch with finder. I’m sorry to hear about the situation you are in. I know that being scammed is not a pleasant experience.

    Once you have confirmed that you have been scammed, it would best to report this to your electric company. One, so that they would be alerted that such a scam exists and they can warn other customers and two, that they would be able to advise you of what to do. Your electric company should be able to offer help and advice.

    Moreover, you can also directly report the incident to the US government so that they could also take action and get your problem documented properly.

    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
    StephenOctober 19, 2018

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

    • Avatarfinder 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

  10. 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.

    • Avatarfinder 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

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