In its early days, bitcoin was synonymous with shady online marketplaces and illegal activity. Today, bitcoin often struggles to shed that reputation, and much of these struggles are because of bitcoin scams.
2018 has been a record year for bitcoin scams. Today, we’re highlighting some of the most common scams people have fell victim to this year.
What Is A Bitcoin Scam?
Defining something like a “bitcoin scam” might seem obvious. Is an ICO a scam when it misleads investors? Is it considered a bitcoin scam when someone locks up your computer with ransomware and then demands bitcoin to unlock it?
For this list, we’ve defined “bitcoin scam” as any fraudulent or semi-fraudulent activity involving the use of bitcoin.
7) Malware Scams
Malware is literally as old as the internet. However, bitcoin and other cryptocurrencies have made malware scams even more prevalent.
These scams are surprisingly sophisticated. One type of malware, for example, is called Cryptocurrency Clipboard Hijackers. That malware works by monitoring the Windows clipboard for cryptocurrency addresses. Then, if a cryptocurrency address is detected, it will automatically be swapped out with an address controlled by the malware manufacturer.
Most of us copy and paste bitcoin addresses when transferring funds. When you do this, this information gets temporarily stored on the clipboard. You might paste the address in your intended destination. Since the address is so long and complicated, you don’t notice any changes to the address. You send the money to the address, only to realize the money has never showed up and you’ve been scammed.
Cryptocurrency Clipboard Hijackers reportedly manages 2.3 million bitcoin addresses. This is just one type of malware bitcoin scam.
6) Fake Bitcoin Exchanges
We’ve seen websites appear online promising to be a legitimate low-fee cryptocurrency exchange or a safe transfer solution. In reality, hackers launch new websites every day with the sole intention of stealing customer funds.
These websites might claim to be a real bitcoin exchange. You might search for something like “Canadian bitcoin exchange” online. The website that pops up looks like a legitimate exchange. You deposit funds to the address listed on the website. However, you can never access the exchange and your funds never appear. You’ve been scammed.
There was one infamous instance of this scam in 2017, when a scammer created a South Korean exchange called BitKRX. That exchange claims to be a great place to exchange and trade bitcoin. It also claimed to be affiliated with major Korean financial organizations like KOSDAQ, the South Korean Futures Exchange, and the South Korean Stock Exchange. Later, it was revealed that it was all a scam, and the scammers disappeared with an unknown amount of customer funds.
5) Ponzi Schemes
We’ve seen plenty of bitcoin Ponzi schemes. These schemes lure in unsuspecting investors with promises of easy money and fast payouts.
Some of these scams are obvious: they’re high yield investment programs (HYIP) built to be scams from the ground. Other Ponzi schemes present themselves as legitimate business opportunities – like the infamous Bitconnect Coin that became prominent in 2017 before collapsing in January 2018 when it was revealed to be a scam.
Other Ponzi schemes rely on bitcoin mining. You send bitcoin to the website today with the promise of earning money through crypto mining. You get rewarded when you refer other people to the mining platform. In reality, no mining is taking place, and the entire scheme disappears offline when it has collected enough crypto funds from customers.
4) Fake Bitcoin Scams
Other bitcoin scams involve launching a fake cryptocurrency. Typically, these cryptocurrencies appear online as an ICO. The ICO might claim their coin is “the next bitcoin” and make other grandiose promises.
In reality, the ICO is run by scammers. In some cases, the coin doesn’t really exist. In other cases, the coin is just an arbitrary digital asset based on the scammer’s servers – it’s not based on a transparent, verifiable blockchain.
We saw this in 2018 with the launch of My Big Coin. As reported by TheStreet.com, My Big Coin was a cryptocurrency scam that convinced investors to deposit $6 million into the company. The creators of the scam were sued by the US Commodity Futures Trading Commission (CFTC). MBC’s creators were caught funneling the proceeds of the ICO into “personal bank accounts” and were seen “using those funds for personal expenses and the purchase of luxury goods,” according to the lawsuit filed by the CFTC.
In any case, it’s easy to call your coin “the next bitcoin”. Don’t fall for fake bitcoin scams like this.
3) ICO Scams
There are countless ICO scams on the market today. Initial coin offerings (ICOs) often launch promising the world to investors, but fail to live up to any expectations. ICOs continue to be like the “wild west” of financing, and it’s easy for anyone to launch an ICO and begin raising money with no checks or balances in place.
One of the most famous ICO scams of 2018 was the one promoted by celebrities like DJ Khaled, among others. Earlier this year, Centra Tech raised $32 million for misleading investors and lying about its products, among other fraudulent activities.
That didn’t stop DJ Khaled from wholeheartedly endorsing the company. In an infamous social media post, Khaled wrote:
“I just received my titanium centra debit card. The Centra Card & Centra Wallet app is the ultimate winner in Cryptocurrency debit cards powered by CTR tokens!”
The US SEC has issued warnings about ICO scams. Centra was just one of the major scams. Bitcoin Savings and Trust was another major scam from 2017, which raised $40.7 million using a combination of an ICO and a Ponzi Scheme. Bitcoin Savings and Trust promised 7% weekly returns – and yes, countless investors were dumb enough to fall for it.
2) Bitcoin Gold Wallet Scam
Bitcoin Gold Wallet was one of the sneakier scams of the last few months. Found online at MyBTGWallet.com, the scam collected a reported $3.2 million by convincing users that they could claim their “bitcoin gold” by sending their private keys to a wallet address.
The scam capitalized on the hype of Bitcoin Gold (BTG), a legitimate cryptocurrency project that had recently hard forked off of bitcoin. The website seemed to suggest it had partnered with the Bitcoin Gold team to provide wallet services.
In reality, the goal of MyBTGWallet.com was to convince investors to share their private keys or seeds with the scammers. By the time the scam had run its course, investors had deposited $107,000 worth of Bitcoin Gold, $72,000 of Litecoin, $30,000 of Ethereum, and $3 million of bitcoin.
1) Pump And Dump Scams
Pump and dump scams are common across traditional financial industries and new industries like cryptocurrency. A pump and dump scam involves “pumping up” a low-value cryptocurrency. A group of scammers buy the coin en masse, artificially increasing prices. Then, they start sharing hype about the coin with the crypto community, flooding social media with buy signals and other indicators.
Then, at the height of the pump, the original scammers sell their coins for a huge profit, causing prices to drop. This is the “dump” part.
How To Avoid Bitcoin Scams
Avoiding bitcoin scams is as straightforward as checking a URL, installing antivirus software, and not clicking on links in your email.
Stick to reputable websites. Avoid downloading shady software. Double check and triple check your addresses. Never give your private keys to anyone. If you can obey these simple rules, then you stand a good chance of avoiding the most common bitcoin scams listed above.
You need at least some level of technical competence to be a bitcoin user. That’s why it’s surprising to see so many bitcoin users fall for such basic scams. Nevertheless, scams are commonplace across all types of industries – and bitcoin is just the latest tool in a scam artist’s arsenal.