6 Common Bitcoin Scams That Everyone Should Be Aware Of
Bitcoin is 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 Bitcoin scams.
Keep reading for the lowdown on the most common bitcoin scams and how to avoid them.
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 Bitcoin holder.
1. Pyramid or Ponzi 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.
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.
2. Mining scams:
Cloud mining allows you to mine 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.
How to avoid bitcoin 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.
3. 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.
4. Phishing Site:
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:
– Don’t click on suspicious links that are emailed to you.
– Always double-check URLs to make sure you’re visiting the genuine website.
– Never disclose your private key.
5. Fake Wallets And Fake exchanges:
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.
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.
6. 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. 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.
Simple tips to help you stay safe
There are plenty of other simple steps you can take to protect yourself against fraud, such as:
– Use 2-factor authentication:
If you’re using a crypto wallet or exchange that supports two-factor authentication, enable this feature before depositing any funds. It’s simple to set up and provides an extra layer of account security.
– Stick with established providers:
Avoid new and untested platforms. Let the early-adopters take the risks and make sure you don’t get involved with an exchange or wallet until you can be sure it’s legitimate.
– Always double-check addresses:
Get into the habit of scanning the URL bar to look for the https and “secure” lock symbol, and remember to double-check the URL to make sure you’re visiting the correct site.
– Never share your private keys with anyone:
You need your private key to access your crypto holdings, so make sure you never disclose any of your private keys to a third party.
Also Follow us on Facbook, Twitter, Instagram For Give Away!