Types of Bitcoin Scams

What are bitcoin scams?

There are many different kinds of bitcoin scams. They vary in tactics and the number of times they’ve been used, but each type is designed to get you to give up your money or sensitive information for the sake of getting an investment or making an “investment”.

Understanding the blockchain

Simply put, blockchain is a public digital ledger containing all transactions made in the cryptocurrency world.

When you send or receive bitcoin or any other digital currency, each transaction is recorded in the blockchain. If you download the full blockchain — a sort of connected virtual file that contains all of the transactions ever made — it can take up to 10 minutes to process. This is because the processing requires a lot of computing power, and for that process to happen, your computer must run in a loop — that is, it must sync the blockchain’s database.

The process is slow, but when a transaction is made, it’s logged in the blockchain, and can never be deleted.

How to identify a bitcoin scam

Scams often come in different forms. Fake email phishing schemes try to get your personal information. Social media platforms can be a primary vector for scams and misinformation. Scammers are also getting better at posting fake cryptocurrency adverts on Facebook and other platforms. Some ads have legitimate crypto-related slogans, but the images might not be authentic.

Another trick scammers use is to act confident, telling you that they’re in the process of building the future of money, making you trust them. However, the project may never launch or the product might be scams of a different kind. Read more about these scams to learn how to spot them.

Bitcoin scams are on the rise.

What are some recent bitcoin scams?

We’ve written about several bitcoin scams in the past few years, and those continue to pop up. Most crypto-related scams have, perhaps unsurprisingly, centered on the biggest and best-known cryptocurrency: Bitcoin.

These bitcoin scams include:

Bitcoin price arbitrage scams

When someone tells you they can make big money by taking advantage of the bitcoin exchange rate fluctuations, they legitimately seek your money. But often, you will be wise to doubt them. This type of scam is extremely common, and even online-savvy individuals can fall for it. Always look out for signs of fraud before handing over your hard-earned cash. One common tactic involves the promise of interest, known as “buy low, sell high.” Scammers will sell you a high-priced item on a cryptocurrency exchange at a ridiculous price. If the item goes up in value, they’ll take your profits and leave you with the difference. To avoid becoming a victim, make sure you check to see if the site offering cryptocurrency exchange rates has a “buy low” option before sending any money.

Bitcoin exit scams

A high-profile scam or two is nothing compared to the hundreds of people who’ve been swindled out of cryptocurrency by people selling or selling out to a competitor.

Bitcoin exchanges

Many bitcoin exchanges have fallen victim to hackers, insiders, or thieves. Most recently, Hong Kong-based exchange Bitfinex lost $72 million in a hack, causing it to go into temporary hibernation. Others have been hacked, such as the Mt. Gox exchange, which lost $473 million in 2014.

“Banks and payment processors are, of course, a financial part of every business, but for Bitcoin businesses, their whole business model is based on the anonymity of the system and the accessibility of bank transfers,” said Kurt Schuler, a security researcher with AlienVault.

Bitcoin exchange schemes

Bitcoin exchanges are infamous for enabling fraud. In an age where smartphones and the internet are intertwined with our daily lives, fraudsters can steal your bitcoins from an exchange with a simple hack. They need your username and password to access your wallet, and once they have it, they can transfer your bitcoin to their own wallet. Some exchanges also let you send your bitcoins to another person, making it possible for them to do the same. If you’re suspicious about your account, delete it.

Bitcoin cloud mining scams

If you think that it’s okay to throw your money at an opportunity that promises you loads of cryptocurrency for the chance to mine it, you may be in for a nasty surprise. Cloud mining is one of the hottest avenues for scammers because it’s new and hard to know exactly how legitimate it is.

Bitcoin mining is a process by which the most recent transactions are included in the blockchain. This process creates more currency for people who solve complex math puzzles and so forth. It’s not a complicated process that makes bitcoin more valuable, but scammers use it to manipulate your mind and steal your money. These types of scams ask you to install and run programs on your computer to “mine” bitcoin. This is supposed to earn you more money as a reward for your hard work. But it doesn’t really work that way.

Cloud mining promises to provide a fast, lucrative return for investors that take on the job of installing expensive mining hardware in exchange for an initial payout of money and an ongoing amount. Unfortunately, this arrangement is not transparent, and with such a large payout, scammers can exploit people’s lack of knowledge of digital currency and offer lower payouts for a lot of work.

Conclusion

Chances are, if you choose to start mining or buying Bitcoin, your startup will be successful. Whether or not you’re able to go on to make money on the side will depend on the success of the cryptocurrency markets. At the end of 2017, Bitcoin was the top cryptocurrency, and it was the cryptocurrency on track for the most gains in 2017 as a whole. Currently, most cryptocurrencies are still rising in value. With crypto-related scams on the rise, make sure that you trade cautiously.