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Pay Attention to These 7 Bitcoin Scams
Bitcoin – the possible Pandora’s Box of the currency world – has never been short of controversy. Whether it be aiding the black market or scamming users out of millions, bitcoin is no stranger to the front page.
Still, the jury is out on the legality and usefulness of bitcoin – leaving it in a proverbial grey area. Bitcoin’s price has fluctuated throughout its history, falling and rising, currently hovering near $10,000. Perhaps you’ve found bitcoin while it looks to be on the rebound and find yourself interested in it as an investment.
However, there have been several legitimate bitcoin scams that have become infamous, and you need to know about them – but, what are the top 7 bitcoin scams? And how can you avoid them?
What Is a Bitcoin Scam?
For most cases, it may be pretty obvious what a scam is – but with bitcoin, and cryptocurrency in general, things become murkier. Bitcoin itself is an unregulated form of currency that essentially is a mere number that is only given value because of an agreement. It’s basically like a moneybag with a lock on it – the code of which is given to the recipient of the bitcoin (an analogy drawn by Forbes in 2020).
Bitcoin scams have been famously criminal and public in nature. With no bank as a middleman in exchange, things become more complicated; so hackers and con men have had a heyday.
Top 7 Bitcoin Scams
There have been (and undoubtedly will be) nearly countless bitcoin scams, but these frauds make the list of the top 7 worst bitcoin scams to date. Take note.
1. Malware Scams
Malware has long been the hallmark of many online scams. But with cryptocurrency, it poses an increased threat given the nature of the currency in and of itself.
Recently, a tech support site called Bleeping Computer issued a warning about cryptocurrency-targeting malware in hopes of saving customers from sending cryptocoins via transactions, reported Yahoo Finance.
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“This type of malware, called CryptoCurrency Clipboard Hijackers, works by monitoring the Windows clipboard for cryptocurrency addresses, and if one is detected, will swap it out with an address that they control,” wrote Lawrence Abrahams, computer forensics and creator of Bleeping Computer.
The malware, CryptoCurrency Clipboard Hijackers (which reportedly manages 2.3 million bitcoin addresses) switches addresses used to transfer cryptocoin with ones the malware controls – thus transferring the coins to the scammers instead. And, according to Asia Times, even MacOS malware has been connected to malware scams involving cryptocurrency investors using trusted sites like Slack and Discord chats – coined “OSX.Dummy.”
2. Fake Bitcoin Exchanges – BitKRX
Surely one of the easiest ways to scam investors is to pose as an affiliate branch of a respectable and legitimate organization. Well, that’s exactly what scammers in the bitcoin field are doing.
South Korean scam BitKRX presented itself as a place to exchange and trade bitcoin, but was ultimately fraudulent. The fake exchange took on part of the name of the real Korean Exchange (KRX), and scammed people out of their money by posing as a respectable and legitimate cryptocurrency exchange.
BitKRX claimed to be a branch of the KRX, a creation of KOSDAQ, South Korean Futures Exchange, and South Korean Stock Exchange, according to Coin Telegraph.
BitKRX used this faux-affiliation to ensnare people to use their system. The scam was exposed in 2020.
3. Ponzi Scheme – MiningMax
“Ponzi bitcoin scam” has got to be the worst combination of words imaginable for financial gurus. And, the reality is just as bad.
Several organizations have scammed people out of millions with Ponzi schemes using bitcoins, including South Korean website MiningMax. The site, which was not registered with the U.S. Securities and Exchange Commission, promised to provide investors with daily ROI’s in exchange for an original investment and commission from getting others to invest (basically, a Ponzi scheme). Apparently, the site was asking people to invest $3,200 for daily ROI’s over two years, and a $200 referral commission for every personally recruited investor, reports claim.
MiningMax’s domain was privately registered in mid-2020, and had a binary compensation structure. The fraudulent crypto-currency scam was reported by affiliates, resulting in 14 arrests in Korea in December of 2020.
Korea has long been a leader in technological developments – bitcoin is no exception. However, after recent controversy, it seems as though this is changing.
“But a lot of governments are looking at this very carefully,” Yoo Byung-joon, business administration professor at Seoul National University and co-author of the 2020 research paper “Is Bitcoin a Viable E-Business?: Empirical Analysis of the Digital Currency’s Speculative Nature,” told South China Morning Post in January. “Some are even considering putting their currencies on the blockchain system. The biggest challenge facing bitcoin now is the potential for misuse, but that’s true of any new technology.”
4. Fake Bitcoin Scam – My Big Coin
A classic (but no less dubious) scam involving bitcoin and cryptocurrency is simply, well, fake currency. One such arbiter of this faux bitcoin was My Big Coin. Essentially, the site sold fake bitcoin. Plain and simple.
In early 2020, My Big Coin, a cryptocurrency scam that lured investors into sinking an alleged $6 million, was sued by the U.S. Commodity Futures Trading Commission, according to a CFTC case filed in late January.
The CFTC case further details that the suit was due to “commodity fraud and misappropriation related to the ongoing solicitation of customers for a virtual currency known as My Big Coin (MBC),” further charging the scam with “misappropriating over $6 million from customers by, among other things, transferring customer funds into personal bank accounts, and using those funds for personal expenses and the purchase of luxury goods.”
Among other things, the site fraudulently claimed that the coin was being actively traded on several platforms, and even mislead investors by claiming it was also partnered with MasterCard, according to the CFTC case.
Those sued included Randall Carter, Mark Gillespie and the My Big Coin Pay, Inc.
5. ICO Scam – Bitcoin Savings and Trust and Centra Tech
Still other scammers have used ICO’s – initial coin offerings – to dupe users out of their money.
Along with the rise in blockchain-backed companies, fake ICOs became popular as a way to back these new companies. However, given the unregulated nature of bitcoin itself, the door has been wide open for fraud.
Most ICO frauds have taken place through getting investors to invest in or through fake ICO websites using faulty wallets, or by posing as real cryptocurrency-based companies.
Notably, $32 million Centra Tech garnered celebrity support (most famously from DJ Khaled), but was exposed for ICO fraud back in April of 2020, according to Fortune. The company was sued for misleading investors and lying about products, among other fraudulent activities.
The famous DJ wrote his support in a caption on Instagram back in 2020.
“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!” Khaled wrote.
The U.S. Securities and Exchange Commission even issued a warning in 2020 about ICO scams and faux investment opportunities, brought on by a slew of celebrities who promoted certain ICOs (like Paris Hilton and Floyd Mayweather Jr. to name a few).
“Any celebrity or other individual who promotes a virtual token or coin that is a security must disclose the nature, scope, and amount of compensation received in exchange for the promotion,” the SEC wrote in an Investor Alert in 2020. “A failure to disclose this information is a violation of the anti-touting provisions of the federal securities laws.”
Another example is Bitcoin Savings and Trust, which was fined $40.7 million in 2020 by the SEC for creating fake investments and using a Ponzi scheme to scam investors. According to Coin Telegraph, Trenton Shavers, the organization’s leader, allegedly scammed investors into giving him 720,000 bitcoins promising a 7% weekly interest on investments – which he then used to pay back old investors and even fill his personal bank accounts.
6. Bitcoin Gold Scam – mybtgwallet.com
Nothing catches the eye of the naïve quite like the promise of gold – bitcoin gold, of course.
That is exactly what mybtgwallet.com did to unsuspecting bitcoin investors.
According to CNN, the bitcoin gold (BTG) wallet duped investors out of $3.2 million in 2020 by promising to allow them to claim their bitcoin gold. The website allegedly used links on a legitimate website (Bitcoin Gold) to get investors to share their private keys or seeds with the scam, as this old screenshot from the website shows.
Before the scam was done, the website managers (slash scammers) was able to get their hands on $107,000 worth of bitcoin gold, $72,000 of litecoin, $30,000 of ethereum, and $3 million of bitcoin, according to CNN.
Bitcoin Gold, the site’s wallet used in the scam, began investigating shortly after, but the site remains controversial. Still, firm released a warning to bitcoin investors.
“It’s worth reminding everyone that it will never be truly safe to enter your private key or mnemonic phrase for a pre-existing wallet into any online website,” Bitcoin Gold wrote. “When you want to sweep new coins from a pre-fork wallet address, best practice is the same as after other forks: Send your old coins to a new wallet first, before you expose the private keys of the original wallet. Following this basic rule of private key management greatly reduces your risk of theft.”
7. Pump and Dump Scam
While this type of scam is certainly not relegated to just bitcoin (thank you for the education, “The Wolf of Wall Street”), a pump-and-dump scam is especially dangerous in the internet space.
The basic idea is that investors hype up (or “pump up”) a certain bitcoin – that is usually an alternative coin that is very cheap but high risk – via investor’s websites, blogs, or even Reddit, according to The Daily Dot. Once the scammers pump up a certain bitcoin enough, skyrocketing its value, they cash out and “dump” their bitcoin onto the naïve investors who bought into the bitcoin thinking it was the next big thing.
Bittrex, a popular bitcoin exchange site, released a set of guidelines to avoid bitcoin pump-and-dump scams.
While “stackin’ penny stocks” may sound like an appealing way to earn an extra buck (thanks to its glamorization by Jordan Belfort), messing in bitcoin scams is nothing to smirk at.
How to Avoid Bitcoin Scams
With the inevitable rise of bitcoin in current and coming years, it is becoming increasingly important to understand and be on the lookout for bitcoin scams that could cost you thousands. As more people become interested in Bitcoin, more people are also likely to try and pull off a scam.
There is no one formula to avoiding being scammed, but reading up on the latest bitcoin red flags, keeping information private, and double checking sources before investing in anything are good standard procedures that may help save you from being duped. Cryptocurrency can be a confusing topic even for the experienced Bitcoin enthusiast, so the more you read up on the world of Bitcoin, the more prepared you can be. After all, knowledge is power.
Articles by Dave
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Bitcoin Scam Guide – Avoiding Theft and Fraud
By: Ofir Beigel | Last updated: 11/14/19
There are numerous ways to lose your Bitcoins – scams, fraud, and theft are getting more and more common these days. This post will describe how to keep your Bitcoins safe, plus give you some practical tools to use.
Bitcoin Scam Guide Summary
There are numerous types of Bitcoin scams out there. Here’s how to avoid them:
- Never expose your private key / seed phrase.
- Use the Bitcoin Scam Test before using any unknown service.
- Make sure you’re not logging into a phishing site (explained below).
- Have strong unique passwords to all related accounts.
- Enable 2FA on related accounts.
- Use a VPN or secure network to connect to your Bitcoin accounts.
That’s how to avoid scams in a nutshell. If you want a more detailed review about how to identify scams and avoid fraud or theft, keep on reading. Here’s what I’ll cover:
Don’t Like to Read? Watch Our Video Guide Instead
1. The Bitcoin Scam Test
Use this simple 12 question test to evaluate any unknown Bitcoin service or website. Some questions require a specific tool that are located on the right sidebar. If you don’t know the answer to a specific question you can choose to skip it (however the results will be less accurate).
Share the quiz to show your results !
2. Is Bitcoin Safe?
Bitcoin, the currency and the technology behind it, has proved to withstand numerous attacks throughout the years. The weakest link in Bitcoin’s security (as is the case with most other technologies) is usually the people who handle it.
Whenever you hear that Bitcoins were stolen, it wasn’t because there was a problem with Bitcoin’s technology, but because whoever was holding those Bitcoins wasn’t careful enough.
Saying Bitcoin isn’t safe because you hear a lot about stolen Bitcoins is like saying the dollar isn’t safe because you hear that there are a lot of robberies going on.
With great power comes great responsibility, and as long as you follow the steps in this post your Bitcoins will be safe and sound.
Before we get started, here is the most important rule you should remember:
You, and you alone, should know the private key to your Bitcoin wallet. The private key, or seed phrase, is like the combination to a safe. Whoever knows your wallet’s private key can take control of your Bitcoins.
No website or person should ever ask you for your private key – just as no one should ask you for the number combination of your safe. So keep that in mind as a red flag if you ever hear that request.
3. What Should I Do if I Got Scammed?
Here are some of the options at your disposal:
- Share your experience in the comments section of this post so others can learn from it.
- Report the website or service to the relevant authority.
- Report the website on review sites like TrustPilot, BitTrust and BadBitcoin.
- Take legal action against the site or service – this might not be worth your time or money (depending on how much money was taken from you).
4. Bitcoin Scams and Fraud Examples
In Scams and frauds, attackers exploit the weakness of the human factor to put their hands on your Bitcoin. Usually this is done by the fraudster claiming to be someone or something he’s not. Here are some common scams and fraud schemes:
Nigerian prince scams
Similar to emails that popped up when the Internet was just gaining mass adoption. The emails were sent by a person claiming to be a Nigerian prince that wants to share his wealth with you. This is a general term for all email scams where people ask you to send them Bitcoin.
The reason they ask for Bitcoin is because:
- Bitcoin is somewhat anonymous.
- Bitcoin transactions can’t be reversed.
How to avoid – Don’t ever send Bitcoins to someone you don’t know, and when you do send Bitcoins to someone you know, double check that you’re actually speaking to who you think you’re speaking to.
Private Key Scams
This type of scam involves people accessing your wallet’s private key or seed phrase (i.e. the password to your funds). There are several ways this scam can take form:
- Persuading the user to send over his private key / seed
- Persuading the user to give remote access to his computer and getting the private key through that access (example). This is usually done by pretending to be someone respected in the community / someone that can help you with an issue.
- Sending you a private key to use in your own wallet and then stealing the funds from that wallet (example).
How to avoid – You should never share your private key or seed phrase with ANYONE, and you alone should be the one generating it.
These scams usually include sending a fake email to the user from a known service (e.g. Blockchain.com) telling him he needs to log into his account for some strange reason by clicking on an attached link.
When the user clicks the link in the email he’s brought to a phishing site – an identical site to the original, but with a different URL. The sole purpose of this site is logging the user’s username and password. Once the user tries to log in, he basically transmits his sensitive info to the scammer.
How to avoid – Always be suspicious of emails asking you to log into a specific service. Double check the “from” email address and the URL in the browser you’re taken to. Also, it’s best to always access sites directly from the browser and not from links.
Also, make sure the site uses SSL connection – this means you should see a “lock” icon in the beginning of the address bar and that the URL immediately after begins with “https” and not “http”. Most phishing sites don’t have an SSL certificate, although there may be exceptions.
Finally, most services that you sign-up with know your name and use it in their emails. So if you are addressed as “sir” or “dear customer” see that as a warning.
Oh…and never open any email attachments from unknown senders.
Cloud Mining and Ponzi Scams
A Ponzi Scheme is a scam promising high-rates of return with little risk. The Ponzi Scheme pays out the older investors by taking money from new investors. At some point, the Ponzi Scheme operator usually disappears with the investors’ money.
Most Bitcoin Ponzi Schemes today appear in the form of cloud mining sites or coin doublers. These are sites that will promise you high-rates of return on your coins on a daily basis and will disappear with your money, after a while.
How to avoid – Just use the Bitcoin Scam Test on this page before investing in anything.
5. My Personal Scam Story
A little over 2 weeks ago I received the following email:
At first glance, this seems to be a normal email blast sent out by Coindesk looking for advertisers. As you can see from the recipient line it was sent to the admin address of 99Bitcoins ([email protected]).
The thing is, we don’t have an admin address, it was just captured in our inbox since all email directed to 99bitcoins.com are captured.
Here’s what was suspicious about the email:
- The sender’s name – Shakil Khan. I knew who he was, he was the founder of Coindesk. Why would the founder of a huge publication be sending out cold marketing emails? Don’t they have at least a VP marketing or someone else not so high up?
- The email was sent from [email protected] – I assume that Coindesk would be sending out emails from their own domain name and not using a general Gmail address.
However, the advertising spots available were actually pretty convincing. First, the email stated specific daily impressions count.
Second, the date at which the banner will be available matched what was advertised at Coindesk. If you were to visit Coindesk at the time the email was sent you would see there was an ad there for Coinsummit that was set to expire on the 6th of July.
Finally, the Facebook URL was also pretty convincing – why would someone be starting a Facebook page that wasn’t their own? I mean if this was a scam this may lower their success rate.
After some back and forth with the (still unknown) scammer I was convinced that this is a good deal and was about to send my Bitcoins until I got the final response:
The grammar mistakes finally aroused my suspicion and I decided to send an email to a verified contact I had in Coindesk. I got the following response:
It seems that this specific email isn’t the only way these scammers try to cheat people out of their money. Some emails even have an actual Coindesk domain “from” address but if you look at the “reply to” address you see it’s the same Gmail address.
The final thing I found out was that the Facebook page mentioned in the original email was not the actual Coindesk FB page. It was a fake page pointing to COLNDESK – but if you don’t write the letter “L” in caps it looks like a capital “I”.
My alertness saved me from losing money in this case. But I think I’ve learned a much more valuable lesson – and that’s how easy it just became for scammers to take your money.
You see, until Bitcoin was introduced, scammers had to overcome complicated barriers when they wanted someone to send them money. They needed to persuade people to wire them the money or send a check.
This would require them to supply an address or a bank account, which could later easily lead to their capture. More than that, these actions require more effort and had a much lower success rate.
But with Bitcoin, cash just became digital, and scam success rates are rising because of it.
I think what I personally take from this story is to make sure I can positively verify the person that I’m sending money to, before actually sending it.
Here’s another example that’s been circling around, this time from the alleged “BitcoinTalk” forum. As you can see below, the same techniques are used here – a Gmail address, stating exact banner sizes, etc.
6. Bitcoin Theft
Unlike fraudsters, thieves steal Bitcoin by circumventing security measures to gain access to their victims’ funds. Online wallets and exchanges are the weakest links in terms of Bitcoin theft. The easiest way to avoid theft from these sites is not to keep any Bitcoins on them.
However, sometimes it’s inevitable to keep funds in an exchange or an online wallet. For example, if you want to trade frequently or if you’re using a certain wallet for online games.
If that’s the case, it’s important to secure your online Bitcoin accounts with a strong enough password.
Generating strong passwords
Here are some general rules for creating a strong password:
- The more characters the password has the better. Aim for at least 8 characters.
- Try to create a mix of lower and upper case letters and non traditional characters like exclamation marks, hyphens and so on.
- Don’t reuse passwords from other accounts.
Of course, the best passwords are the ones that are just a random string of text, numbers, and symbols, but they are also extremely hard to remember. That’s why I strongly recommend you get some sort of password manager to help you generate and keep track of your passwords.
Another way of remembering strong passwords is using numbers instead of certain letters as shown here:
Th!5 i5 a 5tR0ng Pa5sw0rd
These rules should be exercised each time you open a Bitcoin related account, choose a PIN code for your wallet or choose a passphrase for encrypting a file.
For example, if possible, choose a PIN code for your mobile wallet with 8 digits instead of the standard 4.
2 Factor Authentication (2FA)
Another very useful security measure you should use whenever possible is to enable Two-factor authentication for your accounts.
Two-factor authentication, also known as 2FA, is a method of confirming a user’s identity through two separate components. In most cases, it would be something a user has and something a user knows.
A good example for 2fa from everyday life is withdrawing money from an atm; only the correct combination of a bank card (something you have) and a PIN (something you know) allows the transaction to be carried out.
In the case of online accounts, something you know will be the password to the site and the something you have will be a mobile phone that will receive a text message containing a PIN code when you try to log in.
This way, even if a hacker manages to uncover your password he still can’t log in until he physically puts his hand on your mobile device.
HOWEVER, if you use a normal text message, a hacker can still manage to intercept the message as it’s being sent to your phone. That’s why it’s important to use dedicated 2FA apps that are much more suited for this task. Some of the more popular 2FA apps today are Google Authenticator and Authy.
Using trusted Networks
One thing we tend to forget is what network we are using to access online Bitcoin services like exchanges and wallets. Make sure to access sensitive information only on trusted networks that are properly secured.
For example, use your password-protected home or mobile network only and never use a public wi-fi network to access a Bitcoin service. Of course, the password for your router should also follow the rules we just talked about. Public wi-fi networks are extremely vulnerable and hackers can eavesdrop on your session.
If you have to use a public network, make sure to connect through a Virtual Private Network, also known as a VPN. VPNs are programs that hide your online footprint and encrypt your data, making life extremely hard for hackers.
Another very important security measure we already mentioned is to make sure the site you’re connecting to uses a secure SSL connection – this means you should see https:// and not http:// showing up in the address bar.
7. Additional Safety Tips
Whenever you’re sending money to an address, remember that Bitcoin transactions are irreversible. Once the money is sent, there’s no “insurance” and you can’t get it back. For this reason, make sure to always double check that the address you’re sending the money to is correct.
Never type the address in manually since Bitcoin addresses have a lot of characters and you may make a mistake. Either copy and paste the address or use the QR code of the address to scan it. If you send money to the wrong address, there’s no way to retrieve it.
Make sure you trust the person you’re sending money to. If you don’t trust them, you can always use a third party escrow service that you both agree on. One very popular escrow service is Bitrated where you can choose known figures from the Bitcoin community as arbitrators in case of a dispute.
Finally, if you’re conducting small amount transactions, one confirmation may be enough to send over the goods to a counterparty. But if you’re dealing with large amounts, wait for at least six confirmations in order to be sure that the transaction is irreversible.
As you can see there are numerous types of Bitcoin scams, and I’ve only covered the main ones. The important thing to remember is this: Bitcoin transactions are irreversible.
So check as much as you need to make sure you’re sending money to someone you trust. Once the money is sent, there’s not much you can do about it.
Have you used the Bitcoin Scam Test? Have you been scammed or fell victim to a fraud? Let me know in the comment section below.
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