Bitcoin Scams to Avoid

Date Published
December 13, 2020
Written by
Deniz Saat
Reviewed by



Like every industry, especially those on the cutting edge of innovation, prosperity occurs because consumer needs are being met with new products and services. During periods of transition, many advancements undergo a series of tests in order to prove their staying power. For Bitcoin specifically, the project has proven itself countless times where it is able to undergo tremendous stress. Along with the consistent rise in hashrate to keep Bitcoin decentralized and less prone to hacks, holders continue to benefit from a more secure network as time goes on. 

However, most people will not perform their own due diligence and will likely come to the conclusion that Bitcoin is a scam. It is easier to read misleading headlines than to put in the time and effort to learn how Bitcoin may be used. Like every industry, scams and charades run rampant and Bitcoin easily falls under this category because it is so misunderstood by the majority of the world. To be clear, every case of someone losing their Bitcoin is due to user error and not because the network is easily exploited. We hope to inform our readers of the possible ways that nefarious entities are able to separate individuals from their hard earned Bitcoin.


Categories of Scams


1. Imposter Platforms

Fake Exchanges and fake apps are an issue with other services that are not related to Bitcoin. To recognize whether or not a platform is fake or impersonating other services, it is best to make sure that plenty of research is conducted before signing up. Be cautious when signing up with any exchange because they will not only have access to the funds you transfer but also sensitive data that may put your identity at risk of being stolen. When deciding on which exchanges or apps to sign up with, always start with looking up the available platforms in your territory from the Bitcoin.org website. Bitcoin.org is an excellent place to start for any Bitcoin related question because it is managed by contributors around the world and is periodically reviewed to make sure it has the most up to date information.


Phishing emails and phishing websites are fairly similar in the way that they imitate websites and services that a user may already be signed up with. An example of this would be if a fake exchange poses as a verified exchange via email. This email could perform a number of ways to gain information from you or will usually redirect you to the fake version of the website. By doing this, your username and password may be collected to then be used on the legitimate platform. They may even request you to type in the seed phrase or private key of one of your Bitcoin wallets, or have you download malicious malware onto your device. Never type in your seed phrase or private key onto a website, email, or even a computer. It is also important to never take a photo of your seed phrase in the event that your computer is hacked or the photos are released publicly.


2. Social

Money transfer fraud will usually involve an email exchange between the con artist and their target. The scammer may need “help” transferring funds from one account to another. If indulged, you are then promised to be compensated for your efforts. It is best to ignore emails or solicitations like these on all platforms. 


Social Media and impersonations require a knack for social engineering and a keen eye for making an online profile appear as similar as possible to the verified account they are imitating. A really skilled hacker would be able to take over a social media account with a large following and con people into believing that they will receive a certain amount of Bitcoin back if sent to a listed address. They may even require Bitcoin for a product or service that will be delivered at a later date. Social media gives ample opportunity for people around the world to meet one another. Unfortunately, there is a small percentage who seek more than just being “friends”. They may take advantage of a person’s emotional side by claiming to need help and may divulge into a “heartfelt” summary of their current struggles. As well intentioned as most people are, it is best to ignore these types of requests. 


3. Compromised Device

If you find yourself in the unfortunate position of installing malware onto your device, it may be best to not access any of your hardware wallets or exchanges from the infected device(s). Malware may disrupt or even change the address you wish to transfer your funds to. Once the Bitcoin is sent, it is impossible to reverse a transaction on the blockchain. Ransomware is a subset of malware and if the attacker knows you need your computer or phone to access your funds, they may infect your computer with ransomware to lock the device. Once your device is locked, they may require you to send Bitcoin in order to unlock the device.


4. Targeted

They may even go as far as to blackmail you in order to scare you into sending Bitcoin to them. An attacker may claim to have information, photos, or recordings of you doing inappropriate things that could jeopardize your livelihood. These claims will most likely never be proven. Unless the attacker is skilled in collecting data from you remotely, these false claims are spammed to as many people as possible in order to take advantage of someone with a guilty conscience. 


Blackmailing could also lead to a situation where meeting in person is a possibility. However, you may find yourself meeting with someone in person to exchange Bitcoin. This is not advisable unless you are already acquaintances or introduced by a trusted third-party. Never meet anyone in person for a Bitcoin exchange because there are many peer to peer platforms available that do not require a face-to-face meetup. Overall, it is an unnecessary risk that could expose your identity to bad actors or possibly turn into a dangerous situation. 


5. Unverified Profit-Making

Ponzi schemes are definitely enticing and hard to ignore when you see others “making out like bandits” on the returns they are getting monthly or annually, but it is important to remember that nothing in life comes easily without putting years of work and energy into something. Even after ample time of commitment, one’s efforts may still not pay off. If you are introduced to something that seems too good to be true, chances are it actually is too good to be true. The set up for a modern Ponzi scheme is a slick website with a lot of buzzwords while the main focus is the rate of “promised” returns. The site may claim various ways this is possible like “yield farming”, “algorithmic trades”, or “arbitrage”. Some of those tactics are fairly legitimate ways to make a profit but they usually won’t be available for the public.

Pyramid schemes are similar to ponzi schemes where the early investors are “paid” by the new investors. The sooner you enter a pyramid scheme the better chance you have of actually making money but it is definitely ill-advised to even consider joining one. This operation requires participants to recruit others in order to make money. Not only are you risking your hard earned capital, you risk losing the relationships you bring into the scheme. People will usually always remember the money they lose versus the money they make. The financial and psychological toll is not worth the effort to make “easy” gains.

Scam coins may fall under the umbrella of being a Ponzi scheme, a pyramid scheme, or even both at the same time. Make sure to do thorough research when considering any project. The quickest and best way to determine whether or not a project is worth investing in is if it has proven its usefulness.

Pump and dumps are similar to scam coins but the project may not actually be the scam and be a very useful and legitimate utility. But because the market capitalization and volume of the project’s coin is so low, it can be easily manipulated. Large “whales” who are pumping and dumping the price may also have no connection with the creators. Pump and dumps will usually occur if there is heavy promotion for a certain coin or even Bitcoin, where traders will artificially drive the price up to then “dump” on all of the retail investors that bought the higher prices.


6. Advertised

Free Giveaways may be worth looking into but it is never as easy as it sounds. When people say “nothing in life is free”, this is not just a cliche but very sound advice. In the majority of cases, you cannot receive value if you do not give value. The trick is to realize what you value and whether or not the amount of time and effort is worth the trade. Free giveaway advertisements run rampant throughout social media. This usually happens because there are not enough employees to view each video or advertisement on their platform to determine whether or not a free giveaway is legitimate or not. The usual scam includes the user sending an amount of Bitcoin to an address in order to receive a promised amount back. It is unfortunate that people fall for these giveaways but it is important to always stay vigilant and ask why someone would give away Bitcoin or other cryptocurrencies for free. Always consider what you are gaining (and the chances of gaining) from someone versus what you are giving up. 

Prize Giveaways are in a similar vein with free giveaways. The major difference is that prize giveaways will usually ask for more personal information than a free giveaway would. Participating in a free giveaway runs the risk of a user losing their Bitcoin but not their identity. A prize giveaway may require both your identity and a certain amount of Bitcoin to be sent to an address. If the website is not verified or has not been around long enough to have reviews, you are better off not risking your money, time, or identity to make a quick buck.

Bitcoin has proven itself from being a viable project to becoming an industry of its own. Many businesses are either adopting Bitcoin as a medium of exchange or store of value for their day-to-day operations. There are also a number of businesses and individuals building their products and services on top of the Bitcoin network to reach an international audience. There will always be outside pressures from traditional markets to dissuade audiences from embracing Bitcoin as a way to opt out of shortsighted profiteering. Scams are rampant within every industry and are not covered equally by media outlets. Like any industry, Bitcoin will be slated as too “risky” or “dangerous” until it is widely adopted. Bitcoin’s network continues to be improved while it is becoming harder for people to take advantage of newcomers. It is not Bitcoin people should be worried about but the charlatans who wish to exploit others through the scams listed above. “Do not trust but verify” stands as a reminder that Bitcoin will always be transparent while humans are much less incentivized to be.


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WRITTEN BY
Deniz Saat
Deniz Saat is an IT services specialist and technical writer.
REVIEWED BY

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