The Complete Guide to Bitcoin Scams

    Suraya Zainudin May 23, 2016 - Posted by Suraya Zainudin on Guides

    As we speak, bitcoin market capitalization is hovering around $6.4 billion dollars. That’s a lot of money, and you better believe scammers know this and want a slice of that digital pie.

    Whether you are a bitcoin newbie, or someone who have been torched before, you should keep yourself up to date with the latest scam attempts. This is the complete guide to existing bitcoin scams you should be aware off. Credit to Coin Republic for compiling some of the scams in this infographic as well as to CryptoCoinNews for keeping an updated Bitcoin Scams page.

    1. Fake website scams

    In January 2016, one Reddit user posted his experience after being scammed out of some bitcoins after accidentally using a fake website that imitated the cryptocurrency exchange service ShapeShift.io. The website looks almost exactly like the actual website, except that it has a missing letter in the URL. ShapeShift was notified and posted a blog post about it to warn other users.

    Scams involving fake websites like this is not an isolated incident. There were also fake websites for BitStamp, Bitcoin Foundation, Blockchain.info and others.

    These websites make money by stealing login information from users, or mislead users into sending funds into their wallets. Some even go further by taking Google advertisements!

    Solution: Do not click from unverified sources, especially from emails to avoid phishing attempts. Always check for correct spelling and SSL certificate - i.e. URL begins with https.

    2. Cheating scams

    Found someone online who have bitcoin to sell, or accept payments for goods and services in bitcoin? You might be sending your money to scammers and may receive nothing in return. This is one of the oldest tricks in the book, yet it still happens on a surprisingly regular basis.

    Scammers try to win your trust in many ways. In order to dupe you, some might send fake IDs or even impersonate a respected member of the local community.

    There are many variants of cheating scams involving bitcoin, including:

    • Advertise with us’ scam, where scammers impersonate reputable bitcoin websites and email bitcoin users with advertising opportunities.

    • Bitcoin for sale scam, where scammers pretend to be both seller and a previous (satisfied) customer in order to mislead. To make the offer enticing, they usually offer bitcoin under market price.

    • Pre-order mining equipment scam, where scammers collect money for equipment that never came.

    Solution: Follow your instinct - if the deal is too good to be true, it probably is. Only use trusted companies or services, and make sure to always double check website URL and email address. When in doubt, contact customer support to confirm. When doing funds transfer locally, try to meet face-to-face or use reputable escrow services.

    3. Ponzi (and MLM) scams

    Ponzi scams are fairly easy to spot, no matter how professional the website looks. However, because scammers in elaborate Ponzi schemes know how to manipulate human greed and is great at giving sweet promises of easy money, it is easy for a person to be lured into it. Usually, bitcoin ponzi scams operate by:

    1) over-promising ROI to the point of ridiculous
    2) having an active recruitment scheme 

    There are many versions of ponzi scams involving bitcoin, but the most common - and most dangerous - are  interest on bitcoin deposits scams and bitcoin mining groups scams.

    Interest on bitcoin deposit scams operate by offering investors a fixed deposit-type arrangement. Investors are promised high returns on their deposits after a period of time. However, not only the promised returns will never come (or came in the beginning, but stops after a while), unlucky investors will also lose their bitcoin deposits. In 2015, 3000 investors suffered combined loss of HK$3 billion dollars in the MyCoin scandal. More recently in March 2016, 1000 investors lost NT$50 million after promised 250% returns on investment.

    Bitcoin mining group scams, on the other hand, operate by offering investors the chance to ‘mine’ bitcoins without dealing with the hardware and maintenance required. Also called bitcoin cloud mining, these companies scam investors by promising fast and easy return on investment.  While legitimate bitcoin mining groups do exist, there are very few left that can still turn a decent profit, if at all. They are best avoided altogether. Gavin Andresen even said that many bitcoin mining groups - even established ones with thousands of members - may be Ponzi scams after all because bitcoin mining is simply not sustainable in the long run.

    On the same note, there are a lot of MLMs involving bitcoin as well. While not strictly scams per se, they do depend on ‘referral marketing’ and should be approached with caution.

    Solution: Avoid anything that over promises. Legit investments will never ‘guarantee’ returns. Others’ testimonies are rarely reliable - some people don’t realise it until too late - so only invest if you are willing to lose the whole amount. Be skeptical of positive reviews of bitcoin companies online. Be extra wary of investment groups that appear cult-ish.

    4. Phishing scams

    One would assume that members of the bitcoin community are more tech-savvy than others and phishing scams would never work on us. However, phishing scams do and did happen - in December 2014, BitPay lost 1.8 million in bitcoin in a phishing attack. A quick check in Reddit reveals more recent phishing attacks - be especially cautious if you use any of the following services on a  regular basis (this list is not exhaustive): Bitstamp, LocalBitcoins, Coinbase, and blockchain.info.

    Related: How to Avoid Bitcoin Phishing Scams by CoinDesk.

    Solution: Don’t click from unverified sources, including from emails. Always check for correct spelling and SSL certificate (ie: https)

    5. App & Plugin Scams

    This is relatively new and pretty scary development. Scammers have stepped up their game - there are now bitcoin scams that operate as apps and plugins.

    In November 2015, the Bitcoin community was warned against a fake Localbitcoin app, available on Android (since taken down) that phished for bitcoins. (image credit to CoinDesk).

    LBC.png

    More recently, in March 2016, the Bitcoin community was urged to uninstall a Chrome add-on called ‘BitcoinWisdom Ads Remover’ which can steal bitcoins by replacing QR codes in popular exchanges with fake QR codes.

    Solution: It’s hard to predict what kind of scam apps or plugins (or something else?) to appear next. The fake app had plenty of (fake) 5-star reviews, so we know that we can’t even trust Android Play Store ratings. Exercise extreme caution - to be safe than sorry, email customer support to verify that the app/plugin is indeed, theirs.

    6. Bitcoin Authority Scams

    This is one of the hardest scams to see through because the scammers appeared to have high authority among Bitcoin community members. For example, the digital currency exchange platform Cryptsy did not tell its users that it was allegedly hacked out of $6 million worth of bitcoin in 2014. Instead, they simply did not allow users to withdraw bitcoins and ignored support tickets. Before that, the community was shocked by the Mt Gox incident. It was a respected bitcoin exchange, until it suddenly disappeared without a trace, along with approximately 744,000 bitcoins.  

    More recently, the fake organisers of London Bitcoin Forum apparently got away with thousands of pounds in ticket and sponsor fees. The event, which was scheduled for 23-24 March 2016 promised a lively 2-day event featuring talks from prominent Bitcoin industry leaders, networking opportunities, presentations and much more. Many Bitcoin news websites, companies, and members of the public shared the event and made plans to attend it, until it was revealed as an elaborate scam. By this time, the website and Facebook page were taken down without notice or news. The only silver lining: this particular incident brought to light the lack of proper guidelines for bitcoin news reporting by major bitcoin news websites.

    Solution (kind of): We would say ‘only use the services you trust’, but this advice is meaningless here. All of the above were trusted entities (at that point). However, you can reduce the risks. Divide your bitcoin storage across several wallets, or cold storage it. Practice a healthy level of skepticism over any news article and review you read. If the website has a history of sweeping stories under the carpet, proceed future news (especially involving money) with caution.

    Conclusion

    Bitcoin scams are not doing the Bitcoin image any favors. Is this the natural evolution of a decentralised currency such as bitcoin? So far, the lack of regulation for digital currencies as well as Bitcoin community’s preference to self-regulate is certainly making it easier for scammers to target bitcoin newcomers. It is unlikely that bitcoin scams will stop appearing, so our only hope is to keep ourselves updated and get digitally protected.

    Do you have any other scams that we missed? Write to us at the comments section below.


    Suraya Zainudin
    About Suraya Zainudin — Suraya is a freelance writer specialising in personal finance, investing, nonprofits, women's empowerment, and FinTech. An aspiring digital nomad, she blogs at ringgitohringgit.com. Follow the author on Twitter @surayaror

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