Beware of These Top Bitcoin Scams

Know Where to Look for Bitcoin Fraud

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The value of Bitcoin has gone up, and then it has come back down. Over the years, it has truly taken investors, and anyone interested in the cryptocurrency, on a rollercoaster ride. Only time will tell whether Bitcoin, which has been controversial since its introduction in 2009, will continue booming or if the bubble will burst and prompt more people to short-sell Bitcoin.

One thing is for sure though: Bitcoin’s meteoric rise has attracted a lot of attention. People may not understand the technology or philosophy behind Bitcoin, but they do see stories of early adopters and savvy investors who turned a few thousand bucks into millions when Bitcoin’s value increased as it did in 2017.

Unfortunately, anyone chasing that fortune can also just as easily fall victim to opportunistic con artists and hackers who perpetrate Bitcoin scams. One of the benefits of cryptocurrency is that it’s unregulated by the government and very private. But that also makes it ripe for Bitcoin fraud.

If you're interested in Bitcoin, be aware of these potential scams.

Bitcoin Scam 1: Fake Bitcoin Exchanges

In 2017, South Korean financial authorities and the local Bitcoin community exposed one of the most insidious Bitcoin scams: a fake exchange called BitKRX. It presented itself as part of the largest trading platform in the country and took people’s money.

To avoid this type of Bitcoin fraud, stick with popular, well-known Bitcoin exchanges and forums so you get news of fakes quickly.

Bitcoin Scam 2: Ponzi Schemes

Bernie Madoff may be one of the most well-known Ponzi schemers. He did it with mainstream investments. But the principle of a pyramid scheme, in which you take money from new investors to pay previous investors, can be applied to Bitcoin scams. In 2019, three men were arrested in a $722 million cryptocurrency fraud scheme. The men operated BitClub Network for years. The scheme solicited money from investors in exchange for shares of cryptocurrency mining pools. It also supposedly rewarded investors for recruiting new investors. As you can imagine, the investors never got any returns on their investments in the end.

Bitcoin Scam 3: Fake Cryptocurrencies

A common scam is to present a new cryptocurrency as an alternative to Bitcoin. The idea is that it’s too late to cash in on Bitcoin and that you need to invest in one of these up-and-coming cryptocurrencies. My Big Coin was shut down for this reason. The fraudsters behind My Big Coin took $6 million from customers to invest in the fake cryptocurrency and then redirected the funds into their personal bank accounts.

Bitcoin Scam 4: Old School Scams

If somebody emailed or called and said they were from the IRS and that you owed back taxes that had to be paid immediately, would you send them money? Unfortunately, many people do. Instead of having the victim wire money via Western Union or transfer funds to a bank account, con artists are contacting victims and demanding that victims transfer bitcoins. The best way to avoid this scam is to be skeptical of phone calls or emails that say they're from a government agency. Legitimate authorities wouldn’t contact you that way—and they won’t ask for bitcoins.

Bitcoin Scam 5: Malware

Malware has long been a way for hackers to get passwords needed to access computer networks or steal credit card and bank account numbers. Now they’re using it to conduct another one of the most common Bitcoin scams. If your Bitcoin wallet is connected to the internet, they can use malware to get access and drain your funds if you're not protecting yourself from malware.

You can download malware by clicking links in your email. You can also download it from websites and social media. There might be a post, for example, where someone claims a certain program allows you to mine bitcoins for free. Download it, and you could get malware.

If you're not sure of a website or email's legitimacy, contact the company involved directly. If you can't find the company's contact information easily on social media or on its website, that's a red flag.

Bitcoin Scam 6: Pump-and-Dump Scams

Pump-and-dumps have been around as long as the stock market has. A group of scam artists will get together and buy up a bunch of penny stocks. This drives the price of those stocks higher, and on the back of these rising prices, they get outsiders to invest in the stock—using big promises of easy money.

Unfortunately, new technology has made Bitcoin a target for pump-and-dump scams, something that investors can fall for even if they would never fall for a traditional scheme like this. It’s a matter of an old scam being perpetrated in a new and unusual way that people aren’t prepared for.

Often these schemes are promoted with the use of fake news stories and fake celebrity endorsements. And because digital technology is so good at seeming real, it’s not always easy to tell the real stuff from the fake stuff. If a person ends up getting caught up in this, it can lead to financial ruin—unless you know how to spot a scam and invest somewhere else instead.

You can protect yourself by avoiding single tip purchasing and knowing when something sounds too good to be true. You should also avoid joining groups that are doing pump-and-dump trades and people who tell you there’s no risk.

This particular scam has become such a big concern that the U.S. Commodity Futures Trading Commission has issued a guide that is designed to help investors be aware of the potential risks of cryptocurrency like Bitcoin.

Don’t Fall Victim to Bitcoin Scams

Bitcoin is a volatile enough investment as it is. Don’t increase your chances of losing money by falling prey to these Bitcoin scams. Stay alert for potential Bitcoin fraudsters and trust your instincts. If something seems too good to be true, it probably is.

Article Sources

  1. U.S. Department of Justice. "Three Men Arrested in $722 Million Cryptocurrency Fraud Scheme." Accessed Sept. 30, 2020.

  2. U.S. Department of Justice. "New York Man Charged With Cryptocurrency Scheme." Accessed Sept. 30, 2020.