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The cost of the Bitcoin goes up and then down again. The press is all over the place. Pundits and market watchers, all of them have their own opinions, are voicing them loudly on the air and the internet.

The meteoric rise of Bitcoin has attracted a lot of attention. People may not understand Bitcoin technology or philosophy. Still, they see stories about early adopters and smart investors who turned a few thousand bucks into millions when Bitcoin’s value went up. They also want to be one of them.

Photo by NeONBRAND

Unfortunately, that puts them in a position, along with veteran investors, to be victims of opportunistic scams and hackers who are scamming Bitcoin. One of the many advantages of cryptocurrency is that it is not regulated by the state and is very private. However, it also makes it ripe for scams.

Let’s have a look at the top seven Bitcoin scams that you should pay attention to.

Top 7 Bitcoin Scams

Malware Scams

Malicious software (Malware) has long been a hallmark of many online fraudsters. However, with cryptocurrency, it is an increased threat, given the nature of the currency itself.

Forbes issued a warning about cryptocurrency-targeting malware in the hope of saving customers from sending crypto coins via transactions.

“This kind of malware, called Cryptocurrency Clipboard Hijackers, works by monitoring the Windows clipboard for Cryptocurrency addresses. If it is detected, it replaces it with the address they control,” wrote Lawrence Abrahams, a computer forensics expert, and creator of the Bleeping Computer website who analyzed the case.

The malware, Cryptocurrency Clipboard Hijackers, who reportedly manages up to 2.3 million bitcoin addresses, changes the addresses used to transfer the crypto to those controlled by the malware, thus passing the coins to the scammers instead. 

According to the Asia Times, even macOS malware has been linked to scams from cryptographic investors using trusted sites such as the Slack and Discord chat rooms, which were invented by OSX.Dummy.

Photo by Aleksi Räisä

Fake Bitcoin Exchanges

One of the easiest ways to deceive investors is to present yourself as a branch of a respectable and legitimate organization. Well, that’s what Bitcoin crooks do.

The South Korean BitKRX fraud introduced itself as a place for exchanging and trading Bitcoin, but in the end, it was a fraud. The fake exchange took over part of the name of the real Korean Exchange (KRX) and tricked people out of their money by pretending to be a respectable and legal cryptocurrency exchange.

BitKRX has stated that it is a branch of KRX established by KOSDAQ, South Korea Futures Exchange, and South Korea Stock Exchange, according to the Coin Telegraph.

BitKRX used this fake link to lure people into a trap to use its system. The scam was uncovered in 2017.

Ponzi Scheme

Mining Max’s domain was privately registered during 2016 and had a binary compensation structure. This fraudulent cryptocurrency scam was reported by affiliates, resulting in 14 arrests in Korea in December of 2017.

“Ponzi Bitcoin Fraud” should be the worst combination of words a financial guru can imagine. And the reality is just as bad.

Several organizations have scammed millions of people with Ponzi schemes using Bitcoins, including the South Korean website called Mining Max. The website, which was not registered with the U.S. Securities and Exchange Commission, promised to provide investors with a daily return on investment in exchange for the original investment and commission from attracting other investors (mainly through the Ponzi scheme). 

The site asked people to invest $3,200 for a daily ROI over two years, and $200 of referral fees for each personally hired investor, the agency reports.

Korea has been a long-time leader in technological development – Bitcoin is no exception. However, after recent disputes, it seems that the situation is changing.

“However, many governments are looking at it very carefully,” Seoul National University Professor of Business Administration as well as the co-author of the 2015 research paper “Is Bitcoin a viable e-business?: An Empirical Analysis of the Speculative Nature of Digital Currency” told the South China Morning Post in January. 

“Some are even considering converting their currencies into a blockchain system. The biggest problem Bitcoin is now facing is the potential for abuse, but this applies to any new technology”.

Fake Bitcoin Scam 

A common, but no less dubious, a scam involving Bitcoin and cryptocurrency is just, well, a fake currency. One of such arbitrators of this fake bitcoin was “My Big Coin.” 

The site was selling a fake Bitcoin. Simple and clear. In the beginning half of 2018, My Big Coin, a cryptocurrency scam that lured investors to flood the alleged $6 million, was sued by the U.S. Commodity Futures Trading Commission under the CFTC case filed at the end of January.

The CFTC case details that the lawsuit involved “commodity fraud and misappropriation related to an ongoing customer search for a virtual currency known as “My Big Coin. (My Big Coin, MBC)” as well as the charge of “misappropriation of more than $6 million from customers by, among other things, transferring customer funds to personal bank accounts, as well as using these funds for the purchase of luxury goods and personal expenses.”

Among other things, the website fraudulently claimed that the coin was actively sold on several platforms and even misled investors by claiming that it was also a partner of MasterCard, according to the CFTC case.

The lawsuits filed included Randall Carter, Mark Gillespie, and My Big Coin.

ICO Scam 

Other scammers have used ICO (initial coin offering) to trick users out of their money.

As the number of blockchain companies grew, counterfeit ICOs became famous as a way to support these new companies. However, given the unregulated nature of Bitcoin, the door was wide open to fraud.

Most cases of ICO fraud took place by attracting investors to invest or through fake ICO websites, using defective wallets, or pretending to be real companies operating with cryptocurrency.

It is worthy to note that Centra Tech, worth $32 million, has been involved in the fraudulent trading of ICO wallets. It is also notable that Centra Tech, worth $32 million, received the support of celebrities (the most famous of them is DJ Khaled), but was exposed in the ICO fraud back in April 2018, according to Fortune. The company was prosecuted for misleading investors and product lines, as well as other fraudulent activities.

The famous DJ wrote his title support on Instagram back in 2017. He said, “I just got my titanium Center debit card. The Centra Card & Centra Wallet application is the ultimate winner in CTR-based cryptocurrency debit cards!”  

The USA Securities and Exchange Commission also issued a warning in 2017 about the ICO scam and counterfeit investment opportunities brought by many celebrities who promoted some ICOs, like Paris Hilton and Floyd Maver, Jr.

“Any celebrity or other person promoting a coin must disclose the scope, nature, and amount of compensation received in exchange for the promotion,” wrote the SEC in Investor Alert’s 2017 report. “Failure to disclose this information violates the anti-fraud provisions of federal securities laws.”

Another example is Bitcoin Savings and Trust, who was fined $40.7 million by the SEC in 2014 for creating counterfeit investments and using the Ponzi scheme to scam investors. 

According to CoinTelegraph, the leader of the organization Trenton Shavers allegedly fraudulently forced investors to give him 720 thousand Bitcoins. He then promised to pay a weekly payment of 7% per annum on investments, which he then returned to old investors and even funded their bank accounts.

Bitcoin Gold Scam

Nothing catches the eye of the naive as the promise of gold – Bitcoin gold. That’s exactly what mybtgwallet.com did to unsuspecting Bitcoin investors.

According to CNN, Bitcoin Gold (BTG) wallet tricked investors out of $3.2 million in 2017. They promised to allow them to claim their Bitcoin gold. The site allegedly used links to a legitimate site (Bitcoin Gold) to force investors to share their keys or passwords with scammers, as this old screenshot from the site shows.

Before the scam was set up, site managers (slash scammers) were able to get as much as $107,000 worth of Bitcoin Gold, $72,000 worth of litecoin, $30,000 worth of ethereum and $3 million worth of Bitcoin, according to CNN.

Bitcoin Gold, which was the wallet of the site used in the scam, began investigating shortly afterward. However, the site remains controversial. The firm has issued a warning to Bitcoin investors.

“It’s worth reminding everyone that it’s never really safe to enter your private key or mnemonic phrase for a pre-existing wallet on any online site,” wrote Bitcoin Gold. 

“When you want to move new coins from the pre-wallet address, best practice is the same as after the other spikes”: Send your old coins to the new wallet first, before exposing the personal keys to the original wallet. 

By following this basic rule of personal key management, the risk of theft is greatly reduced.

Pump And Dump Scam

While this kind of scam certainly doesn’t come down to Bitcoin, the pump and dump scam is especially dangerous in the internet space.

The main idea is that investors inflate (or “pump”) a certain cryptocurrency – it’s usually an alternative coin, which is very cheap but highly risky – through investor sites, blogs, or even Reddit. 

Once the scammers have pumped up a certain Bitcoin or cryptocurrency enough, soaring upwards, they cash in and “dump” their Bitcoin on naive investors who bought a Bitcoin thinking it’s the next big thing.

While “pounding a penny” may sound like an attractive way to earn an extra dollar (thanks to its glamouring by Jordan Belfort), Bitcoin scams are nothing to grin at.

How To Avoid Bitcoin Scams

With the inevitable growth of Bitcoins in the coming years, it is becoming increasingly important to understand and be aware of scams that can cost you thousands of dollars. 

As more and more people take an interest in Bitcoin, more and more people are likely to be trying to pull off a scam.

Photo by André François McKenzie

Generating A Strong Password 

Here are some common rules for creating a strong password: 

  • The more characters, the better the password. Aim for at least eight characters. 
  • Try to create a mixture of lowercase and uppercase letters and non-traditional characters such as exclamation marks, hyphens, and so on. 
  • Do not use passwords from other accounts. 

The best passwords are just a random string of text, numbers, and symbols. However, they are also challenging to remember. Therefore, I strongly recommend that you use a password manager to help you generate and track your passwords. 

Another way to remember strong passwords is to use numbers instead of certain letters, as shown here: 

Th!5 i5 a 5tR0ng Pa5sw0rd 

These rules should be followed each time you open an account associated with Bitcoin, select a PIN for your wallet, or select a password to encrypt the file. 

For example, if possible, select the PIN for your mobile wallet with eight digits instead of the standard 4. 

2 Factor Authentication (2FA) 

Another very useful security measure that you should use is to enable the two-factor authentication (2FA) option for your accounts. 

Two-factor authentication is a method used for verifying a user’s identity using two separate components. In most cases, this will be something that the user knows and something that the user has. 

An excellent example for 2FA from everyday life is withdrawing money from an ATM; only the right combination of a bank card (what you have) and a PIN (what you know) will allow the transaction to happen. 

With regards to online accounts, something you know will be the password to the site, and something you have should be a mobile phone that will receive a text message with a PIN code when you log in. Therefore, even if a hacker succeeds in finding your password, he still won’t be able to log in unless he has physical possession of your mobile device. 

However, if you are using a plain text message, the hacker will still be able to intercept the message while it is being sent to your phone. It is for this reason that it is essential to use special 2FA applications that are much more suitable for the task. Some of today’s most popular 2FA apps are Google Authenticator and Authy. 

Using Trusted Networks 

One thing we usually forget is what network we use to access Bitcoin online services, such as stock exchanges and wallets. Make sure that you only access confidential information on trusted networks that are properly secured. 

For example, use a password-protected home or mobile network only and never use a public Wi-Fi network to access Bitcoin services. The password for your router must also follow the rules we just talked about. Public Wi-Fi networks are incredibly vulnerable, and hackers may be eavesdropping on your session. 

If you need to use a public network, be sure to connect through a virtual private network, also known as a VPN. VPNs are programs that hide your network traces and encrypt data, making life extremely difficult for hackers. 

Another very important security measure that we have already mentioned is to make sure that the site that you are connecting to uses a secure SSL connection, which means that you should see https://, not http:// that appears in the address bar. 

Additional Safety Tips 

Whenever you send money to an address, remember that transactions with Bitcoin are irreversible. Once the money has been sent, there is no “insurance,” and you cannot return it. For this reason, always double-check that the address you are sending money to is correct. 

Never type in the address manually, as Bitcoin addresses are full of characters, and you may be mistaken. You should either copy and paste the address or use the address’s QR code to scan it. If you send money to the wrong address, there is no way to reverse the transaction. 

Make sure you trust the person you are sending the money to. If you do not trust them, you can always use the escrow service of a third party with which you both agree. 

One top-rated escrow service is the Bitcoin service, where you can choose prominent figures from the Bitcoin community to arbitrate in the event of a dispute. 

Finally, if you conduct small value transactions, one confirmation may be enough to send the goods to the counterparty. However, if you are dealing with large amounts, wait for at least six guarantees to ensure that the transaction is irreversible.

To Sum It All Up

There are many types of Bitcoin scams, and I’ve only managed to highlight the main ones. The critical thing to remember is this: Deals with Bitcoins are irreversible. Therefore, check as many times as you need to make sure that you are sending money to someone you trust. Once the money has been sent, there’s nothing you can do about it.

There is no formula to avoid fraud. However, reading the last red Bitcoin checkboxes, keeping your information confidential, and double-checking your sources before investing in anything are adequate standard procedures that can help save you from being cheated.

Cryptocurrency is a confusing topic for many, even for experienced Bitcoin enthusiasts. Therefore, the more you read about the Bitcoin world and the more crypto brokers reviews you research before you dive in, the more prepared you should be. After all, knowledge is power. 


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