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Bitcoin Fraud: How And Where To Look For It

You’re not alone if you’re confused about cryptocurrencies like Bitcoin, which makes it even more important that before you start investing in cryptocurrencies you have a clear understanding of what bitcoin is and why it’s different to cash and other payments methods. You also need to have researched cryptocurrency scams and know how to detect compromised cryptocurrency accounts.

Just briefly for the purpose of this article, cryptocurrency typically only exists electronically. It’s a digital currency. There are services that allow you to cash in your cryptocurrency for a physical token, but generally, there’s no intermediary like a bank for Bitcoin; you exchange online using your computer or your phone.

Why does it exist? Good question! It’s used for quick payments, because it offers a degree of anonymity, and you avoid typical bank transaction fees. Some use it as an investment, assuming the value of their holdings will rise. Cryptocurrency is purchased via an online exchange platform, while others earn it through a complicated process referred to as ‘mining.’ Your cryptocurrency is stored in your online digital wallet, on an external hard drive, or on your computer.

So, what’s the problem? The problem is that if your digital wallet is compromised or stolen, you lose the password to your digital wallet, you send cryptocurrency to the wrong person, or your exchange platform goes out of business, you’ll find it very difficult to find someone to help recover your funds. This leads to the purpose of this article – Bitcoin fraud.

The value of Bitcoin goes up, and then it goes down, and investors have certainly been taken on a rollercoaster ride over the past few years. Bitcoin was introduced in 2009 and has always been surrounded by controversy. No one knows if this cryptocurrency will boom or bust; if it busts, a lot of people will be looking to short-sell their Bitcoin holdings. 

We do know, though, that the spectacular rise of Bitcoin has attracted the attention of a lot of people. Some of these people are not even fully informed of the philosophy or technology behind this cryptocurrency, but they’re acutely aware that there are savvy investors and early adopters of Bitcoin who very successfully turned a few thousand dollars into millions of dollars when the value of Bitcoin increased – like in 2017.

The trick for investors chasing a similar fortune is to be aware of hackers and opportunistic con artists who execute Bitcoin scams. Because cryptocurrency is private and not regulated by the government (which for many is a bonus), it leaves itself wide open for Bitcoin fraud.

Let’s take a look at some of the more common Bitcoin scams –

No. 1 Scam: Fake Bitcoin Exchanges

Back in 2017, one of the most sinister Bitcoin scams was exposed by the local Bitcoin community and the South Korean financial authorities. It was a fake exchange known as BitKRX and took people’s money by presenting as part of the country’s largest trading platform.

Our suggestion: To ensure you’re always up-to-date with news of fakes, only use popular and well-known forums and Bitcoin exchanges. 

No. 2 Scam: Ponzi Schemes

Do you remember the name Bernie Madoff? He was a well-known Ponzi schemer who worked with mainstream investments. A Pyramid Scheme involves taking money from new investors to pay previous investors, and this system can also be applied to Bitcoin scams. When a Ponzi Scheme is in operation, investors ultimately never receive any return on their investments.

No. 3 Scam: Fake Cryptocurrencies

My Big Coin presented as a new cryptocurrency because ‘it was too late to cash in on Bitcoin’ so investors needed to invest in another up-and-coming cryptocurrency. The fraudsters behind this fake cryptocurrency took $6 million from customers, then redirected these same funds into their own bank accounts.

No. 4 Scam: Old School Scam

Unfortunately, many people responded to fake messages from the IRS saying that back taxes were due and that the account should be settled immediately. However, the con-artists involved with this scam demanded that victims transfer Bitcoin to pay this ‘debt.’

Our suggestion: Always be suspicious of emails or phone calls that supposedly originate from a government agency. An authority would never contact you this way and they certainly wouldn’t ask for payment in Bitcoin.

No. 5 Scam: Malware

Malware is an age-old trick whereby hackers access the passwords they need to steal bank account or credit card numbers. Today, fraudsters use malware to carry out a very common Bitcoin scam. They’re using malware to access Bitcoin wallets connected to the internet. If you don’t have malware protection, they gain access to your funds and drain them.

Be aware that malware can be downloaded via your email, from social media, and from websites. If you don’t know the legitimacy of an email or website, contact the company concerned. If their contact information is not readily available, that’s a red flag.

No. 6 Scam: Pump-and-Dump Scams

These types of scams have been around forever. It involves a group of scam artists combining to buy a heap of penny stocks. The result is that the price of these stocks increases, and with this data comes the promise of easy money.

New technology has allowed Bitcoin to become a target for pump-and-dump scams, and many savvy investors have fallen prey to this scheme. These schemes are typically promoted with celebrity endorsements and fake news stories, and because digital technology is very adept at appearing real, sometimes it’s not easy to tell what’s real and what’s fake. It can lead to financial ruin for anyone who gets caught up in these schemes, which is why it’s vitally important that you know how to spot a scam. 

Our suggestion: Avoid single tip purchasing, and remember that when something sounds too good to be true, it probably is! Avoid people who say there’s no risk involved and stay clear of groups that are involved in pump-and-dump trades. The US Commodity Futures Trading Commission is so concerned about this type of scam that they’ve released a guide designed to help investors avoid potential cryptocurrency scams. 

Protect Yourself from Bitcoin Scams

Investing in Bitcoin is already a volatile investment, so you can’t afford to fall prey to a Bitcoin scam. Trust your instincts, and be on the lookout for potential Bitcoin fraudsters. If it sounds dodgy, it probably is!


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