Is Bitcoin A Scam: The 6 Most Common Bitcoin Scams
Bitcoin is a completely reliable way to spend and invest your money. But there are bitcoin scams. If you want to know how to avoid a scam, know these 6 scams.
A bitcoin scam can destroy lives and lose people money.
Unfortunately, the explosion of bitcoin as a moneymaking investment means that more and more scams are being created. To a beginner, cryptocurrency, in general, can be confusing.
There’s also not many regulations or laws that have caught up to this new and unique form of currency. This makes bitcoin an attractive option for a dishonest scammer.
You absolutely can still invest in and make money on bitcoin. However, make sure you’re armed with the knowledge to understand how to avoid a scam.
If you’ve ever wondered what bitcoin scams are out there and how you can avoid them, keep reading. This article explains the six most common bitcoin scams you’ll come across and how to fight them.
1. Ponzi Schemes
A ponzi scheme is at the top of the bitcoin scams list. The way it works is actually very easy, which makes it all the more scary.
The scam starts by recruiting investors promising extremely high returns on their investment. These “first on board” investors do receive a return. However, that return comes from the investments made by other, newer investors.
To the initial investors, everything looks legitimate, so they pump even more investments into the scheme. They also get even more investors to come in.
Eventually, the creator(s) of the scam disappear with the investments. Potential investors realize what’s happening, and the jig is up.
You can protect yourself from a bitcoin ponzi or pyramid scheme. Be very cautious of any scheme that seems too good to be true. Also be careful of any with an emphasis on you recruiting new investors.
2. Fake Bitcoin
One of the biggest incidents of bitcoin fraud ever perpetrated was the My Big Coin scam. Want to know what it was? Basically, the website sold fake bitcoin.
A whopping $6 million dollars was invested by buyers in this fraudulent cryptocurrency. Among other things, the fraud included the company misrepresenting itself as having partnerships with companies like Mastercard.
The Commodity Futures Trading Commission sued those associated with the company, as well as the company itself. They accused them of taking the money and transferring it to their personal accounts and buying luxury goods.
3. Fake Wallets And Exchanges
Bitcoin, like any other currency, needs a place to store and exchange it. That’s why one of the growing bitcoin scams is both fake wallets and fake exchanges.
An exchange may entice people by offering plenty of bonuses and incentives. Once you’ve put a large amount in, they make it hard to withdraw. Or just disappear with your investment, period.
Scammers have created fake wallet apps as well. Once downloaded, they use the app to steal sensitive account information. This can include things like your passwords.
Prevent yourself from being scammed by taking the following steps.
Some fake wallets have made it onto app stores, so do some research on the wallet before hitting that download button. Check that a site associated with an exchange or wallet uses HTTPS.
If you’re downloading a well-known, larger wallet check to make sure you’re using the official site and not a cleverly disguised dupe. Use a service that scans an app for suspicious code before you download as well.
In the same vein as these fraudulent apps is malware in general. We’ve all been told multiple times to protect ourselves from malware online. With bitcoin, the malware threat becomes even riskier.
It especially affects beginner investors.
That’s because many people don’t actually understand completely how cryptocurrency works. So it’s easy to trust that a program that says it will do something will actually do it.
The aim with malware in this space is to access and drain your account. It also replaces your cryptocurrency address with that of the scammers.
Want to protect yourself? Make sure your antivirus protection software is always up to date. Don’t download any program unless you’ve researched it thoroughly and checked it with multiple sources.
5. Cloud Mining Scams
Cloud mining, or mining bitcoin without hardware, seems like an easy way to make money. There are some actual real services where you can rent server space for a fee.
However, the cloud mining space is filled with scams and plenty of fake services too.
The hallmarks of this, like most other scams, is exorbitant promises. They promise a lot and end up charging fees on the backend. The fees are not disclosed. Other cloud mining services are fronts for pyramid schemes.
Again, to avoid getting duped you should do some research on the cloud mining company. Make sure it’s been in business and has real reviews. It should also be able to give evidence that it has equipment for the mining.
HTTPS is also a good way to see if it’s legitimate, as well as if it has a public mining address.
6. The Pump And Dump
Another thing to be cautious of is the pump and dump scam.
This isn’t unique to bitcoin. In fact, it’s been around ever since the stock market was a thing. It’s a way of manipulating the market.
It starts with a mass buying of a coin by a group of buyers. The price consequently goes up, and its seeming success drives more buyers to purchase.
Then, there’s the dump. All of the first group of buyers sell at this point. That way, they get to take advantage of the high price that’s been artificially created.
Before investing in a coin, make sure that stories hyping it aren’t from fake news sources. Again, research and then research some more before parting with your money for any coin investment.
How To Avoid A Scam In The Bitcoin Space
Now that you know how to avoid a scam, it’s time to invest. You’re probably wondering where to start. What amount to invest, how to and when to cash out, all of these are common questions.
Get started by reading my guide on how to invest in bitcoin and other cryptocurrencies.