4 Frequent Bitcoin Scams And How To Avoid Them
Bitcoin is difficult to understand for newcomers, and it is unregulated, making it an excellent target for scammers.
However, with a little know-how and some good old-fashioned common sense, you can defend yourself from Bitcoin scams in a variety of ways.
Continue reading to learn about the most prevalent bitcoin scams, as well as how to prevent them.
The first scam on the list is one you're probably well aware of, as it's been regularly utilized to target Bitcoin users.
1. Ponzi or Pyramid Schemes:
A Ponzi scheme is a simple yet frighteningly efficient con that entices new investors by promising them astronomically huge profits. It works like this: a promoter persuades individuals to invest in their scheme. These early investors receive what they think are profits, but which are actually dividends from money invested by newer investors. Now that they have proof that the program is legitimate, those who have received payouts invest more money in the scheme and encourage others to do the same.
The scheme eventually falls apart when the promoter disappears with the money or it becomes too difficult to attract fresh investors. These types of pyramid scams aren't new, and they're usually easy to recognize, but that hasn't stopped a few high-profile crypto buyers from being duped.
How to stay away from Ponzi and pyramid schemes:
- Keep an eye out for cryptocurrency initiatives that push you to bring on additional investors in order to increase your profits.
- Never put your faith in a program that makes promises that seem too good to be true.
2. Scams related to bitcoin mining:
Cloud mining allows you to mine bitcoin without having to invest in the expensive hardware required. There are a number of genuine cloud mining providers that allow customers to rent server space and mine for coins at a pre-determined rate.
There are, however, a lot of cloud mining frauds out there. Some offer stratospheric (and unrealistic) returns while failing to reveal a slew of hidden costs, while others are merely fronts for Ponzi schemes designed to defraud you of your funds.
How to Stay Away From Bitcoin Mining Scams:
- Before signing up for any cloud mining service, do your homework. Is it secured with https? Is there a public mining address for it? What is the company's history? Are there any other users' reviews that you can trust? Is the website's domain name registered? Is it possible for the corporation to offer evidence of equipment?
- Companies that "promise" profit should be avoided at all costs.
3. Pumps and dumps: Cryptocurrencies are frequently dismissed as a speculator's dream come true, ripe for a little market manipulation, resulting in the rise of "pump and dump" schemes. This is when a large number of purchasers target a small-market-cap cryptocurrency, buy it in bulk at a specific time to push up its price (attracting a slew of additional buyers spurred by FOMO — fear of missing out), and then sell to profit from the significant price increase.
This is against the law in traditional stock markets, but it happens all the time in the mostly unregulated realm of cryptocurrencies. In fact, there are multiple online organizations and forums dedicated to this exact behavior, so it's critical that you keep vigilant and understand how to avoid these con artists.
How to prevent being a victim of a pump and dump scheme:
- Be cautious of low-market-cap cryptos with limited trading activity that suddenly suffer a rapid price increase.
- Be on the lookout for "false news" on social media that promotes specific coins.
- Before purchasing any cryptocurrency, thoroughly investigate its credentials.
4. Phishing Site: The first scam on the list is one you're probably already aware of, as it's been widely used to target customers of major banks.
This form of scam is known as "phishing," and it occurs when you get an unsolicited email that appears to be from your bank — or, in this case, your cryptocurrency exchange or wallet provider. This email provides a link to a website that appears to be almost comparable to the exchange or wallet you normally use, but is actually a fraud website. Scammers will have everything they need to log in to your genuine account and steal your funds once you enter your account details on this unauthorised page.
How to Protect Yourself from Phishing Scams:
- Do not click on questionable links sent to you via email.
- Always double-check URLs to ensure you're on a legitimate site.
- Never reveal your private key to anyone.