Bitcoin continues to soar to the moon despite having a tainted reputation. While still highly volatile, many investors have made exceptional earnings through Bitcoin thanks to its previous holiday rallies. However, with zero regulation and a great number of deceitful information online, it’s easy for first-time cryptocurrency investors to fall prey to a bitcoin scam. Fraudsters are always looking to drain hot and cold wallets, and they haven’t slowed down one bit.

Truthfully, bitcoin and other cryptocurrencies have always been a number-one priority hacker target. The very first Bitcoin scam happened in June 2011, with a user lost approximately $500,000 to hackers due to a suspected virus or malware backdoor. Hackers remote-controlled his machine to transfer his bitcoins to the hacker’s accounts. According to Wall Street Journal, about $4billion had been lost to cryptocurrency hackers in 2019, and it hasn’t stopped in 2020.

The best way to protect yourself is to have the right information. If you can detect cues whether something seems too good to be true, fishy, or suspicious that it makes you think more than five times about the decision you’re about to make, you can keep yourself safe. Here are ten common Bitcoin scams every wise modern investor should know and learn to avoid.

1. Phishing

It’s always been a classic to receive an email from a service provider asking you to log into their designated URL to reset your old password. If you check your web address, you’ll find that it’s different from the official address, and you’ve just avoided phishing.

Crypto phishing is no different from the traditional email version. Truthfully, the hacker still sends you an email from your trading platform of choice. It’ll claim that someone had tried to access your account and failed, and that they highly advise you to change your email and password by using the URL or QR code included in the email.

The best way to spot crypto phishing is by doing the following due diligence:

  • Check their email address parent URL for any suspicious inconsistencies with the official ones
  • Ask your platform about their legitimate URL and password reset redirection URLs
  • Don’t answer unsolicited surveys, especially from suspicious web addresses that look bot-generated
  • Automatically flag and delete emails that look like scams.

2. Fake Bitcoin Exchanges and Wallets

A Bitcoin scam is a smoke-and-mirrors engagement. Hackers and criminals attempt to disguise themselves as authoritative and professional in their demeanor. They take their disguises to the next level by posing as high-end Bitcoin exchanges complete with all the bells and whistles, including hot and cold wallets.

It’s easy for victims to fall for these fake exchanges. Scammers imitate official exchange website templates, platform functionality, and other features, including an email account verification to make everything look and sound official. Once you’ve invested a significant amount of cash to buy Bitcoin, you’ll find the website to have disappeared.

Truthfully, it’s tricky to detect fake bitcoin exchanges and wallets because of the technology’s open-source nature, allowing anyone to recreate actual technology that works. You can avoid fake exchanges by joining crypto communities and forums. Check out reviews and other statements pertaining to certain platforms, especially if many do not recognize your prospective bitcoin exchange.

3. Ponzi or Pyramid Schemes

Ponzi schemes have been around since confidence scammers, especially during the time Charles Ponzi pioneered the scam. Scammers who train themselves to possess exceptional personalities can quickly lure unsuspecting individuals to trust them.

Crypto Ponzi scams are no different. They’ll ask new investors to give them just one Bitcoin, and they’ll promise them exponential returns as high as double or triple in the consecutive transactions for their initial investment. However, the scammers will pay its initial investors for at least 3-4 times to build their confidence using the money from “new” investors.

Over time, the scammers will disappear with all contact and communication lines cut off. Here are a few signs you’re dealing with Ponzi bitcoin scammers:

  • Too good to be true returns that double or triple your investment
  • Highlights the technical aspects of returns and profit-generation too complex or cutting-edge without an attempt to explain it in-depth
  • Lack of transparency on data and methods
  • Unregulated activities (which is prolific with Bitcoin and other cryptocurrencies as it is its hardline objective)
  • Hypes up rather than uses reason and data in advertisements.

4. Fake Cryptocurrencies

In advertising and marketing campaigns, the fear of missing out or FOMO is a powerful tool because it sets a hard deadline, encouraging the audience to take action before it’s too late. Scammers use FOMO as a powerful means to motivate people about their fake cryptocurrency’s potential to become the “next biggest thing,” pointing to Bitcoin’s success as evidence for their accomplishments.

Truthfully, any currency, including crypto, has value if the majority of a nation’s population agrees to give it value as a legal tender. Bitcoin rose to fame because it was the first virtual currency available and widely circulated. Without solid foundations, cryptocurrencies will fail.

While there are no fake cryptocurrencies, it’s wise to look into the currency’s adoption. If only a relative handful of people are using your prospective cryptocurrency, it’s best to bail out before it’s too late. Avoid cryptocurrency advertisements stating that it’s the “next Bitcoin” without explaining its underlying technologies or store of values. Additionally, do your due diligence in researching its background.

5. Fake ICOs

In 2018, hundreds of thousands of initial coin offerings (ICOs) from relatively unknown brands started advertising widely on social media. The aggressive ICO advertising campaigns scammed millions of Facebook and other social network users, leading the former to ban all ICO campaigns in the same year.

Unfortunately, because of the decentralized nature Bitcoin and other cryptocurrencies have, it’s challenging to find which ICOs are legitimate, and which aren’t. Always read their white paper and remain skeptical. Then, investigate their user base, population, and brand network, if any. Doing these ensures that the ICOs technology has potential and other people and organizations see it.

6. Revived Classic Scams

Government or IRS agent scams are always popular among fraudsters. You must always remember that the government and the IRS will not ask you to send Bitcoins or other cryptocurrencies as payment for any missing tax returns or anything you owe. No government in the world has officially declared Bitcoin as an alternative legal tender to their national currencies.

Additionally, never send out money anonymously either cryptocurrency or other accepted currencies.

7. Cloud Mining Scams

A scammer’s bread and butter are convincing customers about their quick-and-easy way to make money without lifting a finger. Mining requires an immense equipment arsenal to compete against the processing power hundreds of thousands of other mining rigs possess worldwide. A scammer will ask you to pay a fixed amount monthly to help them build their mining rigs or use their already-built rigs and pay for the consumed power.

The Bitcoin or cryptocurrency amount you’ll receive is often proportional to the amount you pay monthly. However, you’re highly likely never to receive anything at all because Bitcoin mining’s energy expenditure is gigantic. In 2019, the Switzerland Government cracked down on mining firms because of their immense usage of energy. Once a mining company drops out, they can only terminate your contract, you’ll lose your money, and you have no liquidation options available.

The best way to avoid it: don’t go for any cloud mining service at all. The risk-to-reward ratio will always put you at a loss

8. Malware

Viruses and other malicious software (malware) are classic hits of computer scamming and criminal activities. As websites and technologies have evolved, so have malware. Today, hackers can encrypt your files through ransomware or install crypto mining software on your computer undetected, allowing them to use your resources and degrade your machine’s lifespan extremely fast.

Backdoor scripts allow hackers to remotely control your computer, putting any plugged or hot wallet you have compromised. This method allows hackers to siphon your other monetary accounts too.

9. Pump-and-Dump Scams

If you’ve imagined inflating a balloon then immediately deflating it, that’s the simplest example of a pump-and-dump scheme. An individual or organization will encourage investors to keep holding a particular cryptocurrency or asset they’ve correlated with Bitcoin. They will launch massive, authority-building, and engaging technical campaigns to entice other investors to share their vision.

Then, once the cryptocurrency or asset reaches its ideal peak point, the scamming individual or organization will cash out, leaving every investor “holding the bag” until they can recoup their losses. The organization “pumped” an asset’s value using other investors as a stepping stone towards immense valuation instead of actual store-of-value assets.

The best way to avoid a pump-and-dump scheme on cryptocurrencies and actual money: don’t fall for sudden trends and FOMO.

10. Impersonation

Scammers are highly familiar with common advertising strategies, and influencer marketing is one of the best ways to urge people to take action. An impersonator may assume a famous personality by creating a new account or hacking an existing and weakly-guarded account. They’ll then encourage followers to join the person’s campaign by paying in crypto or even in other currencies.

If an influencer you’re following sends you a private message to join a contest, be skeptical. Most influencers make videos to promote their campaigns, and if there’s none, don’t even bother joining.

Remain Aware of Scams, and You’ll Make Riches With Cryptocurrencies!

Make sure you keep this list handy for your first-time crypto investing experience. You can make plenty of cash through Bitcoin and other cryptocurrencies, but only if you’re careful!

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