Bitcoin and cryptocurrency scams have become increasingly common in recent years as the popularity of digital currencies has grown.
As a trader, it’s essential to be aware of these scams and to know how to spot them, as they can be financially devastating to those who fall victim.
Let’s take a closer look at what Bitcoin and cryptocurrency scams look like, how to spot them, and what you can do to protect yourself:
What is Bitcoin and cryptocurrency?
Bitcoin is a digital, decentralized currency that can be used as a means of payment, or as an investable asset. It’s based on blockchain technology, and it isn’t controlled by any central authority. Instead, it’s managed by a network of computers connected to the internet. This network itself is known as a blockchain.
Cryptocurrency, on the other hand, is a digital asset that’s used as a medium of exchange. It’s also based on blockchain technology; however, the technology can be different from that of Bitcoin. Bitcoin is the most popular cryptocurrency, with other well-known ones being Ethereum, Tether, Cardano, Dodgecoin and BNB.
Types of Bitcoin and cryptocurrency scams
The most common type of currency scam is a Ponzi scheme – an investment scam that promises high returns with little or no risk. It’s usually run by a single individual or small group, that will solicit funds from potential investors. They then use the money they manage to collect to pay off earlier investors while taking a large cut for themselves.
Mining scams are also common with digital currency. This type of scam involves a company promising high returns from mining activities, such as generating new coins. However, the company doesn’t have the necessary hardware or software to do the mining. Like a Ponzi scheme, the company uses the money they collect to pay off early investors.
Other types of cryptocurrency scams include pump-and-dump schemes, fake ICOs (Initial Coin Offerings), and phishing scams.
Pump and dump schemes involve buying a large amount of a specific cryptocurrency, driving up the price, normally by creating hype about it on social media, the price rises and then quickly selling it off.
Fake ICOs involve a company offering digital tokens in exchange for investment, even though the tokens are worthless.
Phishing scams involve sending emails or text messages that appear to be from a legitimate source. However, they contain malicious software that can lead to the theft of personal data.
In 2023, one of the most common scams is the ‘Big Pump Signal’ scam. This involves a company or individual sending out false signals on social media in order to drive up the price of a specific cryptocurrency. They will then quickly sell it off, leaving investors with losses.
Likewise, the “Crypto is a Scam” scam has been circulating recently, which involves a company or an individual claiming that cryptocurrency is a scam in order to dissuade people from investing in it. They will then offer their own investment opportunity, which is a scam itself.
How to avoid falling victim to a digital currency scam
The best thing you can do if you suspect an investment opportunity is a scam is to research the company or individual behind the offer. If they’re claiming to provide high returns with low risk, then it’s probably too good to be true.
Another red flag is any promises of guaranteed returns. There is no such thing as a guaranteed return in the world of cryptocurrency (or investment and trading for that matter), so any promises should be treated as suspicious.
It’s also important to look out for any requests for personal information or payment details, as these could be used for identity theft or fraud. You should be wary of any offers that require you to sign up for a service or register a domain name in order to qualify.
If you’re unsure about an investment opportunity, it’s always best to err on the side of caution. If something doesn’t feel right, it’s best to steer clear and look for an investment opportunity that can guarantee legitimacy.
Tools to spot Bitcoin and cryptocurrency scams
One of the most effective tools for identifying scams is a Bitcoin scammer list that contains the names of individuals and companies that are known to be involved in scams. These lists are updated regularly and can be used to cross-check the details of anyone offering suspicious investments.
Another useful tool is a cryptocurrency scammer database. These work in the same way as scammer lists, providing details of known crypto scammers, including their names, addresses, and phone numbers. By cross-referencing any investment opportunities against the database, you can ensure that offers are legitimate.
There are several websites and forums dedicated to discussing cryptocurrency scams. They can be a good place to search for names of individuals and companies to see if anyone else has been approached by them. Having access to a hive mind of other traders who are also vigilant about where they invest, can be a priceless resource.
How to report cryptocurrency scams
If you do identify a scam, it’s important that you report it to help ensure others don’t fall victim. There are several organisations that are dedicated to helping those who have been affected by scams, and all of them have a ‘report a scam’ service where you can provide details of suspicious offers or activities.
In the UK, both ActionFraud and the Financial Conduct Authority (FCA) should be the first places to report scams. Both organisations also provide further advice on what to do if you’ve been the victim of a scam.
In summary
Bitcoin and cryptocurrency scams can be financially devastating. Traders need to be aware of the different types that are out there, how to identify them, and how to protect themselves from falling victim.
The best way to avoid falling for Bitcoin and cryptocurrency scams is to do your research and always err on the side of caution. If an opportunity doesn’t feel right, then it’s best to steer clear. Remember, if it sounds good to be true, it probably is.
