Here at Coinmama, we’ve unfortunately seen more people than we’d like buy Bitcoins (BTC) only to discover that they’ve been the victim of a scam. This happens for a variety of reasons, which we’ll discuss below, but which can mostly be attributed to cryptocurrency’s growing pains. After all, BTC is only ten years old. Those scams don’t diminish the positive power of cryptocurrency or its legitimacy; we still believe that the future of money is one where the people are in charge of their own economy. But they do hinder overall acceptance of cryptocurrency and cause people to second guess whether they should buy Bitcoins at all.
So how do you protect your investment and ensure that when you buy BTC it stays in your hands? We take a look at why cryptocurrency is so susceptible to scamming, what some of the most common crypto scams are, and how you can avoid being a victim of one.
Why Bitcoin Scams are so prevalent
To understand why scams are so rampant in crypto, first let’s take a look at its history. Cryptocurrency developed following the economic crash of 2008, when people began to lose faith in centralized banking systems and started looking for alternatives. BTC was created as a peer-to-peer currency that circumvented both borders and banks; in other words, it was a currency for all. Even more importantly, that lack of centralization—and with it, a lack of regulation—meant that at least in its early days, you could buy Bitcoins anonymously. BTC trading and moving happened on the blockchain, which lived in an entirely separate sphere from the currencies we were used to, and was indicated only by wallet addresses that appeared as strings of letters and numbers. There was no knowing who those wallets belonged to or where the Bitcoins were going.
This relative anonymity, of course, made crypto incredibly appealing to criminals. It was a great avenue for money laundering and buying goods on the dark web. Of course, as it evolved, seeing more mainstream adoption both by people and businesses, regulations were adopted and the anonymity with which crypto could be bought was largely eliminated. Today it’s nearly impossible to buy BTC anonymously—which is a good thing. Cryptocurrency is seeing large scale adoption by governments, people, and corporations, as more and more people see the value of the blockchain. Yet despite the inability to buy it anonymously, once you get your hands on BTC, you can still trade it fairly anonymously, generating new wallet addresses, and staying off the radar.
As a result, despite the regulations imposed and the legitimacy of the currency, cryptocurrency is still a favorite of criminals. But that’s not the only reason Bitcoin scams are so widespread. The other reasons have more to do with human nature:
Most people are trusting
There’s a reason for the old joke, “did you know that ‘gullible’ isn’t in the dictionary?” And that’s because people, for the most part, are trusting. We want to believe other people, and believe in the good of mankind. Therefore, when we hear of an opportunity or of someone who wants to help us, we tend to believe it’s true.
Many people want the easy way out
People have always wanted to make fast money. It’s why we’re so ready to believe every get-rich-quick scheme we hear of. After all, what if it’s real and we miss out. In fact, part of the reason Bitcoin climbed so fast in late 2017 was because it looked like a promise of easy money. But that climb was in part based on hype, and scam artists are capitalizing on the hype and promise of easy money by preying on people who want to believe it.
People often believe what they don’t understand
The system on which cryptocurrency functions is not only new, it’s incredibly complex. Blockchain technology, Bitcoin mining, and cryptocurrency wallets are difficult to understand, and most people aren’t going to bother to learn about them. Instead, they’re going to trust other people when they explain how it works (because they’re trusting) and hope it leads them to fast money (because they want the easy way out).
Where do the above observations leave us? With a currency whose inner workings aren’t completely understood by most people, and which comes with the promise (albeit often false promise) of easy money, most people are, unfortunately, willing to suspend their disbelief and trust the scam artists who offer to make them rich.
Bitcoin Scams we see most often
Now that you know that Bitcoin scams exist, what scams should you be looking out for when you buy, send, or trade BTC? Here are some of the scams we see most often at Coinmama:
Fake Broker or Trader (or fake Bitcoin investment/financial advisor)
- How it works: In this scam, someone will pretend to be a cryptocurrency financial advisor or broker, offering to trade your cryptocurrency to yield better results. On face value, it sounds not so different from the investments you make in your non-crypto life, such as through a pension fund or 401K. You send someone your crypto, or put it in a wallet that both of you can access, and they buy and trade crypto on your behalf.
What’s the scam: The broker or investor is almost never real. Instead, you’ll send your Bitcoin to someone, often several thousand dollars over the course of several weeks or months, and eventually they’ll run off with your money. In some cases, the broker plays the long game, as was recently the case in Australia, even going so far as to give you some returns before then running off with your coins.
What to watch out for: Look out for anyone who asks you to send them cryptocurrency with the promise of investing and trading it and giving you money in return. This is especially true for promises of high, impossible to believe returns, but is also true for reasonable-sounding returns. Remember that if you send your cryptocurrency to someone, it is impossible to retrieve. Similarly, if anyone offers to set up a wallet for you, or wants to share private keys, understand that they then have access to all of your cryptocurrency. Always set up your own cryptocurrency wallet, and do not give your private keys to anyone you wouldn’t also share your online banking password with.
How it works: A scam artist will create a fake website or social media page impersonating a legitimate website in order to lure unsuspecting customers. For example, someone might create a fake Facebook page using the same name and logo as a cryptocurrency vendor or exchange and comment or post on the real company’s Facebook page, pretending to be them.
What’s the scam: Usually offers of free Bitcoins. For example, a fake site will post on the wall or in the comments of a real site, saying something like, “We have a new partnership! Send 1 BTC to the following address, and we’ll send you 2 BTC in return!” The address however doesn’t belong to the real site, but rather to the scammers.
What to watch out for: Anything that sounds too good to be true, is. If someone offers to send you free Bitcoin if you send them crypto first, they’re probably scamming you. Even if the poster or commenter looks real, click through and you’ll see they don’t have the same posts, the same number of followers, etc. as the page you think you’re on. Coinmama, for example, will never ask you to send coins to us on Facebook or any other social media.
Social Media Scams
- How it works: Someone will approach you on social media offering to help you with your Bitcoin investment if you send them coins. Sometimes they want to just offer their help (often with a small percentage for themselves, to sound more legitimate), and sometimes they will impersonate a real person.
What’s the scam: Like the fake broker/investment advisor scam, you’ll never see your coins again. You’ll send money to the person, sometimes once and sometimes over the course of a few months, and then they’ll disappear when you try to withdraw.
What to watch out for: If anyone approaches you with offers of Bitcoin investment help, with new ways to make you rich, or even just asking for money, assume it’s a scam. This goes for emails from royalty in African countries, requests to send crypto to a specific address, or work-from-home and get rich schemes that you have to pay into.
How to protect your Bitcoin investment
If you buy Bitcoins, the most important thing you can do is to protect your investment. But how do you do that? Start by reading our article on keeping your cryptocurrency investment safe. Always control your own cryptocurrency. That means creating your own wallet, not giving the private keys to anyone you don’t know, and not sending your coins to anyone else to invest on your behalf. Employ a hearty sense of skepticism for anything you see online. This includes get-rich-quick schemes, offers of investing or trading crypto, and offers on social media of free Bitcoins. If anyone is asking you to send coins to them, you should be on high alert. Question the business model anyone has. For example, if someone says “send me 1 BTC and I’ll send you 2 BTC in return” you can be pretty sure it’s a scam. If someone offers to invest your money for you and send you the profit, you can also be pretty sure it’s a scam. Pay attention to your instincts, especially in if you’re not entirely sure how cryptocurrency works.
At Coinmama we believe that cryptocurrency really is the future, which is why we want to help you keep your cryptocurrency investment safe. It’s part of why we have an account verification process in place, which requires users to state that they are buying Bitcoin only for themselves and not on behalf of someone else. Those may just seem like words, but you should take them to heart, and ask yourself if the purchase you’re making is really one you’re making on your own. It’s important to keep in mind that cryptocurrency transactions are irreversible, so if you send your coins to someone else, let them set up your wallet, or share your private keys with them, you won’t be able to get your crypto back.