Top 5 Bitcoin and Crypto Scams

Cryptocurrency investors have been rewarded over the last 12 months with incredible gains. In the terminology of Peter Lynch, Bitcoin and Ethereum have both been 20 baggers over the last year or so, with some altcoins producing even better returns. And that’s not even mentioning the stunning rise of nonfungible tokens (NFTs) in 2021. From NBA TopShot to Cryptopunks to digital art, crypto collectibles have seen a meteoric rise in value.

Unfortunately, grifters and con artists are drawn to wildly profitable assets like moths to lightbulbs. The bull market for cryptocurrency includes many different sublevels and the market for scammers is thriving. And unlike assets stored in the bank or brokerage account, there’s no FDIC or SIPC coverage to protect your cash from hackers, thieves and other tech-savvy criminals. 

If you unwittingly fall victim to one of these cryptocurrency investment scams, your avenues of recourse will be limited (and possibly nonexistent). Here’s how to avoid being the prey of a crypto con artist.

What is a Bitcoin Scam?

Bitcoin scams are when people or groups attempt to trick or maneuver unsuspecting victims into sending them Bitcoin (or revealing a pathway to their cryptocurrency wallet). Crypto scammers aren’t much different from your traditional financial swindler. They lure eager investors into a false sense of security, usually by offering incredible deals or amazing profits. Clients either invest their cryptocurrency into the scammer’s “platform” or send it to an outside source. Once the scammer has the crypto, they vanish and the victim is left with nothing.

Bitcoin scams come in all shapes and sizes. Some prey on fans of popular celebrities and company CEOs like Elon Musk of Tesla, while others use hacking or malware to gain access to the accounts of victims. And sometimes, you’ll be offered a fake NFT horse on Twitter (no really, this happens). Like all financial chicanery, Bitcoin scams are ever-evolving techniques and investors should familiarize themselves with the most common ones.

Bitcoin Payments are Irreversible

One of Bitcoin’s appeals also makes it a prime target of scammers. Bitcoin transactions are irrefutable and irreversible. Because no central authority governs the authenticity of transactions, the community works in unison to create new blocks of unalterable transaction data. Once a transaction has been approved, it cannot be deleted from the blockchain — even if it wasn’t submitted by the actual owner of the Bitcoin.

Since Bitcoin payments cannot be reversed, they are a honeypot for successful scammers since no one will be attempting to recover the funds. A scammer can simply move the Bitcoin out of the fraudulent wallet, close it down and disappear into the night. Bitcoin scams are particularly nefarious since, unlike credit card fraud, there’s no one coming to refund you.

Security Considerations

To keep your cryptocurrency safe, keep your passwords written down in a safe place. And we mean written down — don’t save as a note on your smartphone. Keeping your security keys off of machines connected to the internet ensures that hackers and malware can’t reveal your private data.

One popular option for Bitcoin storage is what’s called a “cold wallet.” A cold wallet is a digital cryptocurrency wallet, but unlike your Coinbase or Gemini wallet, it’s a piece of hardware not connected to the internet. Bitcoin kept in cold wallets is extremely difficult to compromise, unless the physical hardware itself is stolen.

Top 5 Bitcoin and Cryptocurrency Scams 

Cryptocurrency might be a relatively new asset class, but you’ll notice a lot of these investment scams are recycled versions of classic cons. Here are five to keep an eye out for — you’ve probably seen similar versions of these in the past.

Scam  #1: Social Media Con Artists

Some good old-fashioned password hacking is an easy way for scammers to get unsuspecting people to send them Bitcoin. A notorious example of this phishing scam occurred in January 2021 when hackers posed as Elon Musk and posted a link to a Bitcoin wallet, offering to double any BTC deposit sent to that address. Sounds fishy already, doesn’t it? 

Unfortunately, many of Musk’s followers would leap off the Golden Gate Bridge if he did it first, so the BTC began flying into the linked wallet. Of course, it wasn’t Musk’s wallet — in fact, the account in question wasn’t even Musk’s Twitter! The scammers simply hacked a different Twitter with a blue checkmark, changed the profile picture and name to that of Musk’s, and responded to his previously posted tweets with a link to the crypto wallet. 

Anyone falling victim to this particular cryptocurrency investment scam has more egg on their face than the grill at Denny’s. But social media is the primary vehicle for crypto scammers, who trick other users into sending them Bitcoin or signing up for a fake cryptocurrency exchange or "giveaway scam" (among other examples). Beware of anyone randomly offering free crypto on social media; it’s almost surely a scam. If you have fallen victim to a social media crypto scam, please report the incident to the appropriate social media platform.

Scam  #2: Defi Rug Pulls

Decentralized finance (DeFi) platforms aim to reboot traditional financial models by allowing users to stake their cryptocurrencies to networks and earn profits through interest, like depositing funds in a savings account or CD. As the cryptocurrency remains locked in the network, the owner receives periodic payments that often far outpace the rates offered by banks.

While most DeFi platforms have noble intentions, some are just flat-out scams. Investors are tricked into locking up their crypto with a seemingly reputable DeFi company, such as Burn Vault Finance and Compounder Finance. With promises of excellent returns for lending their money, the scammers enter the investors into smart contracts, which later enable them to steal the funds without a chance for the true owner to recover them. The scammers then disappear into a cloud of smoke. Beware of DeFi platforms promising returns that sound too good to be true.

Scam  #3: NFT Scams

NFTs or nonfungible tokens are one of the current investment crazes thanks to the high prices being fetched by everything from pieces by internet artists to LeBron James highlights on NBA TopShot. NFTs exist on the blockchain and can be transferred back and forth being different users or marketplaces. 

While the actual image or video in the NFT is easily duplicable, the specific hashtag code that points to the NFTs location is not. But possession is ten-tenths of the law when it comes to crypto and whoever possesses the hashtag holds the power. If your account is hacked and the NFT transferred to an outside user, you’ll have a difficult time getting it back (or compensation for it). 

Additionally, scammers prey on the prospects of large profits and offer fake NFTs to prospective buyers. NFT scams are on the rise — only purchase them through legitimate channels and always use two-factor authentication when available.

Scam  #4: Altcoin Pump and Dumps

Ah, the classic pump and dump. Like penny stocks, altcoins are often cheap and illiquid, with market caps small enough that a few large players can send the price soaring. The crypto pump and dump goes down just like its penny stock cousin — a crypto guru or influencer buys up large amounts of some speculative altcoin and then pumps up the potential of that coin to their followers. 

Once the crowd piles in, the scammer exits the position and the unsuspecting followers are left holding the bag. Altcoins are volatile like penny stocks and it’s not rare to see investments cut in half on a single day.

Scam  #5: Viruses and Malware

Scammers don’t always need to reinvent the wheel. Sometimes, a good old-fashioned computer virus or malware is enough to gain access to a person’s crypto wallet and transfer all the funds out. And since these transactions are irreversible, victims have no recourse. Luckily, viruses and malware are well-known and virus detection software can prevent most attacks. Again, always protect your wallets and apps with two-factor authentication. 

Other Cryptocurrency Scams

Other scams include building an entire fake cryptocurrency exchange, which is what happened with BitKRX in South Korea. Investors poured millions into the exchange because the promises of profit were so great. In reality, they were simply stealing money from their clients. South Korean authorities eventually shut down the unethical exchange, but not before investors lost millions upon millions in capital.

Some scams don’t even involve stealing any crypto. A popular Bitcoin scam involves fake mining hardware, which is often expensive and difficult to find. Mining Bitcoin requires tremendous energy and computational power, so prospective miners often jump at the chance for cheap equipment. But after purchasing a supposedly state-of-the-art Bitcoin mining machine, the buyer often finds the power and efficiency have been vastly overstated — if the darn thing even works at all. Be cautious of anyone offering cheap mining equipment on eBay or Amazon.

How to Report Crypto Scams

To report crypto scams, follow these steps:

1. Gather evidence: Collect any relevant information such as screenshots, transaction records, and communication with the scammer.

2. Contact your local authorities: Report the scam to your local law enforcement agency or financial regulatory body. They may be able to investigate the matter or provide guidance on further steps.

3. Report to the cryptocurrency platform or exchange: If the scam occurred on a specific cryptocurrency platform or exchange, reach out to their customer support or security team. They may have specific procedures in place for handling such incidents.

4. Utilize online reporting platforms: Here are various online platforms where you can report crypto scams:

• Federal Trade Commission (FTC)
• Securities and Exchange Commission (SEC)
• Commodity Futures Trading Commission (CFTC)
• Internet Crime Complaint Center (IC3)

5. Inform other potential victims: Alert others about the scam by sharing your experience on online communities, social media, or cryptocurrency forums. This can help prevent other individuals from falling victim to the same scam.

Remember, prevention is also crucial. Stay vigilant by researching and verifying the legitimacy of any investment opportunities or platforms before getting involved. Be cautious of unsolicited offers, suspicious websites, and promises of guaranteed returns.

Safest Brokers for Trading Bitcoin

Choosing a reputable broker for cryptocurrency trading will offer more security and peace of mind over your investments. Here are a few of our favorites.

Protect Yourself from Crypto Cons

As long as the price of Bitcoin keeps rising, scammers will keep trying to pry it from victims. In order to protect yourself, engage a little common sense — always use two-factor authentication when available, rotate your passwords, don’t lose your access keys, and never trust anyone with an offer that sounds too good to be true. Crypto investing is likely here to stay, so scammers will always be on the lookout for the next mark. Don’t let it be you.

Frequently Asked Questions