5 Types of Bitcoin Scams – How to invest safely and know financial threats

The known types of bitcoin scams and how to recognize them beforehand

The bitcoin is a rather risky currency, as many investors learned during its recent period of falling rates. However, the bitcoin by itself is not a scam and is highly unlikely to collapse entirely, given its role in online commerce. The bitcoin is a risky investment, and an investor desiring to profit on its exchange rates can gain a lot, or lose a lot. It should be noted that profiting on bitcoin requires skill and knowledge, not just chance, and an inexperienced trader can fall victim to one of a great number of scams.

The types of scams

Currently, the bitcoin is growing in price again, and this attracts a new wave of those who desire to get rich quick. Scammers are constantly on the watch for these people, looking for ways to exploit their gullibility. Investopedia details several types of scams, such as:

  • Hardware wallet hacks;
  • Exchange scams;
  • Fake ICOs;
  • Cloud mining schemes;
  • MLM schemes.

Hardware wallet hack

This scam essentially amounts to gaining control of your BTC wallet. A hardware BTC wallet is a device similar in function to a flash drive, and, like a flash drive, it can be accessed remotely. Some enterprises even sell pre-compromised, unsafe hardware wallets with built-in backdoors for hackers.

Avoiding a wallet hack requires purchasing hardware wallets from trusted sources only. You should be aware which manufacturers can be trusted to never sell hacked wallets. Alternatively, you can make your own hardware wallet; some designs are open and easily implementable by a tech-savvy person. This way, you can be completely sure that your wallet is not hacked.

Exchange scam

Bitcoin exchanges are unofficial sites, sometimes even in the dark web, and no one guarantees that there won’t be any shenanigans. The only protection against an exchange scam is the reputation of the exchange site. However, there are several telltale signs of a fake exchange.

According to Investopedia , knowing the general market prices is essential. All legitimate exchanges offer similar rates. If you see a site with rates that seem too good to be true, that’s exactly what they are: untrue. A site can be more insidious and offer “discounts” or “advertising campaigns” that seemingly lower the bitcoin exchange rate rather than blatantly charging a deceptively low price. This is, too, indicative of the fact that a scam is going on.

Another trick is knowing the difference between HTTP and HTTPS. All honest exchange sites use HTTPS because it offers security and confidentiality. An HTTP exchange site is very likely to be a scam.

Fake ICO

An effective method of wheedling people into giving you cryptocurrency is offering another one. This other cryptocurrency can be a fake. The ICO boom resulted in hundreds of startup companies starting their own cryptocurrencies linked to all kinds of projects, from growing medical marijuana to starting a bankless credit system. If such a company turns out to be a “Big Store” and vanishes overnight, all coins released by it become worthless, and all bitcoins exchanged for the new coin vanish with it.

Sometimes, there isn’t even a company involved. The website, the whitepapers, the promising projects — everything is fake from the beginning to the very end. You pay them and do not even receive some hastily thrown together cryptocurrency, because even that does not exist.

Cloud mining scheme

Aside from trading the bitcoin, another way to profit from it is mining. But nowadays, it requires very powerful hardware to mine new BTC, they are nearly all mined out. Buying such hardware is expensive. This gave rise to companies and sites that offer to rent their allegedly very powerful servers that can mine that coin for you.

Of course, no actual mining happens. The entire enterprise is a classic pyramid scheme. You receive your first profits because other people join the “cloud mining” and bring their money into the scheme. When the pyramid stops growing, it collapses.

How to spot a fake cloud mining service? There are two major telltale signs. One is a lack of transparency. If the company does not provide you with any insight into how their services work, it’s likely a pyramid scheme. The other is unrealistic promises. For example, some services promise lifetime contracts with permanent passive income from mining, but the bitcoin is physically incapable of providing such income, it is finite and nearly mined out, the returns diminish amazingly fast.

MLM scheme

An MLM scheme is related to a pyramid scheme. In this type of scam, you buy your way into the “ranks” of the organization, each promising greater profits and bonuses. However, in practice, such companies are eager to accept your payments but much less eager to pay you. Some such schemes masquerade as other types of investments, some are open about their MLM nature, but none whatsoever allow you to actually profit.

Many MLM schemes advertise themselves through stunts, which may include:

  • Expensive prizes for participants;
  • Gatherings of participants;
  • Creating fake charity funds or similar publicity stunts;
  • Business claims with fake evidence, ads presented as interviews, etc.

However, what no MLM scheme offers is a simple, straightforward and comprehensive description of how exactly does it stay in business and generates profits. If there is a lot of loud claims and no substance, this is a sure way to detect an MLM scheme.

A general method of detecting a scam

One advice that is effective against all kinds of scam is that knowledge is power. If you know how cryptocurrencies work , know the ways they can be used in business, you are aware of all legitimate ways to get rich through them. If you see a novel way without a clear explanation of how it works, or with an explanation that defies the known properties of cryptocurrencies, it’s likely a scam. Stay alert and don’t let them fool you!

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