Bitcoin is red-hot right now, with thousands of investors signing on in hopes of making their fortune. Such popularity inevitably brings scammers in its wake — fraudsters who also hope to make their fortune, just in a different way. Beware these common bitcoin scams or you risk losing everything you’ve managed to achieve.
Fake bitcoin wallets
A bitcoin wallet is a software program used to store your private stash of bitcoins. Wallets can take several different forms; the most common types, from most secure to least secure, are hardware wallets, desktop wallets, web wallets, and mobile wallets. Mobile wallets in particular are very much in demand these days, and scammers have responded by creating their own mobile wallets and offering them for download. The catch: after you store a certain amount in your “scammed” wallet, the funds will simply disappear. To avoid this scam, stick with reputable wallet providers and use the download link on the provider’s own website to get the software.
Phishing is a common online scam where a fraudster will send an email or make a post on social media pretending to be a legitimate authority. These emails and posts are the “hook” of the phishing expedition; the fraudster is hoping that you will click on the provided link and enter sensitive personal information such as your Social Security number, bank account number, or (in the case of bitcoins) the private key that identifies you and allows you to send and receive bitcoins. Once a fraudster has your private key, he can spend bitcoins right out of your wallet. Keep your bitcoins safe by refusing to share secure information by insecure means, including social media and email.
Fake cloud miners
Bitcoin mining is a way to earn bitcoins by lending your computing power for use in validating bitcoin transactions. Early bitcoin miners often used software installed on their desktops to participate, but nowadays most bitcoin mining is done by cloud mining companies: remote data centers dedicated to mining bitcoins that operate by subscription. For a small monthly fee, you can get back a share of the bitcoin mining profits the company generates. Naturally, the field has also filled up with fake mining companies who collect your money, pay out bitcoins until they feel they’ve gotten as many subscribers as they can, and then disappear forever. Before signing up with any cloud mining company, do your homework and confirm that the company is a legitimate one run by a known individual or individuals.
Pyramid schemes/multilevel marketing programs
A multilevel marketing program is one where you’re offered commissions to bring other people into the program — many of these programs also let you claim part of the earnings that your referred people bring in. Some multilevel marketing programs are indeed legitimate (think Mary Kay), but any MLM that doesn’t sell an actual, physical product is likely to be a Ponzi (aka pyramid) scheme. These frauds work by providing payments to early members of the program not from company profits (which don’t exist) but from the subscriptions of later members. Once the fraudsters reach a point where they can no longer find enough new members to keep the scheme going, they disappear with all the money. Steer clear of any MLM program regarding bitcoins, no matter how tempting the offer.
Protect yourself from present and future scams
This is just a sampling of the bitcoin-related scams that you’ll find today, and fraudsters are hard at work coming up with new and better scams with which to steal your money. To protect yourself and your bitcoins from these scams and many more, steer clear of any offer that looks too good to be true (because it certainly is). Be very careful about sharing information, especially online. If your bitcoin private key ends up in the hands of fraudsters, your bitcoin holdings will disappear instantly — and if fraudsters get ahold of your Social Security number and birth date, they can wreck your entire financial life, not just your bitcoin investments. Don’t ever do a financial transaction on social media, because the odds are excellent that the poster is a scammer; and even if he isn’t, social media isn’t exactly a secure place to share such dangerous information. Finally, don’t sign up for any service that requires you to either pay something up front or reveal sensitive information without doing enough research to be absolutely certain that the service is legitimate. If these precautions save you from just one scammer, they’ve more than repaid you for the time and effort you invested in them.