Cryptocurrency scams, Bitcoin scams in particular, have become a growing concern in the world of digital currencies. The FTC announced that reports of crypto scams were up roughly 12x from October 2020 to May 2021 compared to the same period a year earlier.
These scams come in a variety of forms, from blackmail to Ponzi schemes and everything in between. To help you stay safe, we’ve put together a list of 7 of the most common cryptocurrency scams. Read through the different kinds of scams to learn how to respond or jump to the bottom for some general tips to help you avoid falling prey to any of them.
Bitcoin ATM Scams / Law Enforcement Scams
As far as we know, there has never been a Bitcoin ATM that was itself a scam. Instead, fraudsters will contact individuals on the phone and make some claims to justify their demand for payment. Then they’ll instruct you to send funds to a specific wallet address, often provided as a QR code, by making a cash deposit at a Bitcoin ATM.
In some cases, the caller will claim to be a member of law enforcement with a warrant for your arrest. Or they may claim to be an immigration officer, stating that immediate payment is the only way to prevent deportation. Alternatively, they might claim that a loved one was injured or arrested, asking for money, as soon as possible, to treat them or bail them out of jail. They might even claim to be from a utility company and threaten to cut your power if you fail to pay.
If you receive a phone call like this, hang up. Any time someone stresses the urgency of immediate payment, that should be a big red flag. Plus, law enforcement officers should never ask you for money, especially not in the form of cryptocurrency. And you should be similarly suspicious of anyone else demanding crypto payments over the phone.
If anyone asks you to send them money by depositing cash in a Bitcoin ATM, ask yourself, “Why?” Crypto payments can be more difficult to trace than those made via more traditional methods. And if you buy crypto with cash, you can’t call up your bank or credit card company to stop the payment from going through.
So while Bitcoin ATMs can be a convenient way to purchase coins for cash, you shouldn’t use them to send payments to third parties. Always send any coins you purchase to your wallet first. If someone asks you to pay for anything via cash deposits in a Bitcoin ATM or even a bank account, that should immediately set off scam alerts in your head.
Celebrity Scams
Crypto scammers often lean on the reputation of celebrities to authenticate their scams. In some cases, the con artist will create a fake social profile, often on Twitter, to promote a contest or giveaway. To enter, the account will ask you to send a small amount of Bitcoin as a means of “confirming your wallet address” or some other lie.
The celebrity profiles used in these scams often look credible at first glance. On Twitter, they may even have the elusive blue checkmark reserved for verified accounts. One such account, claiming to be Elon Musk, fleeced users out of more than $2 million worth of Bitcoin in 2021.
If these users were a bit more careful, they could have avoided the scam altogether. The username was misspelled on the account and there were multiple typos throughout its posts. By simply visiting Mr. Musk’s actual profile, they would have realized that he was not holding a giveaway. And therefore, they would know that the other profile was a scam.
However, some celebrities have promoted crypto scams on their real social profiles. Rather than asking you to send them Bitcoin, the celebrity might just suggest that their followers invest in a specific coin. In these cases, the coin itself might be a scam and the celebrity may or may not be aware of that fact. We’ll discuss such scam coins in detail further down the page.
Ignoring celebrities’ posts about cryptocurrencies is the easiest way to avoid these scams. If you must know what your favorite influencers say about the world of crypto, always confirm that you’re looking at the right account and fact-check their claims. And never under any circumstances send them your coins, whatever reasoning they may give.
Scam Coins / Pump and Dumps
Getting in early on the next big thing in crypto could turn a hundred dollars into a million! But before you start planning out how to spend your impressive gains, remind yourself that no one knows what the next big thing will be. In fact, there may never be another coin that performs as well as Bitcoin, Ether, and (shockingly) Doge have.
Scam coins start the same way as legitimate coins, with an Initial Coin Offering (ICO). The ICO allows the company that’s creating the coin to raise money by offering investors coins in exchange for capital. The coin might provide some sort of utility, like the way that Ether is necessary to pay gas fees on the Ethereum network. Or it might just “guarantee” a stake in the company.
The scam works by convincing investors to throw money into a new coin. Then, when the scammers decide they’ve collected enough, they disappear with some or all of the invested cash. And the investors are left holding the bag.
In the case of a pump and dump, the scammers buy up a large number of coins in a little-known cryptocurrency. This large initial investment causes the price of the coin to rise. Then, they convince other people to invest in the coin, causing its price to climb even higher. Once the coin’s price reaches the scammer’s target, they sell all of their coins, causing the price to plummet.
Unless you have a thorough understanding of the underlying technology of a new coin, we strongly recommend staying away from ICOs. It’s a good idea to stick to established coins in general. Doing so probably won’t make you a millionaire overnight, but investing in scam coins won’t either.
Bitcoin eBay Scams: Internet Classified Ads and eBay Motors
In the eBay Motors scam, the scammer posts a vehicle for sale in a classified ad online (Craigslist, Facebook Marketplace, etc). The ad will likely list the car for less than it’s worth, hoping that the incredible deal will convince people to overlook the red flags.
If you contact the seller, they’ll often claim to work for eBay Motors and may even provide some doctored evidence to support the claim. They might also have a story about the car belonging to a lost loved one or a member of the military who was transferred overseas. Whatever story they provide, the scam comes into play when they ask for payment.
The seller will provide you with specific payment instructions. They may ask you to simply send Bitcoin to a specific wallet. Or they might instruct you to deposit cash in a Bitcoin ATM. If you do so, the scammer may follow up, asking you to send even more to cover the cost of shipping or anything else that sounds remotely plausible.
Every classified board on the internet should have detailed information about the acceptable methods of payment and potential scams. Read through these pages before making any purchase and only send payment through approved methods.
If, for whatever reason, you decide to send payment outside of one of the approved methods, do so via an escrow system. Ask the seller to create an invoice for you. They can do so with PayPal, which will return your payment if the seller fails to satisfy their end of the transaction.
In any case, you should never send Bitcoin to a stranger you met online. Bitcoin transactions are irreversible, as are virtually all cryptocurrency transactions. Once you send coins to someone, there’s no way to get them back without something like an escrow system to hold them accountable. The bottom line is if it sounds too good to be true it is.
Phishing / Malware / Ransomware Scams
You should already know not to click on questionable links from unsolicited emails, text messages, or even websites. IT professionals have been trying to engrain these kinds of safe computing habits into us all for years. Originally, they warned that the links could infect your computer with a virus or malware of some kind. Now, phishing attempts and viruses could empty your crypto wallets or provide information to help criminals do so.
Phishing emails and websites are attempts to get people to provide information (often passwords) about their accounts with a legitimate company. An email might suggest that your account was compromised, asking you to follow a link to reset your password. The link will bring you to a phishing website that might look identical to the real company website. But anything you type (like your existing password) will go directly to scammers.
Clicking a questionable link could also download a piece of malware or ransomware to your device. Such malware could include a key logger, sending the scammer a record of every keystroke you make, including passwords. Even if you don’t type in your passwords, the scammer can collect other information, like the answers to security questions, to gain access to your accounts.
Ransomware, on the other hand, completely locks you out of your device until you pay a ransom to the scammers, usually with Bitcoin. In some cases, ransomware can lock up every device on the network, which is what happened to Colonial Pipeline Co. in May 2021. If a device gets infected with ransomware, all of the data will be lost unless you pay up.
To avoid these scams, stay diligent with your safe browsing habits. Always scrutinize unsolicited emails and never click links that you’re unsure of. If necessary, navigate to the company website directly (not via links in the email) and reach out to confirm the authenticity of the message. Always use unique, complex passwords and enable 2-factor authentication on any account that offers them.
Bitcoin Club Scams / Ponzi Schemes
Bitcoin clubs, which are basically Ponzi schemes, are another common scam in the crypto world. These clubs promise unbelievable returns if you “invest” your coins with them. Organizers of The Bitclub Network, one such club, were recently arrested because of their alleged involvement in a $722 million fraud scheme.
Ponzi schemes hook investors by promising incredibly high returns. But rather than investing any of the money, the organizers just keep or spend whatever they collect. They doctor financial records to show clients how quickly their investment is growing. And if an investor decides to withdraw their funds, the scammer simply pays them with money from a new investor.
Bitclub identified itself as a Bitcoin mining pool. They claimed to use investments to purchase computer equipment to confirm Bitcoin transactions, which would earn them newly minted Bitcoins. Although mining is a legitimate way to earn Bitcoin, the Department of Justice argues that Bitclub pocketed its investors’ cash rather than using it to support its mining operation.
A growing number of millionaires made their fortune by investing in cryptocurrency. So it might sound believable that someone found a way to guarantee incredible returns. But more often than not, such claims are designed to hook innocent investors into a scam.
Blackmail
Cryptocurrency scams can also take the form of blackmail. In many cases, the scam will come via an email, in which the sender claims to have sensitive information about you. They often claim to have hacked your computer and recorded you in a compromising situation via your webcam. And they threaten to send the recording to all of your contacts unless you send them Bitcoin.
Most of these emails are sent to thousands of individuals at once. Some may include pieces of personal information, like your name or IP address. But such information does not prove the legitimacy of the threat.
Whether or not the threat is genuine, ignoring these emails and reporting them to the FTC is the best course of action. In the unlikely event that the scammer has compromising information about you, sending them Bitcoin in no way guarantees that they’ll delete the information. Sending coins just makes them more likely to demand more.
Stay Safe out There
We’ve covered some of the most common Bitcoin scams, but this list is far from exhaustive. Criminals will always find new ways to separate people from their coins. So to some people, the world of crypto still feels like the Wild West, with shoot-outs waiting around every corner. But even in the Wild West, gunfights were incredibly rare.
If crypto still feels like too big a risk to you, read through our Should I Invest in Crypto? FAQ. For those who decide to roll the dice, just be sure to take precautionary security measures. And use common sense if a scammer crosses your path. When you do, investing in cryptocurrencies can be both safe and lucrative.
