Mr Branding: The Three Most Common Bitcoin Scams, and How to Avoid Them

Sunday, October 15, 2023

The Three Most Common Bitcoin Scams, and How to Avoid Them

Scammers and hackers are coming for your Bitcoin. Whether it's a financially-motivated lone wolf attacker or state-sponsored groups linked to hostile nations, these bad actors are constantly looking for new and novel ways to move your Bitcoin into their wallets.

The key to staying one step ahead is knowledge. And that's what this latest study from CoinKickoff is all about. Using data collected from chainabuse.com and blockchain.info, they put together a series of charts highlighting the most common types of Bitcoin scams, and when they’re most likely to happen.

And to help you hold onto your precious BTC, we've added a short section highlighting the best ways to avoid being the next crypto victim.

Is Bitcoin a scam?

Bitcoin's legitimacy as a digital currency is a topic of debate. Supporters argue that its decentralization, transparency, and acceptance by mainstream institutions make it a viable store of value and an inflation hedge.

However, critics highlight the lack of regulation in the cryptocurrency market, Bitcoin's price volatility, its pseudonymous transactions, and its susceptibility to market manipulation as potential red flags.

Why do scammers target Bitcoin?

The Bitcoin ecosystem has many characteristics that are attractive to hackers and scammers.

Bitcoin transactions are not directly connected to people's real identities, so it's easier for them to hide their tracks or ill-gotten gains. And once you send Bitcoin to an address, it's impossible to claw back, and there are no Bitcoin regulators to complain to or fight your case.

Its global nature makes Bitcoin a useful tool for criminals moving stolen funds around the globe.

And finally, a lack of education and a younger user base means hackers view many Bitcoiners as naive and more likely to fall for scams, like phishing or giveaway frauds.

A list of Bitcoin scams

Here's a look at some of the most common Bitcoin scams:

Phishing Scams: Scammers create fake websites or emails that resemble legitimate Bitcoin services or exchanges to trick users into revealing their private keys or login credentials.

Ponzi Schemes: Fraudsters promise high returns on investments in Bitcoin, but they use funds from new investors to pay returns to earlier investors, creating a pyramid scheme that eventually collapses.

Fake Wallets: Fraudulent mobile or desktop wallets are created to steal the private keys and funds of unsuspecting users.

Fake Exchanges: Scammers set up phony cryptocurrency exchanges that look real but are designed to steal users' deposits or personal information.

Impersonation Scams: Fraudsters impersonate well-known figures in the cryptocurrency industry on social media, often asking for donations or investments in exchange for fake promises.

Tech Support Scams: Scammers claim to be from a cryptocurrency exchange's tech support team and ask for remote access to your computer to steal your funds.

Giveaway Scams: Scammers pose as celebrities or influential figures on social media, promising to send you more Bitcoin if you send them a small amount first. They never send anything in return.

Fake Mining Operations: Scammers offer cloud mining contracts or mining hardware at attractive rates but never deliver the promised returns or equipment.

Ransomware Attacks: Hackers use malware to encrypt a victim's data and demand Bitcoin as a ransom payment to unlock it.

Fake Airdrops: Scammers promise free cryptocurrency tokens in exchange for personal information or a small payment.

The three most common Bitcoin scams

Data collected by the CoinKickoff researchers reveals the top three most reported crypto scams since 2018. They are:

Blackmail (85,534 reported cases): Bitcoin blackmail involves threats to reveal compromising information unless a payment is made in Bitcoin. Scammers exploit the pseudo-anonymity of the cryptocurrency to hide their identity, making it difficult for victims to recover funds or trace the culprits.

Sextortion (61,298 reported cases): Sextortion scams involve threats to release intimate or compromising photos or videos of the victim unless a Bitcoin ransom is paid. Victims are often contacted through email, with scammers claiming to have hacked their devices or online accounts. Paying rarely guarantees safety from future extortion attempts.

Ransomware (61,018): Ransomware is malicious software that encrypts a victim's files or locks them out of their system. The attacker then demands a Bitcoin payment in exchange for the decryption key. These attacks target individuals, corporations, and public institutions, causing data loss and financial strain. Regular backups and robust cybersecurity measures are essential for protection.

The year of the scammer

The year 2020 was a good one for Bitcoin. The world's biggest cryptocurrency was in the middle of another bull run that would eventually push the price to almost $70,000.

But the increased attention and the allure of quick wealth attracted new and inexperienced users, and it didn't take long for the sharks to start circling. There were over 35,000 reported scams in 2020; that's more than any other period in Bitcoin's history.

Since then, the number of reported scams has been declining dramatically. In the first six months of 2023, there were less than 6,000 cases. But this could be the quiet before the storm. Another bull run is scheduled to start in mid-2024, so expect a rise in scammers trying to trick new investors out of their Bitcoin.

How much Bitcoin did scammers get?

Scammers are stealing eye-watering amounts from Bitcoin holders and investors.

In 2018, they pilfered over $2 billion in Bitcoin. That figure jumped to over $6 billion in 2019, followed by another spike to $18 billion in 2020.

But those are measly gains compared to the value of all the looted Bitcoin in 2021. Data analyzed by CoinKickoff shows that hackers and cybercriminals made over $55 billion stealing Bitcoin.

So where does it all go, and who has it now?

Nobody really knows.

Stolen Bitcoin typically goes through a complex web of transactions to disguise its origins. Cybercriminals who steal Bitcoin often use various techniques like mixing services, tumblers, and darknet markets to launder the funds and make it challenging to trace.

Identifying the responsible parties can be extremely difficult due to the pseudonymous nature of Bitcoin. Transactions are recorded on a public ledger but linked to cryptographic addresses rather than real-world identities. Tracking the individuals behind these addresses is a formidable task, often involving cooperation between law enforcement agencies, blockchain analysis firms, and exchanges.

How to spot and avoid Bitcoin scams

Here are some tips to protect yourself and your Bitcoin stash:

Research and Verification: Before investing or transacting in Bitcoin, thoroughly research the platform, service, or individual you are dealing with. Verify their credentials, check for reviews, and seek recommendations from trusted sources.

Too Good to Be True: Be skeptical of offers that promise guaranteed high returns with minimal risk. If it sounds too good to be true, it probably is.

Secure Wallets: Use reputable cryptocurrency wallets with strong security features. Avoid sharing private keys or wallet recovery phrases with anyone, and store them in a safe, offline location.

Phishing Awareness: Be cautious of phishing emails, websites, or social media accounts impersonating legitimate crypto services. Always double-check URLs and verify the authenticity of the communication.

Cold Storage: Consider using cold storage options like hardware wallets for long-term Bitcoin holdings. These are less vulnerable to online threats.

Trust Your Gut: If something feels off or too risky, trust your instincts and refrain from proceeding.