Bitcoin Scams: How to Spot, Avoid, and Protect Yourself

Introduction

The rise of cryptocurrencies, particularly Bitcoin, has attracted many opportunists and speculators in recent years. Unfortunately, the number of Bitcoin scams have also increased. According to the FBI’s 2023 Cryptocurrency Fraud Report, Americans lost an incredible $5.6 billion to cryptocurrency scams last year alone, marking a 45% increase from 2022. Investment scams accounted for approximately $4 billion of these losses. Therefore, there is high need for increased awareness and vigilance among potential investors.

Blockchain technology offers many advantages including security and openness. However, individuals should exercise caution as scammers may exploit those seeking to invest in cryptocurrencies. Many scammers often target both experienced and inexperienced users, especially individuals over 60 who may not be familiar with cryptocurrency technology. In this article, we will go over the most common types of Bitcoin scams, their workings, and most importantly, how to guard yourself from being a victim.

Why Bitcoin Scams Are on the Rise?

Bitcoin scams are increasing because the decentralized nature of cryptocurrencies, like Bitcoin, creates a fertile ground for fraud. Unlike traditional banking systems, cryptocurrency transactions are fast, irreversible, and often anonymous, allowing scammers to operate with little accountability. The “Fear of Missing Out” (FOMO) on apparently profitable investment prospects adds to this by clouding judgment and making people more susceptible to fraudulent schemes.

Common Types of Bitcoin Scams

Knowing the different types of Bitcoin scams can help investors recognize potential threats. Below are some of the most prevalent scams currently targeting unsuspecting individuals:

Investment Scams

Targeting people willing to profit from the emerging digital asset market, investment scams in cryptocurrencies remain among the most popular and costly types of fraud. Reflecting a 53% rise from the year before, losses from bitcoin investment scams in 2023 alone came to an amazing $3.96 billion. These frauds use high-pressure techniques to force rash decisions. Also, they offer assured, risk-free rewards, therefore leaving victims with big financial losses. There are various types of cryptocurrency investment scams. Here are some of the most common schemes currently used in the market:

Ponzi Schemes

Ponzi schemes seem profitable because they work by taking cash from new investors to pay out returns to previous participants. In the cryptocurrency world, these scams are especially appealing because they promise of big profits and the market’s mostly unregulated character. They fail when fresh investments dry up, leaving subsequent investors with nothing. According to a TechTarget article, Ponzi schemes are regaining appeal in the cryptocurrency field as fraudsters take advantage of a lack of governmental supervision.

Pump-and-Dump Schemes

Pump-and- dump scams purposefully increase the price of low-value cryptocurrencies by means of aggressive marketing and deceptive advertising. Mass purchases promoted by frauds cause the price to suddenly rise. As the value soars, fraudsters sell off their large holdings, causing a dramatic price fall and leaving victims with worthless assets. Influencers often use this tactic on social media channels, promoting certain tokens to their innocent followers.

Rug Pulls

In the Non-Fungible Token (NFT) and Decentralized Finance (DeFi) sectors we find Rug Pulls scams. Usually paired with elegant websites, comprehensive roadmaps, and vibrant forums, fraudsters launch apparently credible businesses. Investors commit money—especially through NFT minting or liquidity pools—then the fraudsters vanish with the money, leaving the business abandoned and investors bankrupt. One well-known case of fraud involving about $3 million taken before escaping is the Squid Game token scandal. 

Social Media and Celebrity Impersonation Scams

To establish credibility, scammers often pose well-known people, bitcoin influencers, or celebrities on social media sites. Typical strategies call for:

• Fake Giveaways: Scammers promise to double or triple any Bitcoin transferred to a particular wallet. Once the money is sent, the scammers disappear.
• Influencer impersonation: Scammers build fake profiles of reputable people promoting bogus investment prospects or freebies.

These scams profit on trust and the appeal of a “once-in-a-lifetime” opportunity.

Phishing Attacks

Phishing is one of the most popular forms of Bitcoin scams. Fraudsters pose as legitimate entities to steal sensitive information. Some common phishing tactics include:

• Fake Websites: Scammers create cloned websites of famous exchanges or wallets, tricking users into submiting their login credentials.
• Email Phishing: Victims receive emails appearing to be from legitimate crypto companies. Then, they prompt victims to click on malicious links or download harmful files.

Phishing scams are highly effective because they target the user’s trust in known brands.

Malware and SIM-Swap Attacks

Malware and SIM-swapping are two of the tactics used by bitcoin scammers to steal personal information and crypto wallet credentials. Let’s explore these two attacks further.

Malware

Scammers employ malware, a kind of malicious software, to monitor your device or even take control of it. Malicious actors often disguise malware as seemingly benign content, such as an app or update, in order to deceive users into installing it. For example, you might get an email or pop-up saying, “Update your wallet software for better security!”. Clicking on it could secretly installs malware on your device.

Once installed, the malware may spy on your every move, capturing images of private data and even watching as you type in sensitive information like passwords or wallet keys. If a specific virus takes control of your computer or phone, scammers have the ability to seize your Bitcoin wallet details or even lock your device until you pay a ransom.

Precautions to take: You should only install apps or updates from reputable sources, such as the official websites. Be aware of unsolicited emails or pop-ups that asks you to download files or click on links.

SIM-Swap Attacks

SIM-swap attacks occur when scammers to deceive your mobile operator into porting your phone number to a SIM card that they own. Scammer impersonate you, call your phone carrier, and ask for their “help” in activating a new SIM card. In order to appear credible, they may use stolen personal information such as your name, address, or even your ID. 

Since scammers already have your phone number, they can get your two-factor authentication (2FA) codes and other private data. For example, if fraudsters manage to get the security code that was sent to your phone, they can access your Bitcoin wallet.

How to Stay Safe: Use strong account passwords with your mobile provider and ask for extra security measures, like a PIN or password. Consider using an authentication app such as Microsoft Authenticator, instead of SMS for 2FA.

Romance Scams

Romance scammer often target individuals through dating platforms or social media. After building a trust relationship with you, the scammer convinces the victim to invest in Bitcoin, claiming they can help them grow their wealth. This type of scam preys on emotions and is particularly devastating for victims who trust their newfound “partner.”

Fake Crypto Exchanges and Wallets

Some scammers create fake cryptocurrency exchanges or wallets that appear legitimate but are designed to steal funds or personal information. Usually, these sites provide quite good exchange rates or attractive bonuses to lure users.

Address Poisoning: A New and Growing Threat

While cryptocurrencies have revolutionized our financial management, they have also introduced new risks. Address poisoning is among the more recent threats. This fraud, which targets cryptocurrency wallets, is becoming increasingly common. As a cybersecurity expert, I would like to provide an explanation of address poisoning, its causes, and strategies for self-protection.

What Is Address Poisoning?

Your wallet utilizes an address—a special code—when you send or receive cryptocurrencies. These are long, easily copied and pasted, yet difficult to recall letter and numerical sequences. When scammers fool you into using the incorrect address, you get address poisoning.

How it works?

• Monitor Transactions: Scammers monitor the public blockchain, where every bitcoin transaction is visible. They wait for someone to send or receive cryptocurrency.
• Send a small transaction: Once scammers identify a target, they deliver a small amount of bitcoin to the victim’s wallet. The scammers use a fake address that closely matches the victim’s actual transaction records.
• Waiting for Your Mistake: Later on, should the victim wish to send more cryptocurrencies, they could copy and paste the fake address of the scammer from their transaction records without realizing the difference. This error transfers the money to the scammer.

Why is it dangerous?

Address poisoning is harmful because it is easy to fall for. Most people rely on their wallet’s transaction history when they wish to reuse an address. Scammers count on this behavior to pilfer money.

How Can You Protect Yourself?

The good news is that with great caution, you can avoid address poisoning. Here are a few pointers:

• Verify Address Twice: Before sending money, always double-check the complete address. Small variations can indicate that the address is false, even if it seems familiar.
• Never rely on Transaction History: Steer clear of straight-copy wallet addresses from your transaction records. Rather, save critical addresses in a safe location—such as a trusted note or password manager.
• Apply labels for addresses: Some wallets let you designate addresses for regular visits. This will enable you to recognize phony ones and avoid ambiguity.
• Remain Knowledgeable: Stay current with stories of bitcoin frauds. Understanding the newest techniques will enable you to keep ahead of con artists.

Blackmail and Extortion Tactics

Anyone, including those who use cryptocurrencies, might be a target of serious threats like blackmail and extortion. In these frauds, the perpetrators threaten to reveal embarrassing or private information, thereby intimidating you into sending them money. They might say, for instance, they will share confidential information about you—such as images or browser history—unless you pay them in cryptocurrencies. These frauds particularly pose a risk to individuals, as they thrive on anxiety and have the potential to incite panic. Being a cybersecurity specialist, I advise keeping cool under these pressures and never giving in. Should you ever be threatened, you should immediately report the incident to the authorities and guard your internet accounts. Remember always: personal information should never let someone control you.

How to Spot a Bitcoin Scam

Protecting your funds requires awareness of the warning signs of a Bitcoin fraud. These red flags should help you to identify:

1. Promises of Guaranteed High Returns: Real investments come with risks; no credible financial advisor or company can guarantee you high returns. If a Bitcoin investment opportunity promises you unusually high returns with minimal risk, it’s likely a scam.
2. Unexpected Calls: Scammers frequently use unexpected messages and calls to lure victims. Avoid responding to unexpected emails, social media messages, or phone calls promoting Bitcoin investments, especially if the sender pressures you to act quickly.
3. Pressure to Act Quickly: Scammers often use urgency to pressure their victims. Red flags are statements like “Limited time offer” or “Act now”. Real bitcoin investment opportunities will give you enough time to study and evaluate.
4. Insufficient Information: Reputable cryptocurrency businesses provide information about their team, technology, and operations. If you cannot verify the legitimacy of a company or find credible information about its team, it’s best to avoid it.

Real World Examples of Bitcoin Scams

Sophisticated cryptocurrency scams now target people through various channels. These noteworthy actual cases of recent Bitcoin frauds below highlight the techniques applied and the results for the victims engaged:

1. Zhibite Trading Platform Scam: An individual named Wang on LinkedIn referred a Californian to a bogus crypto trading website called zhibitexap.com. Wang led the victim through opening an account and making first trades. The victim invested $1,000, resulting in a small profit that encouraged further investment. After a series of transactions promising great returns, the victim applied for a $20,000 loan, thereby investing a total of $50,000. The victim lost over $50,000 in total investments and was unable to take any money out of the platform. This example highlights the risks associated with relying on individuals you meet online who promise quick gains on trading platforms. [Source]
2. Three Californians fell victim to a fraud employing distributed finance (DeFi) technology named LONTL. Someone posing as XiaoXiao contacted one victim, gradually building a relationship and presenting an investment opportunity associated with their “aunt” on Wall Street. Someone persuaded the victim to trade signals with funds transferred into LONTL. The victim tried to withdraw money after believing their account was worth more than $1.4 million. However, they were informed it was frozen and needed a payment of $73,000 to access. This fraud shows how scammers use personal ties to build confidence prior to victim defraudation [Source]
3. SpikeFXfasttrade.com Scam: Sasha, an Instagram user, approached a Californian, claiming to be a successful cryptocurrency trader. Sasha directed the victim to open a digital wallet and first move $1,000. After some time, the victim thought their account had dramatically increased, only to learn they had to pay “mining fees” and a withdrawal fee to retrieve their money. Despite paying over $10,500 in various fees, the victim was still unable to withdraw their money from the platform. Eventually, they discovered that a hack had compromised Sasha’s account, leading to a substantial financial loss.
4. Check Point Research discovered a malicious program on Google Play that masqueraded as a legitimate Web3 protocol, thereby exploiting consumers. The software fooled consumers into making transactions, allowing attackers to empty their wallets with ERC-20 and BEP-20 tokens. Smart contracts let fraudsters transfer tokens without users’ knowledge once they get their approval. Consequently, this malicious app took an estimated total value of over $70,000 from victims’ wallets before it was identified as fraudulent. [Source]

Protecting Yourself Against Bitcoin Scams

Awareness and proactive measures are key to avoiding Bitcoin scams. Here are strategies to safeguard your investments:

1. Conduct Extensive Research: Before investing in any cryptocurrency or Bitcoin opportunity, study the project, its team, and its history. Look for reputable sources and user reviews, and check for any regulatory actions or warnings issued against the business.
2. Use Secure Wallets and Exchanges: Make only use of reliable and secure cryptocurrency wallets and exchanges. For long-term storage, consider using a hardware wallet. This type of secure wallet is less prone to hacking due to its offline nature.
3. Enable Two-Factor Authentication (2FA): Two-factor authentication adds an extra layer of security to your accounts. Enable 2FA on all your cryptocurrency-related accounts to protect against unauthorised access.
4. Avoid Sharing Personal Information Online: Avoid sharing personal details or discussing your investments on public forums or social media. Scammers often use such information to target individuals with phishing attacks or impersonation schemes.
5. Be Skeptical of “Too Good to Be True” Offers: Many times, scammers often attract victims with promises of large returns. Be cautious of any investment opportunity that sounds too good to be true, as it likely is.

What to Do If You Suspect a Bitcoin Scam

Should you feel you are the victim of a Bitcoin scam, take immediate action to mitigate potential losses.

1. Stop All Transactions with the Scammer: If you’re experiencing an ongoing scam, stop all communication and transactions with the scammer. Do not provide any additional information or funds.
2. Report the Scam to Authorities: Report the scam to appropriate authorities, such as the Federal Trade Commission (FTC) or the Internet Crime Complaint Center (IC3). These agencies can provide guidance and may prevent further harm to others.
3. Notify Your Financial Institutions: Inform your bank, cryptocurrency exchange, or wallet provider if you believe your accounts have been compromised. They may be able to assist you with securing your accounts and preventing further losses.
4. Strengthen Account Security: Change your passwords and turn on two-factor authentication on all affected accounts. Regularly monitor your accounts for any unusual activity.

Conclusion: Staying Vigilant in the Bitcoin Era

Bitcoin and other cryptocurrencies can be exciting ways to invest, but they come with serious risks. Scammers are constantly finding new tricks to steal from unsuspecting people. As a cybersecurity expert, I believe the best way to protect yourself is by staying informed. I hope this article will help you learn about common bitcoin scams and how to spot warning signs.

Always remember: if something sounds too good to be true, it probably is. Big promises of easy money are often scams. Be cautious, take your time, and research thoroughly before making any decisions.

Frequently Asked Questions (FAQs)

References:

• Federal Bureau of Investigation. (2023). Cryptocurrency Fraud Report 2023.
• Fletcher, E. (2022, June 3). Reports show scammers cashing in on crypto craze. Federal Trade Commission. 
• Crypto Scams Drained $5.6 Billion from American Wallets in 2023,
• TechTarget– Common cryptocurrency scams.
• California Department of Financial Protection and Innovation (DFPI). (2024). Crypto Scam Tracker. DFPI Crypto Scam Tracker
• Check Point Research. (2024). Wallet Scam: A Case Study in Crypto Drainer Tactics. Retrieved from Check Point Research
• Department of Justice (DOJ). (2024). DOJ and FBI Phoenix Seize $112M in Proceeds from Crypto-related Scams. Retrieved from DOJ Press Release
• Associated Press (AP). (2024). Americans lost $5.6 billion last year in cryptocurrency fraud scams. Retrieved from AP News
• American Bankers Association. (2023). Crypto investment scams: What you need to know. Retrieved from American Bankers Association
• CNBC. (2024, September 13). How to identify potential cryptocurrency scams. Retrieved from CNBC
• Investopedia. (2023). Beware of these five Bitcoin scams. Retrieved from Investopedia
• Kaspersky. (n.d.). Cryptocurrency scams: How to avoid them. Retrieved from Kaspersky