How to identify and avoid Bitcoin scams

Updated: 2 September 2020

Bitcoin is attractive to scammers for the same reason it’s appealing to you: it’s fast, it’s international, and it’s irreversible. Unfortunately, therefore, as bitcoin usage has grown, so too have the number of scams.

These are easy to avoid, but you have to know what you’re looking for. The following are some of the most persistent bitcoin scams to be aware of. Stay vigilant out there!

Bitcoin Ponzi, HYIP or MLM schemes

These schemes promise sky-high returns and low fees. They often rely on existing investors signing up new ones, which is the only source of revenue or growth. As with all Ponzi schemes, early investors get paid with the money from later investors.

Inevitably when new investors stop signing up and depositing, the scheme collapses, since no more funds can be paid out.

What to look out for

These are some of the warning signs that you might be dealing with an illegal scheme:

• Promises of very high returns/interest
• Guarantees that you “can’t lose money”
• Little verifiable information on company and owners
• Difficulties in withdrawing your funds
• Social signup links with high bonuses
• A sense of urgency to “invest now.”

Bitcoin phishing scams

Phishing scams are common online. Scammers create emails, messages, login pages and websites that resemble a legitimate company. Once someone enters their information (like login username and password), the scammers can access their account.

If someone has the same password used on multiple sites, the scammers can often gain access to other sites with more sensitive information.

How to prevent phishing scams

• Don’t click on suspicious emails
• Ensure the correct spelling of the website address
• Use a unique, secure password for every website account
• Use a reputable password management tool
• Enable two-factor authentication on sites that support it
• Report suspicious emails to your email provider (as phishing)
• Report suspicious websites to the respective web hosting company

Social media scams

These are by far the most pervasive scams we see on a daily basis. Here’s how they operate: scammers will lure new victims in on social media sites like Facebook, Instagram, Telegram or Twitter via direct messages or comments on a post. They often promise exorbitant returns before encouraging their victims to send them money to buy or trade crypto on their behalf. Often, they’ll include unverified screenshots detailing accounts from alleged individuals thanking them for the returns they received. Or, they’ll include unverified screenshots of high bank account balances or Luno Wallet balances. These are more often than not fake. 

Typically, they’ll encourage their victims to move the conversation to a messaging app like WhatsApp. Our Customer Support team receive countless messages from victims who’ve been scammed and, unfortunately, due to the nature of bitcoin, it’s often impossible to recover the money they sent out and subsequently lost. Luno doesn’t employ third-party traders, as many claim to be.

Protect yourself from falling victim to social media scams by:

• Never engaging with people you don’t know on social media
• Never sending money to people you don’t know

Bitcoin mining scams

Bitcoin is created through mining – a complicated process we won’t explain here. Mining uses a lot of energy and is expensive to start doing. So, miners will sometimes ask people to invest in them, in return for future profits.

There are some legitimate Bitcoin mining schemes, but there are far more mining scams than legitimate outfits. Since it is difficult for most investors to confirm if a mining scheme owns mining gear (or does any mining at all), many websites claim to mine but take investor funds, pay high returns for a while to build trust and then disappear.

Avoiding mining scams

These are some of the things to be on the lookout for:

• Inability to see or verify the proof of ownership of any mining equipment
• Inability to see or verify their public mining address and ownership
• A new website (look it up with archive.org)
• High referral commissions
• Guaranteed profits

Bitcoin wallet and exchange scams

Some websites claim to be Bitcoin wallets. Others claim to be exchanges, where one can trade Bitcoin. Others yet claim to do both, but many of these are in fact scam sites.

They simply get users to sign up and deposit Bitcoin or local currency for a while to build trust and then after a while make off with the money.

Things to be on the lookout for

• Only deal with reputable, registered companies
• Make sure you can verify the identity of the employees/owners
• See if they are mentioned in trustworthy publications
• Treat anonymous and new exchanges, apps and browser extensions with caution

List of known Bitcoin scams

Since it’s easy to set up a scam website, it’s impossible to always have an up to date list of scams. You should do your own research and learn to look for suspicious schemes.

However, here are some sites that research/comment on scams:

• Bad Bitcoin
• Bitcoin Scammer
• Bitcoin Talk
• Behind MLM

If you are putting your money anywhere, it’s up to you to do your own research and investigation (Google and Reddit can take you far). And remember: if something sounds too good to be true, it probably is.