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Top 5 Bitcoin and Crypto Scams

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Cryptocurrency investors have been rewarded over the last 12 months with incredible gains. In the terminology of Peter Lynch, Bitcoin and Ethereum have both been 20 baggers over the last year or so, with some altcoins producing even better returns. And that’s not even mentioning the stunning rise of nonfungible tokens (NFTs) in 2021. From NBA TopShot to Cryptopunks to digital art, crypto collectibles have seen a meteoric rise in value.

Unfortunately, grifters and con artists are drawn to wildly profitable assets like moths to lightbulbs. The bull market for cryptocurrency includes many different sublevels and the market for scammers is thriving. And unlike assets stored in the bank or brokerage account, there’s no FDIC or SIPC coverage to protect your cash from hackers, thieves and other tech-savvy criminals. 

If you unwittingly fall victim to one of these scams, your avenues of recourse will be limited (and possibly nonexistent). Here’s how to avoid being the prey of a crypto con artist.

What is a Bitcoin Scam?

Bitcoin scams are when people or groups attempt to trick or maneuver unsuspecting victims into sending them Bitcoin (or revealing a pathway to their cryptocurrency wallet). Crypto scammers aren’t much different from your traditional financial swindler. They lure eager investors into a false sense of security, usually by offering incredible deals or amazing profits. Clients either invest their cryptocurrency into the scammer’s “platform” or send it to an outside source. Once the scammer has the crypto, they vanish and the victim is left with nothing.

Bitcoin scams come in all shapes and sizes. Some prey on fans of popular celebrities and CEOs like Elon Musk, while others use hacking or malware to gain access to the accounts of victims. And sometimes, you’ll be offered a fake NFT horse on Twitter (no really, this happens). Like all financial chicanery, Bitcoin scams are ever-evolving techniques and investors should familiarize themselves with the most common ones.

Bitcoin Payments are Irreversible

One of Bitcoin’s appeals also makes it a prime target of scammers. Bitcoin transactions are irrefutable and irreversible. Because no central authority governs the authenticity of transactions, the community works in unison to create new blocks of unalterable transaction data. Once a transaction has been approved, it cannot be deleted from the blockchain — even if it wasn’t submitted by the actual owner of the Bitcoin.

Since Bitcoin payments cannot be reversed, they are a honeypot for successful scammers since no one will be attempting to recover the funds. A scammer can simply move the Bitcoin out of the fraudulent wallet, close it down and disappear into the night. Bitcoin scams are particularly nefarious since, unlike credit card fraud, there’s no one coming to refund you.

Security Considerations

To keep your cryptocurrency safe, keep your passwords written down in a safe place. And we mean written down — don’t save as a note on your smartphone. Keeping your security keys off of machines connected to the internet ensures that hackers and malware can’t reveal your private data.

One popular option for Bitcoin storage is what’s called a “cold wallet.” A cold wallet is a digital cryptocurrency wallet, but unlike your Coinbase or Gemini wallet, it’s a piece of hardware not connected to the internet. Bitcoin kept in cold wallets is extremely difficult to compromise, unless the physical hardware itself is stolen.

Top 5 Bitcoin and Crypto Scams 

Cryptocurrency might be a relatively new asset class, but you’ll notice a lot of these scams are recycled versions of classic cons. Here are 5 to keep an eye out for — you’ve probably seen similar versions of these in the past.

Scam  #1: Social media con artists

Some good old-fashioned password hacking is an easy way for scammers to get unsuspecting people to send them Bitcoin. A notorious example occurred in January 2021 when hackers posed as Elon Musk and posted a link to a Bitcoin wallet, offering to double any BTC deposit sent to that address. Sounds fishy already, doesn’t it? 

Unfortunately, many of Musk’s followers would leap off the Golden Gate Bridge if he did it first, so the BTC began flying into the linked wallet. Of course, it wasn’t Musk’s wallet — in fact, the account in question wasn’t even Musk’s Twitter! The scammers simply hacked a different Twitter with a blue checkmark, changed the profile picture and name to that of Musk’s, and responded to his previously posted tweets with a link to the wallet. 

Anyone falling victim to this particular scam has more egg on their face than the grill at Denny’s. But social media is the primary vehicle for crypto scammers, who trick other users into sending them Bitcoin or signing up for a fake exchange (among other examples). Beware of anyone randomly offering free crypto on social media; it’s almost surely a scam.

Scam  #2: DeFi rug pulls

Decentralized finance (DeFi) platforms aim to reboot traditional financial models by allowing users to stake their cryptocurrencies to networks and earn profits through interest, like depositing funds in a savings account or CD. As the cryptocurrency remains locked in the network, the owner receives periodic payments that often far outpace the rates offered by banks.

While most DeFi platforms have noble intentions, some are just flat-out scams. Investors are tricked into locking up their crypto with a seemingly reputable DeFi company, such as Burn Vault Finance and Compounder Finance. With promises of excellent returns for lending their money, the scammers enter the investors into smart contracts, which later enable them to steal the funds without a chance for the true owner to recover them. The scammers then disappear into a cloud of smoke. Beware of DeFi platforms promising returns that sound too good to be true.

Scam  #3: NFT scams

NFTs or nonfungible tokens are one of the current investment crazes thanks to the high prices being fetched by everything from pieces by internet artists to LeBron James highlights on NBA TopShot. NFTs exist on the blockchain and can be transferred back and forth being different users or marketplaces. 

While the actual image or video in the NFT is easily duplicable, the specific hashtag code that points to the NFTs location is not. But possession is ten-tenths of the law when it comes to crypto and whoever possesses the hashtag holds the power. If your account is hacked and the NFT transferred to an outside user, you’ll have a difficult time getting it back (or compensation for it). 

Additionally, scammers prey on the prospects of large profits and offer fake NFTs to prospective buyers. NFT scams are on the rise — only purchase them through legitimate channels and always use two-factor authentication when available.

Scam  #4: Altcoin pump and dumps

Ah, the classic pump and dump. Like penny stocks, altcoins are often cheap and illiquid, with market caps small enough that a few large players can send the price soaring. The crypto pump and dump goes down just like its penny stock cousin — a crypto guru or influencer buys up large amounts of some speculative altcoin and then pumps up the potential of that coin to their followers. 

Once the crowd piles in, the scammer exits the position and the unsuspecting followers are left holding the bag. Altcoins are volatile like penny stocks and it’s not rare to see investments cut in half on a single day.

Scam  #5: Viruses and malware

Scammers don’t always need to reinvent the wheel. Sometimes, a good old-fashioned computer virus or malware is enough to gain access to a person’s crypto wallet and transfer all the funds out. And since these transactions are irreversible, victims have no recourse. Luckily, viruses and malware are well-known and virus detection software can prevent most attacks. Again, always protect your wallets and apps with two-factor authentication. 

Additional Scams 

Other scams include building an entire fake exchange, which is what happened with BitKRX in South Korea. Investors poured millions into the exchange because the promises of profit were so great. In reality, they were simply stealing money from their clients. South Korean authorities eventually shut down the unethical exchange, but not before investors lost millions upon millions in capital.

Some scams don’t even involve stealing any crypto. A popular Bitcoin scam involves fake mining hardware, which is often expensive and difficult to find. Mining Bitcoin requires tremendous energy and computational power, so prospective miners often jump at the chance for cheap equipment. But after purchasing a supposedly state-of-the-art Bitcoin mining machine, the buyer often finds the power and efficiency have been vastly overstated — if the darn thing even works at all. Be cautious of anyone offering cheap mining equipment on eBay or Amazon.

Safest Brokers for Trading Bitcoin

Choosing a reputable broker for cryptocurrency trading will offer more security and peace of mind over your investments. Here are a few of our favorites.

Best For
Buying & selling Bitcoin
Overall Rating
get started securely through Robinhood’s website
Best For
Crypto Trading
Overall Rating
Get started securely through eToro’s website
Best For
Crypto Trading
N/A
1 Minute Review

eToro, headquartered in Cyprus, England and Israel, has provided forex products and other CFD derivatives to retail clients since 2007. A major eToro plus is its social trading operations, including OpenBook, which allows new clients to copy trade the platform’s best performers. Its social trading features are top notch, but eToro loses points for its lack of tradable currency pairs and underwhelming research and customer service features

Best For
  • U.S.-based cryptocurrency traders
  • Social and copy traders
  • Simple user interface
  • Community engagement and following other traders
Pros
  • Expansive network of social trading features
  • Large client base for new traders to imitate
Cons
  • U.S. traders can only buy cryptocurrency
  • Only 15 cryptocurrency pairs available
Best For
New Investors
Overall Rating
try for free securely through Gemini Crypto’s website
Best For
New Investors
N/A
1 Minute Review

Gemini is a cryptocurrency exchange and custodian that offers investors access to 26 coins and tokens. Founded in the US, Gemini is expanding globally, in particular into Europe and Asia. Offerings include both major cryptocurrency projects like Bitcoin and Ethereum, and smaller altcoins like Orchid and 0x.

Gemini is 1 of the only brokers with multiple platform options based on skill level. New investors will love the streamlined interface of Gemini’s mobile and web apps, while advanced investors might appreciate all the tools that come with ActiveTrader. 

In addition to a host of platform choices, Gemini users also have access to insured hot wallets to store tokens without worrying about digital asset theft. Learn more about what Gemini can do for you in our review.

Best For
  • New investors looking for a simple mobile and web app
  • Experienced investors who need a more advanced platform with more tools
  • Users looking for a 1-stop-shop to buy, sell and store all of their coins
Pros
  • Easy and quick signups — can get started in as little as a few minutes
  • Multitude of platforms to accommodate traders of all skill levels
  • Hot wallets include insurance to protect your from theft and hacking attempts
Cons
  • Charges both a commission and a convenience fee for users buying and selling through the desktop or mobile app
Best For
Crypto Investing
Overall Rating
Get started securely through Coinbase’s website
Best For
Crypto Investing
N/A
1 Minute Review

Coinbase is one of the Internet’s largest cryptocurrency trading platforms. From Bitcoin to Litecoin or Basic Attention Token to Chainlink, Coinbase makes it exceptionally simple to buy and sell major cryptocurrency pairs. 

You can even earn cryptocurrency rewards through Coinbase’s unique Coinbase Earn feature. More advanced traders will love the Coinbase Pro platform, which offers more order types and enhanced functionality.

Though Coinbase doesn’t offer the most affordable pricing or the lowest fees, its simple platform is easy enough for complete beginners to master in as little as a single trade.

Best For
  • New cryptocurrency traders
  • Cryptocurrency traders interested in major pairs
  • Cryptocurrency traders interested in a simple platform
Pros
  • Simple platform is easy to operate
  • Comprehensive mobile app mirrors desktop functionality
  • Coinbase Earn feature rewards you with crypto for learning about available coins
Cons
  • Higher fees than competitors

Protect Yourself from Crypto Cons

As long as the price of Bitcoin keeps rising, scammers will keep trying to pry it from victims. In order to protect yourself, engage a little common sense — always use two-factor authentication when available, rotate your passwords, don’t lose your access keys, and never trust anyone with an offer that sounds too good to be true. Cryptocurrency investing is likely here to stay, so scammers will always be on the lookout for the next mark. Don’t let it be you.

Frequently Asked Questions

Is Bitcoin legit and safe?

1
Is Bitcoin legit and safe?
asked
1

Yes, Bitcoin is safe to own and trade on trusted exchanges and brokers. But transactions are irreversible, so never hand over BTC to any person or firm you don’t know or trust.

answered

Does Bitcoin give you real money?

1
Does Bitcoin give you real money?
asked
1

Bitcoin is a digital currency paid as a reward to miners who approve transactions on the blockchain. Bitcoin can be exchanged for U.S. dollars or other legal tender and used for purchases in a few places (like a Tesla showroom).

answered

How do I get my Bitcoins back from scams?

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How do I get my Bitcoins back from scams?
asked
1

You can’t. Bitcoin transfers cannot be reversed and the scammer is often long gone by the time any intervention comes. The Bitcoin network is decentralized and holdings are not insured by any regulatory body.

answered

Try Gemini

Gemini builds crypto products to help you buy, sell, and store your bitcoin and cryptocurrency. You can buy bitcoin and crypto instantly and access all the tools you need to understand the crypto market and start investing, all through one clear, attractive interface. Gemini Crypto Platform offers excellent account management options. You can manage your account at a glance, view your account balance 24-hour changes and percent changes. Get started with Gemini now.

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