How to Avoid Bitcoin Scams

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The world of cryptocurrency, being just over 10 years old, is subject to less regulation than some more established markets.

This can lead to a Wild West attitude, where unscrupulous individuals take advantage of people who are new to crypto, fleecing them of their money and taking advantage of their trust.

There’s a lot more to crypto than getting scammed, so how can you make sure that your first experiences are good ones, and protect yourself from scammers?

First, we’ll take a look at some of the biggest Bitcoin scams that have been perpetrated. We’ll identify some common themes and then go through some things you can keep in mind to help protect yourself and keep your money where it belongs: in your (digital) wallet.

Plus Token

Boxmining has a greatsummary of the wallet addresses believed to hold the stolen funds.


Plus Token was a Ponzi scheme that was marketed as a high-yield investing platform for cryptocurrency users. Most of its users/victims came from South Korea and China, though investors from Japan and South East Asia were duped, and even as far away as Russia and Canada.

The Plus Token ponzi was so successful that by the end its operators controlled more than 1% of the total circulating Bitcoin supply.

The mugshots of some of the Plustoken architects

But how did it fool so many people?

First off, those who put money into Plus Token were generally people unfamiliar with the world of Bitcoin and cryptocurrency. Moreover, rapid growth for investors has not been at all out of the ordinary in recent years in China.

China has enjoyed an explosion of wealth creation in recent decades, so Chinese citizens used to quick capital growth and wealth accumulation are less sensitive to this type of Ponzi when they front as high-yield investments.

Dovey Wan Co-Founder of Primitive Ventures and Advisor to CoinDesk

Plus Token advised users on how to purchase crypto that they could then deposit into the app. Chinese users could instantly convert Yen into Bitcoin, Ether, EOS, Doge, Litecoin and other altcoins.

Users were paid for the “interest” on their deposits, and received their dividends in the form of the app’s native Plus Token. At the peak of the scam, the token hit a high of $340, which would have made it the third largest cryptocurrency by market capitalization if it were listed on CoinMarketCap.

While early users did receive payouts, unless they immediately converted their Plus tokens to a more reputable currency, they ended up being scammed just as much as those who lost their deposits and never received any dividends at all. Plus token is now not listed on any exchanges, and is essentially worthless.

As with many scams, a lot of effort was put into making it seem legitimate. There were advertisements in Chinese supermarkets, rave-like events in auditoriums set to K-Pop soundtracks, even billboards in Chinese cities.

The promise of high returns combined with incentives for bringing in new users is always a recipe for trouble. Yet it can be hard to look past the lure of money and see a scam for what it truly is.

Sometimes, though, it’s impossible to miss…

BitConnect


BitConnect launched with an ICO in 2016. It promised investors up to 40% monthly returns, with a minimum return of 1% per day compounding.

bitconnect lending Source: TheNextWeb.com

How was this achieved? With BitConnect’s proprietary Price Volatility Software. Sounds vague, but hey, with payouts like that, who’s complaining?



The results were great while they lasted, pushing BitConnect into the top 20 in terms of market cap. Promoters (or educators as they called themselves) raked in hundreds of thousands of dollars in commission.

But as the scam drew attention from those who doubted its promises of riches, the promoters distanced themselves, claiming they were never part of it in the first place. Some deleted their YouTube channels, others simply moved on to shilling the next get-rich-quick scheme.



BitConnect received cease and desist notices from the British Registrar of Companies and the Texas State Securities Board, who claimed that “the company operates websites and deploys online advertising to recruit sales agents, which it calls “affiliates.” The company provides marketing material to affiliates, including online presentations, and pays them commissions for referrals that result in investments in BitConnect programs.”

In other words, a classic Ponzi.

thief bitcoin

Unable to support the scheme any longer, the administrators released a statement in January 2018. “We are closing the lending operation immediately with the release of all outstanding loans,” it read. “With release of your entire active loan in the lending wallet we are transferring all your lending wallet balance to your BitConnect wallet balance at 363.62 USD.”

“In short, we are closing lending service and exchange service while BitConnect.co website will operate for wallet service, news and educational purposes.”

The price of the BitConnect token (BCC) dumped 96% within a couple of minutes.

bitconnect chart

All account balances had been converted to BCC, which - with the platform shutting down completely and there being no hope of new future investment - was worthless.

How Can I Avoid Bitcoin Scams?

While there are no hard and fast rules to avoiding scams - as those who perpetrate them are always coming up with new ways to make their operations seem legitimate - there are some things to keep in mind.

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1. If it seems too good to be true, it probably is.

If a $1000 initial investment really could make you a millionaire within a couple of years, everyone would be doing it. While it might be an ego boost to think that you’re ahead of the game, it’s more likely that someone else has been in on it from the bottom and is only aiming to pull the rug out from beneath you. In a pyramid scheme, the only way to avoid ruin is to be on the first level.

marketing

2. Be wary of aggressive advertising.

The kind of marketing that goes hand-in-hand with multi-level marketing (MLM) is designed to make you feel like you’re part of something revolutionary. Advertisers will minimize risk and exaggerate potential gains, which is never realistic. There is always risk involved in investing. Recognize that, accept that, and don’t let anyone sell you anything that is “risk-free”.

affiliate bonus

3. If a project’s main selling point is “referral bonuses”, run far away.

Referral bonuses are designed to make sure that money continues to come in, while the scam itself makes little or no money. BitConnect’s Price Volatility Software, if it ever existed, was surely not the main source of income.

Referral bonuses encourage investors to bring in friends, family, or anyone they can. While the perpetrators are enjoying your money somewhere on an island tax haven, you’re left to explain to your nearest and dearest why they lost all their money.

Conclusion

At the end of the day, investing in anything confers a certain degree of risk. You should not invest money you cannot afford to lose.

That said, the above methods should help you limit your risk. Buying and holding Bitcoin is for many people an acceptable balance of risk and reward.

Check out our guide to exchanges and the best ways to store your Bitcoin once you’ve bought it.

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FAQ

What is an exit scam?

An exit scam is the relatively simple (and relatively common) practice of absconding with investor funds.

A fraudster may put on an ICO - Initial Coin Offering - ostensibly as a means of funding future growth of a legitimate project. Once unwitting investors have contributed enough money, the creator of the scam disappears with all of the money. The Securities and Exchange Commission (SEC) has warned investors of the risks of participating in ICOs.

Alternatively, the operators of a Dark Net Market may take off with all the funds held in escrow. Buyers and sellers have little recourse, as they can’t exactly turn to law enforcement for help catching the scammers.

Can I get my money back?

Unfortunately, it’s very difficult to get your money back once it’s been lost in a scam. Occasionally the perpetrators are brought to justice and investors get some money back, but usually the bulk of it is long gone before anyone goes to trial.

The Plus Token scam is a good example, despite six people being arrested, the stolen Bitcoins continue to move, suggesting that the ringleader is still at large.

What Should I Do If I Suspect I’ve Been Contacted By a Bitcoin Scammer?

Report them. The best way to draw attention to their scam is to report anything you suspect to be shady. While it may take a while for your case to be looked into, and you can’t rely on overworked and underfunded consumer protection agencies to follow up, it’s better than nothing.

Additionally, you can use social media to bring light to the scam, at least to those in your network.