Bitcoin Scams And How To Avoid It

As major retailers continue to adopt bitcoin and the world continues to warm up to the idea of the virtual currency, the number of fraud cases related to it is increasing at an alarming rate.

Bitcoin transactions are not overseen by any central authority or financial institution and are irreversible thus making them a popular “vehicle” for fraudsters. You should be able to identify a legitimate bitcoin program and a scam. Failure to do so can lead to loss of valuable investment. Bitcoin scams are often promoted in online chat rooms and forums. Some even pass as legit. Here are common bitcoin scams and how to avoid them;

The High-yield investment program (ponzi scheme)

This type of scam lures people with the promise of a high return on investment. In this case, investors are promised a very high interest rate on their deposit. As is the case with a ponzi scheme, early investors are paid out using the investment put in by newer ones. Unfortunately, when investors stop trickling in (usual after a few months), payments cannot be made and the scheme collapses leaving investors reeling in losses and shock.

Bitcoin mining investment scams

Bitcoin mining is a technical term which is used to refer to the act of validating a transaction and providing security for the public ledger (also called the blockchain). For the procedure to be successful, powerful and expensive computers are required. A bitcoin-mining scam typically involves an order for equipment paid for in advance but which is never delivered.

The Bitcoin wallet scam

Bitcoin Wallet
A wallet is a software program used to store currency which in this case would be bitcoins. The use of digital currency promises to provide anonymity and this is what bitcoin-wallet scammers target. They assure you of great transaction anonymity but once deposit levels exceed a certain limit, they move the bitcoins into their own wallets.

Bitcoin exchange scams

Bitcoin Exchange
For you to transact in bitcoins, you must have your credit card processed so that you pay the equivalent in cash then the bitcoins get transferred into your wallet. The allure of going for individuals/ companies offering credit card processing at competitive rates is rife and it’s this loophole that fraudsters take advantage of. They promise to give you the best deal at a cheap rate. However, they do not return cash or bitcoins after receiving payment.

The bitcoin phishing scam

This scam usually involves an email sent to inform the recipient that they have been given or awarded bitcoins. The email will contain an outbound link which the recipient will be asked to click in order to transfer the bitcoins they have “won” into their wallets. Unbeknownst to them, clicking the link gives the phisher control over their account and as a result the wallet is cleaned out.

How to avoid a bitcoin scam

The first rule of the thumb before you transact in bitcoins is; investigate the company you intend to do conduct business with. There are audits (available in public) that can assuage doubt over the credibility of the company. You can check forums for reviews of bitcoin companies. Here are steps you can take to avoid being the victim of a bitcoin scam;


  1. Listen to your gut – if a deal sounds too good to be true then it probably is. Don’t fall for the promise of ridiculously high returns.
  2. Verify facts – don’t believe in what the bitcoin company’s website of information brochure says. Find time to go through the company’s information registry database. Search for WHOIS info about that company and its domain so that you know who is pulling the strings.
  3. Go for publicly audited companies – they should provide access to their proof-of-reserve cryptographic audit data making it easy for potential clients to verify their bitcoin holdings.
  4. Check out reviews and forums – some online forums provide discussion on which people can share credible information about Bitcoins.


Mismanagement and scams are a threat to your investment. With hundreds of businesses mushrooming, there is need for you to be extra careful. Some start-ups don’t have the required infrastructure to run a fully-fledged Bitcoin business and unfortunately most pass as scams. It’s good to keep off them but if you have credible info regarding their legitimacy then you may conduct business with them – at your own risk.

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