Bitcoin is a cryptocurrency and worldwide payment system. It is the first decentralized digital currency, as the system works without a central bank or single administrator. The network is peer-to-peer and transactions take place between users directly, without an intermediary. These transactions are verified by network nodes through cryptography and recorded in a public distributed ledger called a blockchain. Bitcoin was invented by an unknown person or group of people under the name Satoshi Nakamoto and released as open-source software in 2009.
The system is peer-to-peer, and transactions take place between users directly, without an intermediary. These transactions are verified by network nodes through cryptography and recorded in a public distributed ledger called a blockchain.
By itself, bitcoin is not a scam.
Bitcoin is not a scam by itself, but the people involved might be trying to scam you. Online scammers often create fake investment companies to trick you into thinking you’re investing in bitcoin, but you’re actually just sending money to their bank accounts.
Since bitcoin is a fully digital currency and can be traded online without ever directly speaking to someone, how do you identify the red flags of a bitcoin scam?
Red flags of a bitcoin scam
#1: Unrealistically high returns on investment.
There is no special proprietary software that can double your investment in a short amount of time. If someone promises you that kind of return, it’s a scam. It’s also a red flag if you receive an unsolicited message from someone on social media saying they can help you get rich quickly.
#2: The supposed investment company isn’t registered with the SEC.
In the United States, all companies involved in investments of any kind must register with the SEC (Securities and Exchange Commission). This means that these companies have filed paperwork indicating who they are and what they do with investors’ money. If they haven’t done this, they cannot legally operate as an investment firm.
#3: Unsolicited email or social media message offering a bitcoin investment.
If you receive an unsolicited email or social media message offering a bitcoin investment, it’s likely a scam. The same holds true if you find yourself on the receiving end of an unexpected phone call. Professional investors will not contact you out of the blue—they’ll be approached by companies looking to make an investment, not the other way around.
Sometimes scammers will try to entice you to invest by calling you an Accredited Investor in their initial contact. However, most people are not legally considered to be accredited investors and the scammer is hoping to boost your ego. For more information, check out our article Investment Scams: Beware Of The “Accredited Investor” Status
#4: The promise of little or no risk.
Bitcoin is a risky business. No matter how much you feel you’ve learned about cryptocurrency investing, there’s always more room for error. While there are ways to mitigate some of that risk by diversifying your investments or setting up stop losses, there’s no way to guarantee a return on your investment. That’s why any solicitation for investment that promises little or no risk should be viewed with immediate suspicion.
#5: Pressure to buy right away.
A trustworthy person will understand that making solid investment decisions takes time, and they will be happy to give you whatever information you need in order to feel confident about your purchase. Someone who is trying to scam you, on the other hand, will not only have a sense of urgency themselves, but they’ll also pressure you into having one as well. They might try to make it seem like this is a once-in-a-lifetime opportunity that won’t come around again—and if you don’t seize the moment right now, you’ll miss out on the chance of a lifetime.
#6: They offer you a “loan” to get started.
A red flag of a bitcoin scam is if the company offers you a bitcoin loan to get started. Recently, online scammers have been facilitating these loan scams to entice people into investing when they don’t really have the money to lose. They will give you a fake loan, then tell you that you can’t withdraw any of your investment until you pay the loan back. Once you start paying the loan, they’re stealing your money. No legitimate investment company would ever consider giving you a loan to invest with them.
Looking to learn more about crypto loan scams? Check out our article The Newest Version Of Crypto Scams: Loan Scams
#7: Websites and apps with poor grammar, spelling, and overall user experience.
Professionalism goes a long way when it comes to proving a company’s legitimacy. If you look at the website of a typical business—whether it’s a restaurant, a tech startup, or an accounting firm—the site will usually be clean and well-organized, with well-written content describing what the company does. This is because typically businesses are run by professionals who are experienced in their field and know how to present their company in the best light possible.
Conversely, if you look at the website of a scammer, chances are it will be littered with poor grammar and spelling mistakes, stock photos (or no photos at all), and elements that were clearly taken from other websites without permission.
Looking for more signs of a fake website? Check out our article 10 Signs of a Fake eCommerce Website
#8: Communication is through unprofessional means.
One of the most important things to look out for is how they want to communicate with you. If a company wants to talk through WhatsApp or any other form of VOIP or anonymous messaging, this should be an enormous red flag. These methods of communication don’t leave a paper trail and are very difficult to trace if something goes wrong. The way that most legitimate companies operate is through email at the very least. However, it’s easy enough to spoof an email address, so you should always ask for a phone number as well. Ideally, this will be a company phone number and not one that’s registered under someone’s personal name, as a cell phone number would be.
Be on the lookout for bad actors posing as Bitcoin investment coaches. As cryptocurrencies continue to become more mainstream, it will be increasingly common for companies to offer investment advice and coaching services. To ensure you’re receiving legitimate advice, thoroughly research the credentials of any potential professionals before deciding to hire them. And if you have any concerns about a potential Bitcoin coach, consult an attorney or other financial professional. Make sure that your investment coach is not a scam artist posing as a legitimate professional.
Have you been involved in a bitcoin, crypto, or online scam? Get in touch with Active Intel Investigations to learn more about our online scam investigations.