Cryptocurrencies can be complicated: they're confusing to new users and basically unregulated in Australia, all of which makes them an ideal playing ground for scammers. But with a little bit of know-how and a heads up to common tricks, you can protect yourself against cryptocurrency scams, including those involving Bitcoin.
This is not an endorsement of cryptocurrency or any specific provider, service or offering. It is not a recommendation to trade or use any services.
The first scam on the list is one that you may well be familiar with already, as it's also been widely used to target customers from major banks.
Known as "phishing," this type of scam occurs when you receive an unsolicited email that looks as if it's from your bank — or, in this case, from your crypto exchange or wallet provider. This email contains a link that takes you to a site that looks almost identical to the exchange or wallet you usually use, but is actually a scam site.
Once you enter your account details on this unofficial page, the scammers have everything they need to log in to your real account and steal your funds.
How to avoid phishing scams:
"Never share your private keys or seed phrase and keep our crypto wallet safe, ignore and delete random direct messages or urgent requests, download crypto mobile apps from official sites, use multi-factor authentication, do your own research and do not get swayed easily by 'experts' and more importantly, never act on your irrational exuberance of greed!"
In a similar vein to phishing scams, keep an eye out for fake Bitcoin exchanges. They might walk and talk like a reputable exchange, but they're merely a front to separate consumers from their hard-earned cash.
Some will entice users with promotional offers that sound too good to be true. Others pressure users into creating an account and depositing funds, perhaps even offering "bonuses" to those who deposit larger amounts. But once they have your money these platforms might charge ridiculously high fees, make it very difficult to withdraw funds or simply steal your deposit altogether.
Other scammers have turned their attention to creating quite sophisticated fake wallet apps that, once downloaded to a user's smartphone, can be used to steal critical account details. These apps have even made it into official, legitimate app stores like Google Play, so it pays to do your research before downloading anything to your phone.
In April 2024, Google sued two Chinese nationals in New York federal court, accusing them of misusing its Google Play app store to scam thousands of users out of their money through cryptocurrency investment apps. Google said the alleged fraudsters Yunfeng Sun and Hongnam Cheung engaged in a "social engineering" scheme to lure victims to their apps through text messages and What's App.
How to avoid fake exchange and fake wallet scams:
An exchange with KYC is more secure because it is less susceptible to hacks, data breaches, fraud and criminal activities. It increases customer confidence and trust because it complies with anti-money laundering legislations and ensures market stability because it reduces the risk of scams.
Cryptos may be based on new technology, but there are still plenty of scammers using old tricks to con unwitting consumers.
The classic example of this is an unsolicited phone call or email from someone claiming to be with the ATO. This fictional tax man will try to convince you that you owe the ATO money and you'll be facing legal action if you don't transfer them a certain amount of crypto as soon as possible. Or, they call you to let you know they've intercepted a scam attempt and they want to "help" you recover your account.
The tried-and-tested "Nigerian prince" scam has also migrated into the world of cryptocurrency. So if you're contacted out of the blue by someone overseas promising you a share in a large sum of digital currency if you help them transfer funds out of their own country, use your common sense and recognise it for the scam it is.
How to avoid old-school scams:
Someone called claiming to be from Coinspot. It looked like he was calling from a Victorian residential phone number, which was my first red flag. He said there was unusual activity on my account from Singapore, and asked if I was trying to change my email – I said no and asked him to close the account. He said he did, without asking me any questions to confirm my identity, which was another red flag. A week later, I received a text saying: 'Your log-in code is 652337. Please do not share this code. If this was not you, please give us a call on +61370344765'. I blocked the numbers and did not ring it as it's very obvious this is a scam and I'm sure they'll want my personal details to access the account. Beware!
Michelle
Crypto investor
Seduced by the astronomical price rises Bitcoin has experienced since its inception, many everyday consumers venture into the world of cryptocurrency looking for the next big thing. After all, if "the next Bitcoin" ever actually arrives, getting in at the ground floor could see early-adopters earn a fortune.
And if you want to get in on the ground floor, the easiest option for the average person is to buy coins or tokens in an ICO. There's a huge appetite for new digital currencies — in the first half of 2018 alone, ICOs raised a total of US$11.69 billion — and with many new buyers having limited knowledge of how the crypto industry works, it's the perfect breeding ground for scammers.
In April 2024, the Securities and Exchange Commission (SEC) obtained a final judgment against defendants Ryan Felton, FLiK, and CoinSpark, whom the SEC had previously charged for their involvement in two fraudulent initial coin offerings (ICOs). The complaint alleged Felton misappropriated funds to purchase a home and a Ferrari, instead of building the digital asset trading platform he was meant to create.
This has led to the rise of fake ICOs which, with some slick marketing and a little bit of hype, can convince people to buy a cryptocurrency that doesn't actually exist. Bottom line: if you're dreaming of getting rich quick from a crypto ICO, be aware that for every ICO success story there are many, many more failures, even if the project isn't a scam.
How to avoid fraudulent ICOs:
Similar to how scammers will sometimes pretend to represent the tax office in the hope of coercing victims out of money, they'll also pretend to be hackers with some kind of incriminating evidence.
One common variation of this scam arrives in the form of an unsolicited email, where the sender claims to be a hacker who has accessed your PC. They will say they've found some kind of incriminating evidence, or taken over your webcam to capture footage of you doing something embarrassing or which you'd rather other people didn't know about. The emails promise to send the incriminating evidence to all of your email or social media contacts unless you send some Bitcoin to the blackmailer, and will typically include instructions on how to purchase Bitcoin and where to send it.
Naturally, it's all a lie. The phony blackmailers don't have any evidence and nothing will happen regardless of whether or not you make a payment. This scam is purely a numbers game, where the perpetrators hope that by sending out enough emails they'll scare enough people into sending them some Bitcoin.
How to avoid Bitcoin blackmail scams
One type of scam that's common to many large sites and social media platforms is a celebrity impersonation giveaway scam. Here, the scammers will impersonate a celebrity or other notable person and announce that they're giving away a lot of cryptocurrency for free, as long as you send them some cryptocurrency first.
The scammers will often promise to send back double what you send them. Although especially prominent on Twitter, this scam has also appeared on platforms including YouTube, where scammers will impersonate a celebrity in a video or livestream.
This scam is all about quickly rushing victims into a bad decision by making them think they're missing out. A typical giveaway scam always specifies a total amount of cryptocurrency, such as "5,000 ETH giveaway" and then uses an army of bots and fake accounts to make it look like people are actually receiving money.
After seeing all the apparently free money being given away, victims race to send money to the scammers before they have time to think it over.
On Twitter, the fake giveaway bots will often have a blue "verified" check mark, but this does not mean anything. The scammers obtain this by taking over verified accounts and then changing the names. Similarly, scams will often have thousands of likes, views, retweets or other types of social proof. Those are just from bots, and don't mean anything either.
Although there are some ways to get free crypto, it's only possible to get small amounts and there's often some kind of catch.
How to avoid impersonation giveaway scams
A Ponzi scheme is a simple but alarmingly effective scam that lures in new investors with the promise of unusually high returns. Here's how it works: a promoter convinces people to invest in their scheme. These initial investors receive what they believe to be returns, but are actually payouts from the money deposited by newer investors. Now satisfied that the scheme is legit, those investors who received payouts pump more of their money into the scheme and encourage others to do the same.
Sooner or later, the scheme collapses when the promoter runs off with the money or it becomes too difficult to lure new investors. These types of pyramid schemes are nothing new and can be easy to spot, but that hasn't stopped some crypto buyers from being scammed in a handful of high-profile incidents.
In January 2018, Bitcoin investment lending platform Bitconnect shut down its lending and exchange services amid allegations it was a Ponzi scheme. Launched in early 2017 with promises of returns of up to 40% per month, the platform was quick to attract criticism from the wider crypto community and soon drew the attention of regulators.
How to avoid Ponzi/pyramid schemes:
A rug pull is a type of exit scam in which a smart contract is robbed of its funds by one of the contract's own developers, after a substantial number of users have deposited money. Rug pulls have become increasingly common in the DeFi space, where users deposit funds into specialised smart contracts in order to earn rewards – a process known as "yield farming". Once a large enough sum of funds has been deposited into the contract, one of the developers will then steal the funds, either using the contract's keys or a hidden backdoor in the code.
A rug pull can be very difficult to spot before it happens as they typically originate from profitable projects that function as intended, unlike a Ponzi scheme or ICO scam which are illegitimate from the outset. Furthermore, because of the rapid and dynamic nature of DeFi, users often enthusiastically "pile in" to new projects early in their life-cycle while profits are highest, which may give the project an unwarranted degree of trust.
SushiSwap was famously rug pulled for 37,400 ETH by its developer, Chef Nomi, after amassing US$1 billion worth of funds after only a few weeks of operation.
How to avoid crypto rug pulls:
Malware has long been a weapon in the arsenal of online scammers. But thanks to the complicated and highly technical nature of cryptocurrencies, much of which isn't well understood by most people, malware now poses an even bigger threat.
Rather than stealing credit card and bank account details, crypto-related malware is designed to get access to your web wallet and drain your account, monitor the Windows clipboard for cryptocurrency addresses and replace your legitimate address with an address belonging to a scammer, or even infect your computer with a cryptocurrency miner.
How to avoid cryptocurrency malware scams:
Cloud mining allows you to mine cryptocurrencies like Bitcoin without having to purchase the expensive hardware required to do so. There are several legitimate cloud mining services that let users rent server space to mine for coins at a set rate. There are also some legitimate ways to invest in Bitcoin mining companies and share profits from them.
However, there are also plenty of cryptocurrency mining scams out there. Some promise astronomical (and implausible) returns and fail to disclose a range of hidden fees, while others are fronts for Ponzi scams and are simply designed to part you from your money.
It's also important to note that even if it's not an outright scam, cloud mining will always be a bad investment compared to simply buying cryptocurrency, as will leasing any other form of cryptocurrency mining equipment. The quirks of Bitcoin mining economics means that no matter what Bitcoin prices do, you'll always be better off just buying the equivalent amount of Bitcoin instead of trying to invest that money in a mining scheme.
Even if they're not technically scams, it's a mathematical fact that all "legitimate" Bitcoin cloud mining businesses and consumer-oriented miner rental schemes are invariably bad investments.
How to avoid cryptocurrency mining scams
Cryptocurrencies are often dismissed as a speculator's dream come true that are ripe for a little bit of market manipulation, which has led to the rise of what are known as "pump and dump" schemes. This is where large groups of buyers target an altcoin with a small market cap, buy that coin en masse at a particular time to drive its price up (which attracts a whole lot of new buyers fueled by FOMO — a fear of missing out) and then sell to take advantage of the significant price rise.
This sort of thing is illegal in traditional securities markets, but is a common occurrence in the largely unregulated world of cryptocurrencies. In fact, there are several online groups and forums dedicated to this exact practice, so it's important that you stay savvy and know how to steer clear of these scams.
How to avoid pump and dump scams:
In January 2018, a fake Twitter account purporting to belong to cybersecurity guru and crypto enthusiast John McAfee tweeted support for the GVT cryptocurrency, naming it "coin of the day."
For some in the crypto community, this was good enough reason to buy some GVT, and just four minutes after the tweet was posted the price of GVT had jumped from $30 to $45 and trading volume had doubled. Fifteen minutes later, the price was hovering around the $30 mark once again, after early buyers "dumped" and ran.
On closer inspection, the Twitter account was revealed to be bogus and not associated with McAfee at all. Instead, it was simply a key player in a pump and dump scheme devised and implemented in a chat room called "Big Pump Signal."
Unsure whether a particular crypto website is a scam or not? Use this checklist to help sort legitimate providers from those platforms you're better off avoiding altogether.
Please note that this checklist is far from foolproof, as it's possible for a website to pass several of the above tests with flying colors and still be a scam. The important thing to remember is to do your due diligence before providing any personal or financial information to any website or app.
| Response | WA | VIC | SA | QLD | NSW |
|---|---|---|---|---|---|
| No I haven't | 16.67% | 26.24% | 32.88% | 21.11% | 20.85% |
| Through an incorrect transaction | 3.92% | 1.14% | 2.74% | 1.01% | 1.81% |
| Lost access to a wallet or private keys | 0.98% | 1.14% | 1.01% | 1.81% | |
| Other | 0.98% | 0.76% | 1.37% | 0.5% | 0.3% |
| Through a centralised exchange hack | 0.98% | 1.14% | 1.37% | 2.51% | 0.6% |
| Through a DeFi hack | 0.76% | 0.5% | 0.91% |
If you've sent money overseas as the victim of a scam, it's important to know that the chances of you getting your money back are unfortunately very slim. This is true for all international scams, but cryptocurrency in particular is especially difficult to recover.
You can still report it though, to help prevent other people from falling victim.
If you've spotted a scam or been the victim of one, you can report it to ACCC's Scamwatch. To help spread the word faster, you can also report specific types of scams to the relevant agencies.
You can also help by reporting any scams you see on social media, using the 'report' button provided by most platforms.
There are plenty of other simple steps you can take to protect yourself against Bitcoin and crypto fraud, such as:
Disclaimer: Cryptocurrencies are speculative, complex and involve significant risks – they are highly volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of future performance. Consider your own circumstances, and obtain your own advice, before relying on this information. You should also verify the nature of any product or service (including its legal status and relevant regulatory requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may have holdings in the cryptocurrencies discussed.
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Hi there I would like to know please a company called BTC Transactions and they say they are in Queen Street. London.
Hi Santolo, There doesn’t appear to be any information about this company online. We recommend you do more research to verify their authenticity.
I want to ask if Foro (forocorporatefinance.com) is a legit bitcoin broker?
Hi Jan,
Thank you for getting in touch with finder.
Upon checking on bitcoin trading site, I didn’t see forocorporatefinance.com. As a friendly reminder, while we do not represent any company we feature on our pages, we can offer you general advice. I suggest that you also verify it with bitcoin by visiting their official page then proceed in the contact us page to enquire about their legit brokers.
I hope this helps.
Have a great day!
Cheers,
Jeni