Beware of bitcoin get-rich-quick schemes

Thursday, 23 August, 2018

If you watched Dragon’s Den on BBC the other day, you may have been wowed by two entrepreneurs who pitched their automated Bitcoin-trading system.

On the surface, it seems a simple idea that allows the average punter the opportunity to cash in on the bitcoin boom. With their scheme you simply invest £180 and the automated trading algorithm would do the rest.

Using a combination of data and machine learning, the algorithm would buy and sell bitcoin to maximise your profit. The Dragons were impressed and within minutes a bidding war started for the privilege of investing in their start-up.

But the latest legitimate pitch follows from last April’s appearance on the Irish equivalent of Dragon’s Den when the show’s stars were fooled by another pair of entrepreneurs hiking their company Bitcoin Trader which, it later transpired, was a scam.

The whole story actually reads very well if it wasn’t completely fake. I know it’s not true, but I’d imagine if you’re somebody in the UK you could easily be duped by this. It is a total scam. I contacted the BBC but trying to get these things down off websites, because it’s a paid-for ad by the people behind this scam to give a sort of official veneer.

- Gavin Duffy: Presenter, Dragon’s Den, RTE

Bitcoin or cryptocurrency is a form of electronic cash and currently there is little regulation, no central banking authority or a single administrator overseeing its performance.

As a consequence, it has been a minefield for potential scams. And just this week the UK’s Financial Conduct Authority (FCA) issued a warning against bitcoin scams as complaints they have received rose dramatically.

And this comes in the wake of reports from China that three individuals had been arrested following a scam in which they stole bitcoin and crypto to the tune of $87 million. According to those reports, the three have been charged with cyber break-ins of several corporations, networks and personal computers.

So, what should you do?

Most scams involving bitcoin can be rehashed versions of classic scams. From the Nigerian prince to downloading malware through electronic communications whereby bitcoin is used as the bait.

As with many interconnected interactions a little caution is the number one priority. Always, always do your homework. If you’re looking to invest in bitcoin try the established sites and do some background research.

As with general rules guarding against malware try to use two-factor authentication. Always check the URL address from sites offering you money-making deals. Don’t open attachments on emails and check their authenticity from a separate source.

Specifically to bitcoin, look out for fake ICOs, (Initial Coin Offerings). These invite people to get in on a newly created coin. These can be especially difficult to spot as even the vendors pitching may not know they are peddling something fake.

Then there are the bitcoin Ponzi schemes whereby someone entices you into investing and then makes-off with your money. At first these look legit and make you some returns but when you try to get access to your funds you find it impossible. You’ll hear there are technical problems or customer service not responsive and then one day the company has simply disappeared.

If you do invest in a bitcoin scheme, experts recommend using a ‘cold’ offline wallet. A ‘hot’ wallet is one that’s connected online whereby having a number of separate ‘cold’ wallets offline in several locations is considered best practice.

Avoid new schemes. Let the early-adopters take the risks and don’t get involved until you are sure its legit.

Use the most popular sites where there is safety in numbers. And make sure you understand what to expect from an exchange or a service. By doing this it is easier to spot problems or imitators.

All in all, beware of schemes that seem too good to be true. Ask yourself can they really sustain the promised levels of returns and what do the numbers actually mean. In this day and age if it sounds too good to be true it probably is.

Tim Bamford author picture


Tim is a veteran freelance journalist writing extensively on internet news and cybersecurity.