To safeguard themselves from scams within the cryptocurrency ecosystem, investors must avoid being greedy, be logical in their analysis of opportunities and dedicate time and resources to research and education.

Bitcoin theft and scam is becoming more popular

Complaints about loss of investments within the crypto space is becoming a common occurrence. As a result,  online investment companies which deal with cryptocurrencies have recently become increasingly perceived with a negative bias. Scammers these days seem to ride on the anonymous characteristics of the industry to deceive unsuspecting investors.

HashOcean and others

The latest incidence involved a supposed Bitcoin cloud mining company Hashocean whose website was inaccessible for about five days. Also, among the supposed scammers is OneFxZone, a self-acclaimed trading company who still claim to be honest, but their investors complain of their inability to access their funds.

Cointelegraph asked experts why scams now seem to be on the increase and how potential investors can figure out which prospect is genuine and which is not.

The three most common areas of Bitcoin scam

Co-Founder and Director at SatoshiLabs, Alena Vranova tells Cointelegraph that the rise of scams and Bitcoin thefts come hand-in-hand with the rising price of Bitcoin.

“The correlation was shown clearly in the Dell Secure Works research conducted in early 2014.”

Vranova identifies the three most common areas where Bitcoin thefts or scams occur as: through a third-party fraud, digital exposure and human error or ignorance. She says that the digital and third-party risks can be easily mitigated today with a hardware wallet such as TREZOR while distributing the risk is usually a good common practice in any investment.  

“Some voices call for more regulation against fraudsters exploiting poorly informed clients. I am quite opposed to that idea. In  any financial services and investment opportunities, a fraud is very common, and the Bitcoin world is not an exception. As a ‘small’ example we can look at the insurance industry. The UK represents over 7% of the global insurance market and faces over 2 billion pounds in insurance fraud annually. Let's assume that the global scale of insurance fraud could be around 20 billion pounds. Now, most of those frauds are done with the help or direct involvement of independent insurance brokers and agents who usually obtain their licenses from a central bank or a similar state-regulated organization. On top of the losses, insurance companies are investing hundreds of millions into fraud prevention and legislators invent new obscure ‘consumer protection’ rules. Yet  the preventive effects of the latter are questionable and the cost of insurance only rises.”

Alena Vranova, Co-Founder and Director at SatoshiLabs

Money invested is no longer yours

However, Vranova points out that most investors do not realise their proper position and level of vulnerability once signed-up for any such investment packages.

“Unfortunately people don't realize that it's not their funds when they transfer their Bitcoin (or money) to someone else's account: ‘It is only a promise to hold and eventually grow the sum for me.”

Bitcoin is Less Vulnerable than Dollar or Euro

In conclusion, Vranova says that the good news for Bitcoin is that it may be actually less prone to fraud than the US dollar or Euro. As Bitcoin is an open ledger and an open community, it is relatively easier to get feedback from the community, do research on the companies, their teams and investment parameters before making decisions.

Greed, Logic and Education

The Founder of Cryptopay, a UK Bitcoin payment gateway, George Basiladze, says that the only thing which is responsible for online scams is people’s greed.

According to Basiladze, most of the scam projects and Ponzi schemes are so easy to expose as long as greed does not get in the way. He also points out that anybody willing to undertake any form of investment must seek to understand the specific market and exercise patience.

He says:

“Investors need to be reasonable and seek to understand the world of capital markets, and get educated. Another thing investors should know is that you cannot get rich quickly or get 7000% ROI without being scammed. Everything needs time and patience.”

Attraction to testimonials

Aleksandar Matanovic of EC District Financial Services also tells Cointelegraph that a lot of people have fallen victim to online scams due to their attraction to various testimonials of other investors who may have truly earned a lot of money within the crypto industry.

He says:

“There are lot of true stories about people who have earned huge amounts of money with Bitcoin, whether it is through mining, trading or something else. Because of those stories, people know it is possible to make fast profits with Bitcoin and so they are more susceptible to scammers and their schemes which promise big returns on investments.”

However, Matanovic advises any investor to be logical when seeking genuine ventures. He also identifies greed as the factor which can cloud logical reasoning when it comes to investments:

“Investors should think clearly and not let their logic be pushed aside by their greed. I mean, there are schemes offering 10% daily; can someone actually believe that it is not a scam unless he/she is totally blinded by greed? People need to know that every single chance to make profits comes with a certain risk. And, of course, they should invest only what they are ready to lose, because if they are totally new to Bitcoin and eager to invest ASAP without dedicating some time to research, they will probably lose.”