While the cryptocurrency market is maturing at an incredible speed, this creates opportunities for people to be scammed. Yes, fraudsters have evolved amazingly in the techniques they are deploying to sneak into our pockets.

Sadly, cryptocurrencies fall into that arsenal, which doesn’t help to build trust and facilitate its wider adoption.

Four types of Bitcoin-related scams

With endless amounts of Bitcoin services out there it is sometimes hard to tell what is legitimate and what is a scam. There are a few strategies utilized by scammers to gain access to your money.

Researchers from Southern Methodist University have been working on the first academic paper monitoring Bitcoin scams. They classified four Bitcoin-related scams: high-yield investment programs, mining investment scams, scam wallet services and scam exchanges.

Ofir Beigel, the owner of 99Bitcoins, explains:

“The most popular Bitcoin scams out there today are coin multipliers (or doublers) and cloud mining sites. The coin multipliers claim they will double your Bitcoins within a month or make other sorts of ridiculous claims that promise an unrealistic return on investment. These sites are also known as HYIPs (High Yield Investment Programs) - that's just a pretty name for a scam.”

As for the cloud mining sites claiming to use user’s funds to invest in mining machines, Ofir believes that, in a sense, 99.9 percent of them work in the same way as the coin doublers.

“These sites just take people’s money and then use the money from the new users to pay out the old users,” he says. “Of course this is not a sustainable business model in the long run. In the end, the company just disappears one day with a lot of user funds. It's a classic Ponzi scheme, only now it can hide underneath the confusing and attractive front of Bitcoin.”

Other forms of scams

Bitcoin wallets are increasingly used for stealing money. Scammers advertise their wallets as the safest and most secure way to transfer Bitcoin anonymously, operate them for weeks or months and then eventually hide behind some technical issues.

Some scam techniques go much further - there are now Bitcoin scams that involve fake websites, which look exactly like trusted platforms, but mislead users into sending funds to their wallets.

Other scams operate as apps and plugins. For instance, not that long ago, the Bitcoin community was warned against a fake LocalBitcoin app, and the Chrome add-on “BitcoinWisdom Ads Remover,” which was stealing Bitcoins by replacing QR codes in popular exchanges with fake ones.

BitMagnet and BitKingdom are raising doubts among Cointelegraph readers

Recently, Cointelegraph turned a few heads surrounding BitMagnet and BitKingdom suggesting that these two might be scams. Reportedly, the latter has collected $392 mln worth of Bitcoin and stopped paying out.

To shed a little light on the issue, we collaborated with Ofir Beigel from 99Bitcoins and ran an investigation.

Please note that we, by no means, try to come to immediate conclusions but rather make an attempt to dive deeper into the issue and provide food for thought.

Hopefully, next time you encounter a Bitcoin-related business of a similar kind, you will be able to analyze it and decide for yourself whether it is secure to get involved.

99Bitcoins’ scam test to the rescue

99Bitcoins is a website and blog concerning Bitcoins. It aims to educate about cryptocurrency and close the gap between newbies to the industry and the technological aspects of how Bitcoin works through simple tutorials translated from technical to basic human language. It was named the “Blockchain Company of the Year 2016.”

The platform has a variety of popular sections including Bitcoin Obituaries which documents every public obituary made about Bitcoin since its beginning. Bitcoin Whiteboard Tuesday provides a video series about basic Bitcoin concepts and the Bitcoin scam test, which we deployed for a little investigation.

Ofir said to Cointelegraph:

“The tool started out as a way to save myself time in answering my readers' emails. I've been getting so many emails asking me whether site "x" or "y" were a scam that eventually I decided to teach people how to fish instead of giving them a fish. Ever since this tool was created I replied with "I actually don't know if this site is a scam or not, but feel free to use my Bitcoin scam test tool and find out for yourself."

The Bitcoin scam test is designed as a quiz consisting of 13 questions, some of them are supported by a variety of external tools (e.g. domain age checker, domain authority checker, etc.).

Ofir is coming from an Internet marketing background so he knows how to check a site's online reputation. He is also well aware of the various marketing schemes such sites may employ in order to attract new users.

He explains:

“For example, these sites often use referral programs to get their customers to bring in more customers. So users who are only focused on making a quick buck start inviting other users without even questioning the company they are promoting. However, that's not to say that every site that has a referral program is a scam, some of the more reputable Bitcoin companies around today have referral programs (e.g. TREZOR, Coinbase, Ledger and more).”

Presenting our guinea pigs

BitMagnet.biz Limited is a cryptocurrency investment company registered in the UK. The platform invests money in BTC mining and offers three different investment plans promising 3.60 percent, 4.08 percent and 4.56 percent daily returns.

Sounds good, yet questionable. Especially considering their claim of having over 269,000 accounts. Domain age checker shows that the platform has been online since January 2017.

So young, yet they have such an enormous amount of users. I guess they have real wizards in their marketing department. Alexa Traffic ranks BitMagnet 30,807 on the global scale with approximately 1.01 daily pageviews per visitor.

BitKingdom is a platform for distributing help between community members aimed at fighting poverty. It works similarly to other wealth distribution platforms but (tadam!) integrates Bitcoin.

We actually wrote quite recently that the notorious MMM has backed their system with Bitcoin-inspired cryptocurrency. The platform is one year and seven months old, and Alexa gives the website a global rank of 116,640 with 4.20 daily pageviews per visitor.

The Page Authority tool lists links pointing to the website. Interestingly, some of them are coming from the media sources discussing Ponzi schemes.

But let’s forget about numbers, ranks and metrics for a second. The jungle telegraph is normally what comes to the rescue!

Don’t be lazy and take your time to check reviews on Google, Bitcointalk and Reddit before engaging in various kinds of investment plans, even if they promise a fortune.

Who will protect us from ourselves?

It seems that this is actually nothing new under the sun - known scam techniques are now wrapped in a cryptocurrency package. The prevalence of fraud in the cryptocurrency community is remarkably high.

Just look at the percentage of the currency’s monetary base being stolen or lost, the percentage of Bitcoin transactions related to fraudulent activities or the volume of turmoil these schemes create.

Bitcoin expert Andreas Antonopoulos once noted that: “humans have used physical security controls for thousands of years. By comparison, our experience with digital security is less than 50 years old.”

It is true that we still lack the technical ability to keep our digital funds safe, entrusting our holdings to third parties for safekeeping.

The concept of decentralization runs the show in the cryptocurrency community. However, when it comes to ensuring cleanliness and honesty in the space, the idea of establishing a central entity or a standard might not sound like a bad one.

After all, without established best practices, industry regulation, licensing or an effective reputation system, we are on our own trying to identify whether that one particular custodian service is trustworthy.

Ofir comments:

“Personally, I don't think there needs to be a standard - rules will never block people from scamming other people (especially with a semi-anonymous decentralized currency). I do think however that as Bitcoin evolves into a more mainstream technology more people will understand the risks in it and know how to avoid getting scammed.”

Ofir recalls the case of the Nigerian price when the Internet was first introduced to the public.

He concludes:

“This is a phase of Bitcoin evolution we're going through and the only way to change it, in the long run, is by educating people as much as we can about Bitcoin - its advantages and more importantly its risks.”