Bitcoin's Legitimacy: A Viable Investment Option?

Bitcoin is a type of cryptocurrency, a digital currency that exists electronically. It is not protected by the UK's Financial Services Compensation Scheme (FSCS) and most aren't regulated by the Financial Conduct Authority (FCA). However, it has attracted a lot of attention as a potentially lucrative investment option due to its fluctuating value. But is it a legitimate investment?

Bitcoin investments are often made via currency exchange platforms, which are websites where people can buy, sell, or exchange cryptocurrencies for other digital or traditional currencies. These platforms may require users to verify their IDs and open an account or a wallet. While these platforms can be legitimate, scammers also use them to trick people into investing in fake or worthless crypto-assets.

There are several red flags to watch out for when it comes to bitcoin investment scams. These include promises of large gains or double the investment, only accepting cryptocurrency as payment, contractual obligations, and manipulation tactics such as extortion or blackmail. It's important to do your research and only invest money you can afford to lose, as there are no guarantees in the volatile world of cryptocurrencies.

Bitcoin investment schemes

Another variation of the Bitcoin investment scam involves the use of fake celebrity endorsements. Scammers superimpose real images of celebrities onto fake accounts, advertisements, or articles, creating the false impression that the celebrity is promoting a lucrative financial opportunity. They may even create fake websites and use reputable company names and logos to add an extra layer of legitimacy to their deception.

In a typical Bitcoin investment scheme, scammers employ a range of tactics to defraud unsuspecting individuals. They may request upfront payments, steal personal information, or use fake celebrity endorsements to lure victims into their trap. It's important for investors to be vigilant and cautious when approached with such investment opportunities, verifying the legitimacy of any investment manager or endorsement before considering any financial commitments.

To protect yourself from Bitcoin investment schemes and other types of cryptocurrency scams, it's crucial to be aware of common red flags. These can include promises of large gains or doubling your investment, acceptance of only cryptocurrency as payment, contractual obligations, and misspellings or grammatical errors in communications. Additionally, be cautious of manipulation tactics, such as extortion or blackmail, as well as offers of free money that seem too good to be true.

Phishing scams

Bitcoin is a type of cryptocurrency, a digital currency that generally exists electronically. Cryptocurrency is stored in a digital wallet, which can be online, on a computer, or on an external hard drive.

Cryptocurrency is prone to scams and fraud due to its anonymous nature and lack of legal protections or government assurances. According to the Federal Trade Commission (FTC), more than 46,000 people reported losing over $1 billion in crypto to various scams from January 2021 to June 2022.

• Poorly written white papers: Legitimate cryptocurrencies have detailed disclosure documents called white papers that describe the blockchain, outline the formulas, and explain how the network functions. Fake cryptocurrencies often have poorly written white papers with figures that don't add up.
• Excessive marketing: Legitimate cryptocurrencies tend to have humble beginnings and don't have the money for extensive advertising campaigns. Be wary of cryptocurrencies that post on social media hyping themselves up.
• Get-rich-quick claims: Be cautious of any investment opportunity that promises large returns with low risk. Cryptocurrency investments are volatile and carry a high degree of risk.

To protect yourself from phishing scams:

• Ignore unsolicited communications: If you receive an email or phone call from someone you don't know who wants to discuss cryptocurrency, ignore it.
• Verify contact information: If you receive a communication from a company you deal with, don't reply with the contact information provided. Instead, look up the company's official contact information on their website and get in touch that way.
• Don't give out private keys: Your private keys control your crypto and wallet access. Do not give these out to anyone.
• Report suspicious activity: If you believe you have been targeted by a phishing scam, report it to the FTC, CFTC, SEC, or IC3.

Man-in-the-middle attacks

Bitcoin is a type of cryptocurrency, a digital currency that exists electronically. People use Bitcoin for many reasons, including quick payments, to avoid transaction fees charged by traditional banks, or for the anonymity it offers. Bitcoin and other cryptocurrencies are highly volatile and tend to be more volatile than traditional investments such as stocks and bonds. An investment that is worth thousands of dollars today might be worth only hundreds tomorrow.

There are no legal protections or government assurances with Bitcoin, and transactions are typically irreversible. This makes the industry ripe for fraud. According to the Federal Trade Commission (FTC), more than 46,000 people reported losing over $1 billion in crypto to various scams from January 2021 to June 2022.

Scammers are always finding new ways to steal money using Bitcoin and other cryptocurrencies. Here are some common types of scams to watch out for:

• Blackmail and extortion scams: Scammers will claim they have embarrassing personal information or media about you and demand Bitcoin as payment for keeping it private.
• "Business opportunity" scams: Scammers promise high returns or to double or triple your crypto assets overnight.
• Fake job listing scams: Scammers create fake job listings or send unsolicited job offers related to crypto, such as recruiting investors or crypto mining.
• Giveaway scams: Scammers pose as celebrities or influencers and promise free crypto or prizes.
• Investment scams: Scammers pose as investment managers and promise high returns if you transfer crypto into their account.
• Romance scams: Scammers pretend to be a love interest and then ask for crypto payments or investments.
• Business, government, and job impersonation scams: Scammers pretend to be from well-known companies, government agencies, or utility companies and direct you to buy crypto and send it to them.

Man-in-the-middle (MITM) attacks are a significant threat to Bitcoin and blockchain security. In a MITM attack, a malicious actor intercepts and compromises the communication between two parties, stealing or tampering with the information they exchange.

For example, in early 2024, researchers found a MITM vulnerability in the Ledger hardware crypto wallet application. The vulnerability allowed hackers to redirect victims' funds to their own wallets by changing the destination address of cryptocurrency transactions. This was possible due to malware installed on the target computer. The only way for users to detect and stop the attack was to manually compare the address displayed on their computer with the one on the Ledger's display.

MITM attacks are not a new threat to Bitcoin and other cryptocurrencies. In the past, hackers have used various methods to intercept or steal private keys, alter transaction addresses, and break into online cryptocurrency exchanges, stealing large amounts of cryptocurrency.

To protect against MITM attacks, it is essential to use authentication systems that do not rely on the exchange of secrets. Secret-less protocols, such as Secret Double Octopus, enable different parties to verify each other's identities without exchanging keys or revealing critical information. By eliminating the need for secrets, it becomes much harder for hackers to stage MITM attacks.

Social media cryptocurrency giveaway scams

• Fake Giveaways: Scammers mimic major brands or impersonate celebrities to promote giveaways that promise to double your money if you deposit bitcoin or other cryptocurrencies into a designated wallet address. However, as soon as you send your cryptocurrency, it's gone forever. It's important to do thorough research before participating in any giveaway, checking official websites and verifying the legitimacy of the source.
• Fake Verified Accounts: Con artists take advantage of trust signals on social media platforms, such as blue checkmarks on Twitter, which can now be purchased. They may create fake accounts with similar usernames to well-known figures or use Ethereum domains in their handles to feign credibility. Spelling and grammatical errors in profiles or posts are often key indications of a scam.
• Twitter Reply Scams: Hackers break into smaller verified Twitter accounts and alter them to look like other legitimate accounts. They reply to high-profile accounts or viral tweets to gain more exposure for their scams, which often involve fake giveaways or get-rich-quick crypto promotions.
• Fraudulent YouTube Live Videos: Scammers create live videos, often using stolen content, and portray themselves as authorities in cryptocurrency. They include a link to a "giveaway" in the video description, where victims are asked to send cryptocurrency. By using the Live feature, they can avoid YouTube's content review process until the video is over.
• Crypto Catfishing: Scammers create fake accounts or use catfishing techniques to contact potential victims directly, offering lucrative investment opportunities in exchange for cryptocurrency deposits. Be cautious when receiving messages from unknown individuals and always perform a thorough background check before considering any opportunities.

To avoid becoming a victim of social media cryptocurrency giveaway scams:

• Be skeptical of any giveaways or promotions, especially those promising high returns or doubling your money.
• Verify the authenticity of accounts and giveaways by conducting online searches, checking official websites, and looking for legitimate press releases or articles.
• Be cautious of unverified accounts or those with low follower counts.
• Pay attention to spelling and grammatical errors, which are often indicative of scam attempts.
• Avoid clicking on links or providing cryptocurrency deposits without thorough research and verification.
• Report any suspected scams to the platform and the authorities to help protect others.

Fake cryptocurrency exchanges

Fake exchanges will often lure users with celebrity endorsements, unsolicited phone calls, or emails promising large returns on investments. Once directed to the exchange, users might receive frequent reassurances about the legitimacy of investing with these fake exchanges. If an investment is made, users might be asked to pay high initial fees before being given fake information via a falsified trading portal showing manipulated trades.

If users attempt to withdraw funds, they may face a series of obstacles, such as unannounced fees or fake taxes, or even discover that their money has disappeared altogether.

To avoid falling victim to a fake cryptocurrency exchange, it is recommended that you only use well-known and respected exchanges with an extensive online presence, including social media and a website. You should also be wary of any unsolicited offers or communications, and never succumb to pressure to deposit funds or make larger investments than you intended.

Some other red flags to look out for include:

• Promises of guaranteed or exceptionally high returns, especially in a short space of time.
• Excessive communications that look like spam, asking for the persistent recharging of wallets.
• Platforms that ask for unusually high registration or withdrawal fees.
• Websites that look different from legitimate exchanges, or have slightly different domain names.

Frequently asked questions