How to Avoid Two of the Most Common Cryptocurrency Scams

By Mina Down | Mina Down | 15 Mar 2019


 

Don’t Blame the Victim

If you’ve spent time in cryptocurrency communities you know there are many scams out there. You’ve probably also heard people say only "noobs" fall for scams, or that victims somehow deserve to lose their coins because they are dumb. These attitudes are wrong. The reason people fall victim is they are too trusting in "trustless" online spaces. Even if intelligence were a factor, why would someone “deserve” to be ripped off simply because they are less intelligent than another? This attitude is anti-social and toxic in any community. It also makes the cryptocurrency space hostile to newcomers.

In contrast to blaming the victim, I think sharing knowledge is the best way to protect each other from being scammed. Pooling our collective knowledge will make the cryptocurrency community a safer place for everyone and help draw in more newcomers. Ok, now that I’ve explained where I’m coming from, let’s move onto the scams.

Fake Faucet Wallets

A faucet wallet is a website that appears to be both an online crypto wallet and a faucet. As a wallet, it will typically offer the opportunity to register for an account and receive addresses for Bitcoin and various altcoins. As a faucet, it will offer free daily deposits of tiny amounts of cryptocurrencies into your wallet. However, unlike conventional faucets, which actually pay out claims even if they are small, faucet wallets are pure scams. The point is to lure you into depositing your own coins into the site. Here is a screenshot from a fake faucet wallet that was still live at the time writing:1*A97QJi5sdivrir_DpNcnVA.png

The balances are supposedly from free daily deposits. In reality, there is nothing there

It looks like a one-stop-shop for Bitcoin and altcoin addresses. Notice it also offers a “100% first deposit bonus.” This is typical of faucet wallet scams. They offer to pay a bonus to get you to deposit your coins. All will seem well until you request a withdrawal and nothing happens, or the site simply disappears.

In the case of the site pictured above, I requested a withdrawal of the Bitcoin balance once it crossed the stated minimum withdrawal limit. I clicked “withdraw” and a message appeared saying it was a “success.” However, I was unimpressed. I had never inputted my BTC address. The site had no place to send the Bitcoin. Needless to say, I never received the withdrawal.

Fake faucet wallets also typically offer additional bonuses for signing up referrals. Those who post their referral link to social media unwittingly become accomplices in the scam.

Fake Mining Pools

Fake mining pools are websites that offer to sell or rent hash power. Hashing power is the power a computer uses to run and solve hashing algorithms. These algorithms are used for generating new cryptocurrencies and allowing transactions between them. This process is also called mining. A fake mining pool site will let you sign up for free, promising you can mine small amounts of crypto without having to pay (tip: something for nothing is always a red flag). Once you register, you discover the free coin amount is very low but can be increased with the purchase of more hash power. Here is a typical example:

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This image is from a fake Litecoin mining pool website offering to sell hash power

I joined one of these sites when I was new to the cryptocurrency space. Fortunately, I did not purchase any hash power packages offered for sale. Instead, I waited to see if it really was possible to mine Litecoin for free. The minimum withdrawal on the site was 0.2 LTC. I kept the tab open on my computer for days until it showed an account balance of 0.2 LTC. I initiated a withdrawal. It never came. I sent a couple of emails to the support channel but never got a reply. A bit of research online revealed stories from people who had purchased hash power packages complaining about not receiving payouts.

Spotting Scam Faucet Wallets

The best way to spot a fake faucet wallet is to look at whether it’s offering free coins in exchange for a deposit. This is a huge red flag. Genuine crypto wallets do not give out free coins. They try to design the best possible product so users want to use it. If in doubt, try searching the name of the website with the word “scam”. If the site has been around for a bit you will likely see hits about it ripping people off. A related option is to consult social media. Check for mentions of the site on Twitter, Reddit, and Bitcointalk. Often people who have been burned by scam sites will post their stories to warn others

Spotting Fake Mining Pools

Unlike fake faucet wallets, fake mining pools are trickier to spot. This is because there are legitimate mining pools where people combine resources to benefit from communal hash power. Mining in pools began when the difficulty of Bitcoin mining increased to the point where it could take centuries for slower miners to generate a block. For these miners, the solution was to pool their resources so they could generate blocks more quickly and receive a portion of the reward on a consistent basis, rather than randomly once every few years.

A fake mining site will purposely try to confuse you by describing itself as a mining pool. For example, the scam Litecoin mining site pictured above calls itself an “LTC mining pool,” though it is anything but. The key difference between a scam mining site and a legitimate mining pool is the latter is a group of miners who agree to share block rewards (mined coins) in proportion to their contributed hash power. In other words, they are selling hash power to the pool. They are not buying hash power from the pool.

If a website is offering to sell you hash power it is a scam. Think about it this way: why would anyone sell you hash power and give you some of the rewards for mining when they could use the hash power themselves and keep all the reward? For it to be rational from a business perspective, the value of what you get would have to be less than what you are paying.

Conclusion

Fake mining sites and fake faucet wallets are two common scams in the cryptospace and newcomers are most at risk of falling victim. Some good rules of thumb are that faucet wallets are always scams, so steer clear of them. The telltale sign of a scam mining site is it offers to sell or rent hash power. You will not make money from such an arrangement so steer clear as well. Finally, when dealing with any website that offers to sell you something in exchange for crypto always do research online. If you see reports of people losing funds, stay away.

 

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Mina Down
Mina Down

Researcher and writer interested in blockchain projects that will add to the social good.


Mina Down
Mina Down

Writer interested in blockchain projects that will add to the social good. Regular contributor to Hacker Noon, Coin360.com, blockdelta.io, and other great venues.

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