Beware the Bitcoin scams – they are here, live and well, all ready to rob you out of your Bitcoin. If anything, the frictionless Bitcoin transactions make it an ideal vehicle for scammers. If something appears fishy, just because it has a fancy Bitcoin name in front of it doesn’t make it legitimate. You need to understand the very basic ideas of risk and return and anyone who ‘guarantees’ you a return above that of the treasury bonds is simply lying (the libertarians in the audience will note that the government is lying when with the treasury bonds too, but that’s a discussion for another day).
Even though many people who consider themselves tech-savvy promise they’ll never fall for these scams, there is plenty of evidence to the contrary, especially with social-engineering attacks (e.g. see this for a few examples) and other resources these scammers employ. With Bitcoin, things become even more tricky since there is no ‘chargeback’ so to speak and it’s virtually impossible to identify the real identity of a scammer.
Bitcoin Ponzi Schemes
The most common form of Bitcoin scams take the shape of a simple ponzi scheme. If you don’t already know, that’s a scam where new money is used to repay old commitments instead of a real investments being the source of wealth-creation. This is obviously unsustainable and has to fail at some point of time (the Madoff case was a $50 billion ponzi scheme).
The best known Bitcoin scam to date also happens to be a ponzi scheme by a Texas man who ended up collecting more than 700,000 Bitcoin! What was he promising? A 7% weekly return. And people genuinely thought this was legitimate. What a tragedy!
The New Bitcoin Ponzi Scheme
The problem with Bitcoin ponzi schemes is that there is no oversight. It isn’t terribly hard to slap together a website that accepts Bitcoins (it only needs to accept Bitcoin, not pay back!) that promises riches. I was surprised that BitVisitor, a generally respected advertising network in the Bitcoin community, ran this Bitcoin ponzi scheme ad on its network. I hope people didn’t fall for it.
Site: GrowCoins (growcoins dot com. I refuse to link out to this site from my blog)
About the company – from the company’s homepage:
Growcoins.com will work for ever, With our company your dreams come true. Growcoins.com is engaged in the investment increase your money. That is, if you urgently need a large sum of money, or make money online, our site is for you. Our company has many experts who are constantly monitoring the rise and fall of shares in other companies and exchange rates.
(bold is mine)
Here are the advertised rates:
Yes, GrowCoins is a ponzi. What a shocker. Look at their ‘diamond’ package above. They are promising to pay out 10.5% daily forever. If you are still considering, this is how 10.5% daily interest rate is going to look:
Day-100: $3.63 million
Day-365: $4.39 X 10^18, which is 4.39 trillion trillion dollars.
The early adopters in the Bitcoin community are fairly smart, and one would expect they shouldn’t fall for such outright scams. Then again, the biggest ponzi scheme in Bitcoin’s history did manage to get more than 700,000 Bitcoins which is a lot. These are best weeded out of the economy, but with something as incredible as Bitcoin, there are bound to be these kinds of Bitcoin scams I guess. Stay away.
Photo Credit: Andrew
Very informative post. As with most things in life, you need to do your own due diligence when dealing with ANY company, but for the simple fact that Bitcoin is in its infancy stage, many companies entering the fray have not earned a track record.
Great post Sid! I hate seeing people using Bitcoin to scam people!
Thanks for dropping by with your thoughts Rob. It’s sad that people are using Bitcoin to scam others instead of realizing the potential that it can become as a force for good. We in the community need to stand up against this, in whatever little way we can.
Growcoins.com is confirmed a scam. I joined on the 9 September 2013 but my investment is frozen at DAYS 14. All investment plans can only be withdraw after completing 15 days.
For those who want to track other related bitcoin addresses of Growcoins.com, Attached is the link for the bitcoin address of Growcoins.com that I sent my deposit to.
Sorry to hear that man, should never have “deposited” money in there in the first place. It’s an obvious ponzi and the interest rates were too high even to pay out the first round of investors I guess.
http://www.bitcoinexchangeltd.com is a completely fraudulent website, very convincing and purports to be an officially approved Bitcoin trader but it never pays out the cash. Also delivers malicious code via a chat pop-up….nice
I have personally been had by this website which is an embarrassing first for me so please don’t add your name to all the other victims.
Website is being investigated by ActionFraud but in the meantime it’s ruining thousands of people.