Despite being a system/network that has never been hacked or compromised, Bitcoin is surrounded by scammers, opportunists and hypocrites.
Remember spam? While it’s not common these days, rewind a few years ago and every Nigerian Prince was offering you their $1 million inheritance in exchange for a few minor identity details.
While email technology has matured enough to filter through most of the junk, the rest of the digital world is still catching up.
The internet was in the same boat. If you’d asked anyone if they imagined doing their banking or shopping online 15 years ago, they would have laughed. How could anything like that be considered safe?
But the technology matured, and here we are today.
Any sufficiently advanced technology is first adopted by those who know they can gain (whether ethically or illegally), and those with an information asymmetry, (ie; I know something you don’t know), have been able to make money honestly, or simply swindle people from their hard-earned wealth since the beginning of time.
From the first person who swapped his collection of shells for shiny yellow rocks called gold to the bankers who sold CDOs during the GFC, scammers have been around since the beginning of time.
Scammers take advantage of your ignorance
While some were innocent and some were not, they all had an asymmetry of understanding. When you fundamentally understand something better than the average person, the opportunity to take advantage of them becomes a possibility.
Cue, Bitcoin. Scams are not here because of Bitcoin, they’re here because people have learnt to take advantage of each other, and have been doing so for thousands of years.
An aspiring criminal cannot go and ‘hack’ Bitcoin, or steal any Bitcoin from the network.
The scammers can’t get Bitcoin off the network, so they’ll come get the Bitcoin off you, whether by straight up hacking (information asymmetry), through ponzi schemes (playing to your greed) or via selling you some sort of altcoin (fools gold, playing to your fomo, greed and lower level of understanding).
It’s not a central banking server you can compromise or a local bank you can run into a rob with a gun; it’s a global money, secured by more than 3 trillion laptops-worth of computing power.
This unhackable money attracts ‘scammers in the fringe’, that attack the only thing they can… people’s psychology.
They attack their greed, their fear, their lack of knowledge and understanding, which is where it all falls apart.
Bitcoin itself isn’t the bad guy
Whilst Bitcoin has never once wavered or been compromised, we’ve had entire cottage industries grow around it which are misguided ideals at best, and outright scams at worst.
Here are some of the common ways people are scammed out of their Bitcoins:
Ponzi schemes like Bitconnect and USI Tech which promised people “free Bitcoin daily” just for depositing their Bitcoin;
Hackers using emails and fake websites to phish people’s passwords or private keys;
Ransomware installed on your poorly protected computer that makes you pay the hacker Bitcoin to unlock it again; and
Copycat cryptocurrencies and ICOs that sell you promises with no substance.
All of these things exist not because Bitcoin is so bad, but because it’s still early days. Bitcoin is extremely secure and valuable – and as a result, attractive to scammers.
Your best defence against scammers is to learn about Bitcoin. This will take time, but your wealth is something you should take seriously.
How to protect yourself against Bitcoin scammers
To help you along that journey, here’s a few tips:
When you hear someone telling you to deposit your money from incredible returns you don’t have to do anything to earn, run;
People selling you some “ICO” or “Blockchain for X” or nowadays an “IEO”; run. All other coins are being sold by modern day alchemists and snake oil salesmen that want to see you fools gold;
Protect your passwords, and use a random password generator for all new sites; and
If you’re holding Bitcoin, consider self custody instead of keeping your funds on an exchange – particularly exchanges that list or trade hundreds of coins. They’re a honeypot for hacks.
The scammers can’t get Bitcoin off the network, so they’ll come get the Bitcoin off you, whether by straight up hacking (information asymmetry), through ponzi schemes (playing to your greed) or via selling you some sort of altcoin (fools gold, playing to your FOMO, greed and lower level of understanding).
When something is both unable to be compromised, and technologically advanced, you’re guaranteed to have the scammers come out of the woodwork, ready to take advantage of the inherent information asymmetry in the marketplace.
You need to educate yourself, know what signs to look for and know that it isn’t because of Bitcoin that scams are here, it’s humanity itself.
Aleksander Svetski is an entrepreneur and self taught writer, speaker and researcher of all things money, economics and business. He founded Amber, the first ‘micro-investing’ app in Australia focused on Bitcoin.
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