Common Law - The FindLaw Consumer Protection Law Blog

Bitcoin Users Targeted by Social Media Scams

Savvy social media users know feeds can be filled with fake news, false advertisements, and other scams. And Bitcoin, the online "cryptocurrency" that promises anonymity and security to its users, is not immune to the social media scam.

ZeroFOX, a cyber security company that monitors cloud-based software and social media for threats and scams, has uncovered a few new scams targeting Bitcoin users on social media, from basic malware downloads to complicated Ponzi schemes. Here's what you need to know.

Online Dollars

The attraction to Bitcoin comes from both its public and private features: transactions are encrypted, but a log, called "blockchain," is publicly accessible; users can remain anonymous, while the software is open-source. But ZeroFOX points to three characteristics in particular that are inviting to scammers:

  1. Decentralized: Because "Bitcoin isn't controlled by any financial institution or government," it may make it harder to recover losses from fraud;
  2. Anonymous: Users can hide their identity, both via Bitcoin and social media, so unmasking a scammer may be impossible;
  3. Irreversible: As ZeroFOX notes, "Bitcoin transactions can neither be changed nor removed," so undoing a fraud-based transaction is impossible.

And because these are features of Bitcoin -- aspects that the creators and users admire about the currency -- they aren't going anywhere anytime soon, leaving unwitting users vulnerable to certain scams.

Online Sense

ZeroFOX also highlighted four major social media scams targeting Bitcoin users. First, is simply using the Bitcoin name, or promises of Bitcoins to get people to accidentally download malware onto their computer via unsecure URLs and virus-laden apps. Second, scammers are using the actual Bitcoin name and/or similar names or logos in an effort to trick users into giving up their Bitcoin keys.

A third and more complicated scheme involves "flipping" bitcoins, often involving an "offer to instantly exchange Bitcoins for money after paying an initial startup fee or a promise to double your initial investment overnight." Needless to say, the return on the investment never happens. Finally, though Bitcoin is a new currency, it can be subject to the same old pyramid schemes:

This tried and tested idea relies upon high yield investment programs and multi-level marketing. In these ethically grey schemes, a low initial investment can be multiplied by signing up additional members using referral links. New members are then encouraged to do the same, rinse and repeat. Before long, hundreds of victims have joined the scheme. At a later point in time, the original scammer walks away and the pyramid collapses.

Bitcoin might be the currency of the future, but the same rules apply: beware the social media scam.

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