Everyone and their dog seems to be investing in bitcoin, but buyers beware: there are plenty of pitfalls. As well as holding your nerve as the value of the cryptocurrency rockets and plummets, potential investors have to be wary of hacks, Ponzi schemes and confidence tricks.
at the University of New Mexico, and at the University of Tulsa, Oklahoma, have quantified just how many bitcoin schemes are scamming users.
Alarmingly, between June 2011 and November 2016 there was a new scam nearly once a day. Vasek and Moore found a total of 1780 distinct scams by scouring reports on the popular cryptocurrency message board site .
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We tend to recognise traditional scams when we see them, but incorporating bitcoin can muddle minds. 鈥淧eople don鈥檛 understand it. They just think: 鈥業鈥檓 going to be smarter than this other guy and make a lot of money,鈥欌�� says Vasek.
The scams in question varied from confidence tricks to double-your-stakes gambling to Ponzi schemes, and differed wildly in the amount of time they were left undetected before being shut down.
Half the schemes detected by the researchers lasted a week, and a quarter lasted less than a day. However, one ran for three years before finally being shut down.
A typical scheme might start with a post prompting users to invest their bitcoin into a plan that will pay back 120 per cent of their initial investment after 48 hours. Every person they refer to the scheme will increase their returns by 10 per cent.
Participants are sent to a website where they are instructed to deposit their bitcoin into an account; once they do so, they lose control of their investment.
Not all schemes make money for the perpetrators , but some make thousands or millions. 鈥淔or the ones that we could find data on, we found an average of $250,000 per scam, but that鈥檚 a biased sample,鈥� says Vasek.
Schemes involving bitcoin are trackable as every transaction is recorded on a digital ledger called a blockchain, but not traceable to a named individual.
鈥淚 can create a Ponzi scheme, create a website, post it on a message board, but when people invest money, all they get is my website and my bitcoin address,鈥� says at University College of London.
As more people look to cryptocurrencies as get rich schemes there will be more people susceptible to scams as well, says Vasek. Her advice? 鈥淚f you鈥檙e going to put money into bitcoin services, use the same knowledge and scepticism you鈥檇 use when investing in anything in the real world.鈥�
The work will be presented at the in March.
