Identified Scam:

Fake Bitcoin Exchange Scams: Top Tips to Avoid Falling Victim

Using a new bitcoin exchange might not seem like a big deal, but if you don't do your research first, you could end up losing thousands of dollars.


Verified.org
Updated 1 September 2021
Fake Bitcoin Exchange Scams: Top Tips to Avoid Falling Victim
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Identified Scam:

Key Finding

Scammers create fake bitcoin exchange sites to trick you into investing your money and paying fees.


Key Risk

You lose the bitcoin that you invested as well as any money paid in fees and taxes, which could be worth thousands of dollars.

Sections on this page
  1. What is a Fake Bitcoin Exchange?
  2. How To Beat and Avoid Fake Bitcoin Exchange Sites
  3. Example of Fake Bitcoin Exchange Scams
  4. What To Do After Using a Fake Bitcoin Exchange
  5. Frequently Asked Questions

A fake bitcoin exchange scam involves an attacker creating a site that claims to be a place where you can buy, sell, and exchange bitcoin for other currencies and cryptocurrencies. However, the site either doesn’t actually facilitate bitcoin exchanges, charges excessive fees and prevents you from withdrawing your funds.

What is a Fake Bitcoin Exchange?

Almost all bitcoin exchange scams follow the same story—you land on a fake exchange site, invest your bitcoin, then it's impossible to withdraw your currency.

A Hacker Creates a Fake Site

A hacker may make a site that looks a lot like legitimate bitcoin exchange sites. For example, it may have up-to-date pricing information that agrees with the general exchange rates on real sites. However, this kind of information can be added to a site using commonly found application programming interfaces (APIs) to make the site look real.

Sometimes, criminals will design a site that’s merely meant to lure in unsuspecting investors and then try to get you to pay more and more money by either boosting your upfront investment or charging fees to withdraw or use your crypto.

The Fake Bitcoin Exchange Lures You With Fake Guarantees and Offers

The fake site may promise considerable returns to encourage you to deposit your crypto or invest heavily upfront. They may provide a guarantee that you will make money. The site may also promise you that you will get free money after you make an initial investment.

The fake exchange may try to pressure you into investing more using harassing calls or emails. Representatives from the fake site may offer additional benefits such as even bigger automatic payouts or guaranteed returns. However, you don’t get any free money after making a deposit, and none of the rewards pan out.

You Create an Account and Connect Your Wallet to the Site

A crypto wallet is where your cryptocurrency is stored. Anyone with your wallet information can access your crypto, withdraw it, spend it, or exchange it for other currencies. After entering your wallet information on a fake bitcoin exchange, the hackers take it and store it. At this point, they have the information about the wallet itself and the power to log in and steal your bitcoin.

You Deposit Money and Then Can’t Access It

Once you invest money in a fake bitcoin exchange, you may be charged a large upfront fee to “activate” the account. This fee may have been hidden in the fine print or never outlined in any way whatsoever. When you request to buy another currency with your funds, the fake site will then charge you an exorbitant fee.

The site will sometimes pretend there are “unavoidable” fees or taxes you have to pay. These may include fake exchange rates or taxes the fraudulent site has invented. Regardless of how much you pay, you can’t make a legitimate transaction. The site may make it appear as if actual transactions are happening by creating a fake porthole that seems to show activity on the blockchain. However, there may be nothing happening on the blockchain at all.

The Thief Spends, Exchanges, or Steals Your Bitcoin

Once the thief has your wallet and login information in the fake exchange’s database, they can use it to access your funds. They can use it buy U.S. dollars, other currencies, such as Euros or the Japanese Yen, or another form of cryptocurrency, such as ETH.

Bitcoin transactions are anonymous. On the blockchain, the only information available is that a transaction occurred between one wallet and an exchange, vendor, or another person’s wallet. The blockchain doesn’t have any information regarding the people behind the transactions, allowing the thief total anonymity.

After either realizing you have been scammed or getting fed up with the fees, you request to withdraw your funds. The fake site refuses to do so. At this point, you may also notice that your account balance has dropped to zero.

How To Beat and Avoid Fake Bitcoin Exchange Sites

Before you put your money in any exchange, carefully research it online to see what kind of reputation it has. It’s helpful to include words such as “fake,” “scam,” or “complaint” in your search terms. If there are only a few reviews from users, this may also be a sign the site is a scam exchange because thieves may have just set it up after having another fake site busted.

Do not make an account on a bitcoin exchange that promises free money, guaranteed returns, or surprisingly high payouts. You should also avoid sites that offer bonuses in exchange for making trades. Often, the bonus is a lie, and you have to trade for a long time, such as an entire year, to be eligible. By the time your bonus period has been satisfied, the fake exchange has already stolen your funds.

 

Legitimate Bitcoin Exchanges

Some Bitcoin-trusted exchanges include:

  • bitFlyer
  • Bittrex
  • Coinmama
  • Gemini
  • itBit
  • River Financial
  • Swan Bitcoin

Red Flags of Bitcoin Exchange Scams

  • A site promising you huge returns
  • A site that says no matter what, you’re guaranteed to make money.
  • You’re offered free money for creating an account and making a deposit.
  • No details provided regarding how you will earn your returns.
  • Errors in their URL, such as the number “0” instead of the letter “o” or the number “1” instead of an “l.”
  • The site is relatively new and has little to no online reputation.
  • Bad spelling or grammar.

Example of Fake Bitcoin Exchange Scams

In this example, the site is offering a free giveaway to attract new users. They try to make the offer look legitimate by providing a code-based redemption system and steps to get the free funds.

Fake bitcoin exchange scam
(Source: Do Not Deal With)

What To Do After Using a Fake Bitcoin Exchange

Unfortunately, it’s pretty much impossible to recover any bitcoin that you used to pay phony fees. If you’re unable to withdraw your bitcoin from the fake exchange, you can contact a bitcoin recovery expert and see if they can help you. These experts will charge you for their service, but it’s worth it, especially if you have a lot of currency on the fake exchange.

Protect Your Identity

If you entered your information onto the fake bitcoin exchange site, be sure to take the appropriate steps to protect yourself from identity theft, such as:

Report the Fraud

If you’ve been targeted by a bitcoin exchange scam, you should report the fraud to the following authorities:

Reporting the scam won’t really help you get your bitcoin back, but it can help the authorities catch the scammers and prevent further fraud.

Frequently Asked Questions

How can I tell if a bitcoin exchange is legitimate?

Look for red flags of fake exchange sites, such as offers for free money, spelling and grammatical errors, guarantees that you'll make money, and lack of reviews or information.

How do bitcoin exchanges make money?

Most bitcoin exchanges charge you fees to withdraw your money, and this is how they make money. Fake bitcoin exchanges will charge similar fees, but the difference is, you won't be able to withdraw your money at all, even if you pay a fee.

What cryptocurrency exchanges are legitimate and safe to use?

There are several bitcoin exchanges that you can use to invest in cryptocurrency safely, such as: 

  • bitFlyer
  • Bittrex
  • Coinmama
  • Gemini
  • itBit
  • River Financial
  • Swan Bitcoin

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