Cybertheft is More Than Hacking: The Rise of Cryptocurrency Scams
The first rule of cryptocurrency should be: "Assume that everybody wants to steal your coins."
That may sound dramatic, but in the forthcoming age of cryptocurrency mass-adoption, you need to make this assumption if you want to keep from being scammed, hacked, or otherwise parted of your hard earned investments. Protecting against hackers is one thing, but what's more is that with the increase in adoption of cryptocurrencies has come an increase in cases of identity fraud and scams. The thing is, this isn't limited to beginners. Even highly seasoned cryptocurrency veterans get taken for millions.
To let this point speak for itself, let’s turn to stories of two cryptocurrency veteran friends who have been involved in these types of deception this past year.
Case 1: Losing it all by losing access to your email account
Jered’s case was high profile, having appeared in the financial news cycle late last year. Jered was one of the first class of Bitcoin millionaires. He accumulated lots of Bitcoin in its early days, founded his own Bitcoin exchange, and once owned the bitcoin.com domain. When the value of Bitcoin skyrocketed in 2013, he became a multi-millionaire overnight. Jered used part of his newfound cash to start a co-living space for entrepreneurs (20 Mission) in the heart of San Francisco. He expanded his business to a second co-living space in Medellin (where one of us was a tenant), and also opened a Spanish language school and started a craft brewery in the process. Life was good.
Then one morning, Jared woke up and found that he was locked out of his email accounts. When he wasn't able to receive texts to his phone either, he quickly realized what was happening. To make a long story short, Russian scam artists worked their way through a string of deception that gave them access to Jared’s phone number, from where they could reset his email account passwords. And once you have access to somebody's email, it's all over.
Unfortunately for Jered, while this was all going on, he left his encrypted device that contained his Bitcoin private keys (essentially his 'password') connected to his computer overnight. The attackers found the info they needed to swipe all the Bitcoin off of his connected encrypted device. Jered lost millions of dollars in Bitcoin, nearly wiped clean of his fortune.
Case 2: Twitter accounts taking advantage of ICO chaos
Almost as worrying as hacking is the rise of scams in the cryptocurrency world. A second friend, we’ll call him Tom, was just scammed this past month during the ICO (initial coin offering) of Bancor, which raised over $150 million in funding. The Bancor fundraiser was actually too successful, in that the number of people trying to contribute to the project was so high that the Ethereum network - which hosted the fundraiser - was overloaded with transactions. Thousands of transactions were lost or backlogged, and many people didn't have an immediate indication of whether or not their contribution to Bancor went through.
In the heat of this chaos, Tom tweeted about the mess at a Twitter account that claimed to be Bancor. He received a reply with an apology that his transaction didn't go through, and they offered him a special deal: he could receive a 20% bonus on the tokens he was trying to purchase. Tom gladly accepted and sent through some Ethereum. The supposed Bancor account wrote Tom again later that night saying that they had several tokens still remaining, and that to make up for all the inconvenience, Tom could have them with an even greater bonus if he'd like. He jumped at the opportunity. This exchange repeated itself one final time before Tom went to bed.
In the morning, Tom woke up to find that though his Ethereum transactions had gone through, he didn't receive any tokens in return. He went to consult the Twitter account that made him the offer, but it had vanished. Tom had been scammed for about $45,000 worth of Ethereum.
Security is a concern for beginners and pros alike
One of the wonderful things about cryptocurrencies like Bitcoin and Ethereum is that they don't rely on a central authority or have options for arbitration. The unfortunate side-effect is that once a transaction is made, there is absolutely no way to reverse it. Hackers and scam artists will only continue to exploit this fact, and take advantage of less-savvy newbies to cryptocurrencies.
The scary thing that these stories reveal is that it isn't just newbies who fall victim here. Highly seasoned veterans also experience moments of carelessness, whether it is forgetting to remove a hard drive containing Bitcoin information overnight, or not researching whether a social media account actually belongs to who the account holder says they are. This seems to be the case for both traders and people that hodl .
The moral here is that to be safe in this brave new world of cryptocurrency, before ever even buying your first Bitcoin, you need to understand your security options and always be skeptical that people might be trying to steal your money.
In our upcoming course, we dedicate an entire unit to teaching the first steps of keeping your investments safe by using a combination of cryptocurrency wallets, two-factor authentication, and other precautions.
DISCLAIMER: Cryptocurrencies like Bitcoin and Ethereum are highly volatile and risky. We cannot give you advice about what to invest in or how much to invest. You should take the information we provide in our courses and blog posts, do your own additional research on specific cryptocurrencies, and plan to decide what kind of investments work for you. We highly recommend talking to a financial advisor to understand the level of risk that you are comfortable with.
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