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How to Avoid Bitcoin Scams



Since bitcoin’s inception in 2009, it has grown exponentially making it a widely popular digital currency that is used around the world. Unfortunately, it is due to the popularity of bitcoin and its market cap growth rate that scammers are realizing the monetary benefits they could get from it.

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According to Bitstamp, the first fully licensed bitcoin exchange, the bitcoin to USD market cap is more than $11.3 billion, with the cost of one bitcoin around the $708 mark, at the time of publishing. It goes without saying that the bitcoin space and its worth has attracted online scammers who want to get their hands on the digital currency by employing devious methods in the process.

Of course, regardless of whether you are a newbie in the bitcoin space or you’ve been dabbling in the technology for a few years, it’s always a good idea to keep yourself up-to-date on the bitcoin scams. Here we will highlight the existing bitcoin scams that people should be aware of and what you can do to avoid becoming a victim of one.

  1. Bitcoin Exchange Scams

These types of scams may not necessarily be easy to decipher simply because the organizations may have a high standing level within the bitcoin space. There are some, though, that do fall through the net. For example, in 2014, the digital currency exchange platform, Cryptsy, is reported to have lost 13,000 BTC and 300,000 LTC after the exchange was hacked; however, it then proceeded to fail to inform its users of the situation for fear of causing mass panic. This has led many to believe that Cryptsy is Mt. Gox’s junior.

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Mt. Gox, the now defunct Hong Kong-based bitcoin exchange, grabbed headlines back in 2014 when it was revealed that around 850,000 bitcoins were stolen, at the time worth around $450 million. While 200,000 bitcoins have since ‘returned’, many users of the exchange are still awaiting an outcome for their stolen money.

What Can You Do: In this situation, the best course of action is to only use the services that you completely trust. Unfortunately, with the above exchanges they were, at one point or another, trusted exchanges.

So what can a person do?

One solution is that instead of putting all your eggs in one basket, why not split what you have into different wallets. This way you can rest assured that not everything you own will be lost if an exchange does get hacked into. Also, research the failings of exchanges such as Mt. Gox and you’ll see that there were warning signs beforehand. By knowing what these are you can keep them in mind when checking out other bitcoin exchanges.

Of course, before parting with your money it’s wise to proceed with a level of caution, and be mindful of any exchanges that simply avoid answering queries in an attempt to ignore a crippling situation.

  1. Phishing Scams

Surprisingly, phishing scams have been known to target those within the bitcoin space. In 2014, the popular digital wallet, Coinbase, was reported to have allowed mass phishing while leaking user information. According to a report, users were receiving emails asking them to make a payment to another user.

phishing locks

In July, following the disappearance of bitcoin mining company, HashOcean, with millions of dollars worth of users’ bitcoin, phishers attempted to get victims to part with their money claiming they could recover their stolen bitcoins. In a bid to lure unsuspecting victims they used fake websites, Facebook pages, and phishing emails.

What Can You Do: To avoid becoming a victim of a phishing scam, don’t click on any sources that haven’t been verified. If something doesn’t seem right to you, always proceed with caution. After all, it’s much better to be cautious in the first instance rather than finding out too late that you’ve unwittingly lost your money.

  1. Fake Websites

It’s believed that if you scan a document that has words scrambled up you can still read what it says as long as the first and last letter are in their right place.

So, when it comes to someone trying to make a fake website appear real they may use some part of the genuine website’s URL, but take out one letter. An example of this was revealed earlier this year when a Reddit user announced that they had lost bitcoins after using a fake website unknowingly. The user believed that they were using the digital currency exchange; however, it was only after realizing that there was a missing ‘F’ in the fake website’s URL that ShapeShift was notified.

Not only that, but the Hong Kong-based exchange, Bitfinex, had to alert its users of phishing emails this year after phishing emails were being circulated from an address that appeared to be one of its own.

What Can You Do: Avoid clicking on sources that haven’t been verified. Even if a website looks legitimate, always remember to check the correct spelling of the URL before proceeding.

  1. Ponzi Schemes

A good maxim to live by is ‘if it sounds too good to be true, it probably is.’ That’s certainly the case with Ponzi schemes.

In most cases, it’s easy how to detect a Ponzi scam, and yet while this is the case, people still fall victim to them.


Because the operators of Ponzi scams know what to say to get people involved: the promise of great return on investments (ROI) without needing to do much to achieve it. Gavin Andresen, a well-known bitcoin developer, is reported as saying that he believes that ‘bitcoin cloud mining companies will turn out to be Ponzi schemes.


In 2014, Trendon Shavers was arrested, and later sentenced to 18 months in prison, after his involvement in a bitcoin-related Ponzi scheme. Reports state that he obtained around 146,000 BTC from investors, amounting to around $807,380 during the time of the scheme.

Another Ponzi scheme that has since ceased was CryptoDouble. In 2015, it ceased all operations after promising its users’ that it would double deposits within 100 hours. It was reported that around 2,233 BTC, amounting to about $500,000 at the time, had been cashed out leaving thousands of customers out of pocket.

What Can You Do: As mentioned before, if it sounds too good to be true, then it probably is. Avoid investing in something that over promises on ROI that guarantees a return. Even if a bitcoin company has received positive reviews, don’t jump in straight away. Be wary and do your research beforehand. You’ll thank yourself later that you did if an investment that you originally believed to be true turned out to be a Ponzi scheme.


Unfortunately, as the world of bitcoin continues to grow grabbing the attention of people who are keen to invest in a new technology that promises great things, bitcoin scams will also remain a prevalent factor.

This does nothing to help improve the space and is more likely to hinder its growth as scam victims shy away from any further investment in the currency. Furthermore, a lack of regulation also means that it’s easier for scammers to target people in the bitcoin space.

As such, it’s unlikely that scams involving bitcoin will stop anytime soon; however, by being aware of the different types of scams it makes it easier for someone to avoid becoming a victim and losing potentially thousands of dollars, with no way of recovery, in the end.

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Power Consumption for Bitcoin Mining Is Now Ranked 61st in the World



Bitcoin Miners
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Bitcoin prices have been towering in the past couple of weeks. This is cause for celebration for users who have heavily invested in the cryptocurrency; but, it appears the value of bitcoin is not the only thing that has hit the roof in 2017. Bitcoin mining energy consumption has also reached new heights.

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A research study conducted by PowerCompare—a U.K.-based company for energy comparison tariff—found that the average power used to mine bitcoins this year has already gone beyond the annual energy consumption for some 159 countries. In particular, the global average power spent on bitcoin mining has far outstripped the energy consumption in Ireland and a couple of African countries.

This new study was based on data from Digiconomist, whose current estimation of power used to mine bitcoin hovers around 30.14 TWh annually. This figure is way above Ireland power consumption that currently stands at 25 TWh yearly.  In fact, recent research from Dutch Bank ING found out that one bitcoin transaction consumes sufficient electricity to power an average household for a whole month.

At this rate, if bitcoin miners were a single country, it would be positioned 61st in the world based on power consumption, comparable to Slovakia and Morocco. PowerCompare has already predicted that if the trend continues, bitcoin mining will expend the entire world’s electricity by February of 2020!

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Why bitcoin mining is increasing power consumption levels

What makes bitcoin mining an energy black hole?

Apparently, it is the computational requirements that process the complex cryptographic problems that miners must solve to be rewarded with the cryptocurrency. Just like other notable cryptos such as Ethereum and Litecoin, Bitcoin depends on miners to validate transactions performed in their respective blockchains.

To verify transactions, miners are required to solve complex mathematical problems, which on becomes increasingly difficult as more and more miners join the mining bandwagon. The more byzantine the cryptographic problems, the more the processing power that is needed to solve them.

In the case of bitcoin—the most popular cryptocurrency—a multitude of miners now make it absolutely necessary to use ASICs (Application-Specific Integrated Circuits) which consume considerable amounts of electricity. At present, ASICs have been designed to provide far more efficient computations, both in terms of the hash rate and power consumption when compared to CPU or GPU mining.

But the ASICs haven’t really resolved the hurdles of power consumption.

Ideally, the use of ASICs meant that the total time required to validate new blocks drastically reduces too. This hasn’t happened because of the way the bitcoin protocol was conceived. Apparently, the mining difficulty in bitcoin ensures that the total time taken for generation of new blocks must be kept constant.

As a matter of fact, the Bitcoin network automatically alters the difficulty level for bitcoin mining to ensure the discovery of new blocks every 10 minutes by miners based on two factors. First, there is the global block difficulty that forces valid blocks to have a hash value that is below the target to ensure the difficulty level is maintained.

Second, the number of miners that are actively participating in the mining process has been soaring, meaning the difficulty level has remained constant for a while now. Also, the mining difficulty automatically adjusts after every 2016 blocks on the Bitcoin network. Depending on how many users were actively mining – together with their combined hashpower—and the time it takes to find the 2016 blocks, the difficulty can either go up or down.

As the mining difficulty increases, miners should acquire more powerful hardware to accommodate for the adjustment which again increases the computational electricity. It is also worth noting that there is no maximum mining difficulty that has been set for the Bitcoin network. There is a possibility that the mining difficulty will continue to rise until all the Bitcoins are mined have been mined by the year 2140.

This means that power consumption in Bitcoin is not likely to decrease in the near future.

Challenges of mining Bitcoins

Here are some challenges of Bitcoin mining:

#1: Environmental hazards

The massive growth of cryptos has set up an exponential demand for processing power. The inordinate amounts of power required to mine bitcoins make it an environmental hazard since much of the earth’s electricity is still generated from greenhouse-gas-generating fossil fuels. This implies that bitcoin mining could be contributing to the climate changes and global warming.

#2: Stumbling block for mass adoption

The bitcoin cryptocurrency was conceived as a decentralized, peer-to-peer and trustless currency free from regulations of government agencies and financial institutions such as banks. Unfortunately, the adoption rate is discouraging. This can partly be attributed to the high energy consumption costs.

A recent study conducted by researchers from the HINUI (Hamilton Institute at the National University of Ireland) found that the cost of Bitcoin mining on the commodity hardware at present far exceeds the price of the rewards. In fact, Bitcoin mining has now been left to the big players who have the money to buy expensive ASICs with some of them leasing their hardware to small players in the so-called cloud mining.

#3: Rise of illegal piracy

In order to work around the hurdles of power-intensive requirements of bitcoin mining, some users have resorted to using dirty tricks to obtain the computational power from other people’s machines. A recent study published by Futurism found that Pirate Bay has covertly been testing a Javascript mining app on their website which allocates a huge volume of their visitors’ CPUs for purposes of mining the cryptocurrencies.

While the website in question was developed to help users in illicitly downloading files such as games, movies, and music, the JavaScript app hijacks the users’ CPUs to mine cryptocurrencies which is illegal.


The rise of bitcoin values is a cause for celebration in the crypto universe. It means that the entire global community is beginning to appreciate the value of cryptocurrencies in the world economy. However, mining energy consumption is soaring at an alarming rate. The quicker we find mechanisms to make bitcoin and other cryptocurrency mining electricity use “greener,” the better it would be for the Blockchain technology that is often heralded as the next internet.

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Bitcoin Futures Officially Launch on CBOE



The long-awaited bitcoin futures contract officially debuted on CBOE Global Markets Sunday, sending BTC/USD sharply higher. Trade volumes were reportedly thin as CBOE’s website crashed immediately after the contract went live.

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XBT Goes Live

CBOE’s futures contract, which trade under the symbol XBT, went live at 6:00 p.m. ET. Within minutes, bitcoin prices surged over $1,000, a sign that institutional money was pouring into the market. The BTC/USD exchange rate reached a session high of $15,811 before giving up gains later in the session. XBT traded at $16,000 soon after the contract went live, giving it a premium over the spot price.

At press time, BTC/USD was trading at $15,248, where it was little changed compared with the previous close.

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Bitcoin’s total market capitalization is $260 billion. Trade volumes over the past 24 hours have exceeded $13.5 billion, according to CoinMarketCap. South Korean trading desks drove much of the daily turnover, with Bithumb accounting for roughly 16.5% of transactions. That’s equivalent to roughly $2.2 billion.

The Bitfinex exchange turned over 12% of total bitcoin transactions, which is equivalent to $1.6 billion, data showed. Coinbase’s GDAX exchange saw 6% of the volumes, or roughly $823 million. GDAX experienced technical difficulty last week as bitcoin prices crossed $19,000.

Although trade volume on the exchanges was robust, liquidity in the futures market was relatively thin.

Highly Speculative Instrument

It has been argued that bitcoin futures represent one of the highest forms of speculation in recent memory, given that they are cash settled and have no delivery requirement. This point was raised by Randy Mitterling in Twitter of all places in response to Nassim Nicholas Taleb, the world renown essayist, scholar and former trader. Mitterling, who serves as a Chief Investment Adviser, said:

“Bitcoin futures are cash settled. No delivery requirement. It’s just a sentiment indicator that could be completely wrong compared to the actual price. Truly the most highest form of speculation ever created.”

Taleb, himself a brilliant writer and probability theorist, had provided a series of insightful tweets about bitcoin in general and the new futures contract in particular. In a Sunday post, Taleb said the following:

“Note that Bitcoin has a limited number of natural sellers. The entire concept is very concave supply (it costs more and more to extract). The number of producers shrinks with time.”

In an earlier tweet, Taleb also said:

“No, there is NO way to properly short the bitcoin “bubble”. Any strategy that doesn’t entail options is nonergodic (subjected to blowup). Just as one couldn’t rule out 5K, then 10K, one can’t rule out 100K.”

The arrival of bitcoin futures probably ups the ante on other forms of institutional investments involving cryptocurrency. Some analysts speculate that bitcoin exchange-traded funds (ETFs) are the next logical step for a market growing more comfortable with the idea of cryptocurrency.

CBOE chief Edward Tilly recently told CoinDesk that the case for a bitcoin-linked ETF is stronger now that futures trading is under way. As such, CBOE may be prepared to submit a new proposal to the Securities and Exchange Commission (SEC) to allow bitcoin ETFs and exchange-traded notes (ETNs) to be traded.

Tyler and Cameron Winklevoss failed to launch their bitcoin ETF earlier this year after the SEC rejected their proposal on grounds that the Bats exchange would be unable to enter necessary surveillance-sharing agreements.

A bitcoin ETF would allow investors to buy and sell the asset class much like a stock transaction. For many, it is seen as a precursor to greater mainstream adoption of the world’s no. 1 digital currency.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

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Bitcoin Plunges $2,000 on Eve of Futures Contract



Bitcoin prices declined sharply over the weekend, as traders locked in profits before the highly anticipated XBT futures contract.

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BTC/USD Price Levels

The value of bitcoin pulled back sharply on Sunday, with prices hitting a low of $13,474. BTC/USD would later consolidate at $13,662 for a loss of $1,931, or 12.4%. The decline shaved tens of billions of dollars off bitcoin’s market cap. The coin was last valued at roughly $227 billion.

Despite the loss, trade volumes were still extraordinarily high on Sunday. Daily turnover in the bitcoin market crossed $14.7 billion. Interestingly, the Bitcoin Mercantile Exchange (BitMEX) saw the highest turnover Sunday at roughly 17% of the total transactions, which was equivalent to $2.5 billion South Korea’s Bithumb processed nearly 13% of all trades via BTC/KRW, which amounted to $1.9 billion. Bitfinex came in third at 9%, or $1.3 billion.

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Bitcoin put up massive gains this week, leading U.S. exchange Coinbase to crash temporarily. The exchange would later issue issue a gentle warning reminding account holders to “please invest responsibly.”

At its absolute peak, bitcoin clocked in above $19,500.

Broader Crypto Market Collapse

Bitcoin certainly wasn’t the only cryptocurrency in hot water on Sunday. In fact, the top 18 cryptos by market cap were in the red, according to CoinMarketCap. Only three of the top 66 coins were trading in positive territory.

Heavy losses were reported across the board, with the leading altcoins affected. Below is a rundown of some of the losses early Sunday:

Cryptocurrency Performance
Ethereum (ETH): -9%
Bitcoin Cash: -13%
Litecoin (LTC) -12%
DASH (DASH) -10%
Monero (XMR) -16%
Bitcoin Gold (BTG) -18%
NEM (XEM) -30%
Stellar Lumens (XLM) -18%
EOS (EOS) -16%

As a result of the collapse, the combined value of cryptocurrencies fell to $376 billion Sunday. That represents a drop of $65 billion in just 24 hours. The total crypto market cap peaked north of $452 billion on Friday.

The declines followed another streak of record-setting gains for global cryptos that was largely driven by bitcoin. The world’s most expensive cryptocurrency has been riding high on news that CBOE will launch its bitcoin futures contract (XBT) a full eight days before rival CME Group.

XBT is a cash-settled futures contract based on the Winklevoss brothers’ Gemini auctions price. The contract will begin trading 6:00 p.m. ET Sunday on the CBOE Futures Exchange.

There’s no way to know for sure how Wall Street will treat the new derivatives contract. On Friday, the Futures Industry Association (FIA) issued a stern statement to the Commodity Futures Trading Commission (CFTC) that its members were concerned about the derivatives contract. In an open letter, the lobby group said XBT “did not allow for proper public transparency and input.”

Futures trading is said to be the domain of short-sellers, which could make bitcoin more volatile than before. That being said, the bitcoin community is excited about the prospect of a futures contract that enables them to bet on price swings without having to rely on cryptocurrency exchanges.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock. 

Important: Never invest money you can't afford to lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here.

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