How people get scammed, ripped off, or otherwise lose money using bitcoin

Quick summary:
1) The bitcoin industry is rampant with scammers, so your default behavior should be "don't trust".
2) If you are new and inexperienced, buy your bitcoins using coinbase, or bitcoin atms. They are trustworthy sources.
3) Store your bitcoins on a local bitcoin wallet like electrum, mycellium or breadwallet - then backup the key. If you are bad with keeping backups, use a cloud wallet app like blockchain wallet app
4) The length of a good reputation rating is usually the best indicator of trustworthiness.

"Stay away from garages on big highways. Such mechanics know they'll
never see you again. Go to a neighborhood garage, where word-of-mouth
serves as advertising."

- Charlie Munger, Seeking Wisdom

Beware of anyone on Ebay, Craig's List, Yahoo Motors or similar site that asks you to "send the bitcoins first". It's probably a scam
I work in a bitcoin place, and I get a ton of people coming in and saying "someone on craig's list asked me to send him some bitcoin". If you never met that person before, this is almost always a scam. Unlike paypal and credit cards, bitcoin payments are irreversible, so once they're sent, they're gone. This is why bitcoin is so attractive for scammers. So if some guy who you don't know is asking you to send him bitcoins first, don't do it.

Many scammers try to buy bitcoins via paypal or credit card. . . then later reverse the charge
Paypal and credit cards are reversible. Meaning that there is nothing to stop the person from calling paypal and saying "I didn't authorize this charge" and paypal will reverse the charge and take money out of your account! And good luck getting a resolution from paypal, they almost always take always side the purchaser. Bitcoin transactions, on the other hand, cannot be reversed. Once they're sent, they're gone. This is why bitcoins are so popular with scammers. We recommend using coinbase, or bitcoin atms to buy bitcoins.

People store bitcoins on their cell phone or laptop, and then it gets lost or stolen
Another common occurrence. Bitcoin is a decentralized currency. Meaning there is no customer service representative to call and say "my wallet got stolen, send me a new credit card".

However, one of the advantages of bitcoins is that they can be backed up, usually by writing down a series of words on a piece of paper ("correct horse battery staple. . ."). It varies from app to app. But back up your bitcoin wallet and put the backup in a safe place where other people can't access it, like a safe or something. Preferably, a place that is physically separate from where you usually live and do business.

If you are bad with backups, use a "cloud wallet" like blockchain wallet app (iphone or android). Your bitcoins are stored "in the cloud" so if you lose your phone, you can log in with, say, your laptop computer and your bitcoins will still be there. Of course, this makes your account more prone to hacking if a hacker guesses your password, so be sure to choose a strong password.

We have a bitcoin best practices page that you should check out regarding backups.

Buying bitcoins on ebay or craigslist
Not so much a scam, but you're overpaying if you do it that way. Markups are like 30% or something insane like that. This is due to the amount of payment scamming that occurs with bitcoin. If you are completely new, or coinbase. The fees are rock-bottom - 1% (although it can take up to a week to get your coins). And if you need bitcoins immediately, just use bitcoin atms. This is a bit more expensive (8%), but the transactions can be done immediately and safely.

Storing a lot of bitcoins on an online service that gets hacked
Just so that you know, Bitcoin services get hacked and seized all the time. Don't store anything on cloud wallets that you can't afford to lose. If it's anything over a few hundred dollars, use a trezor or a good local client (like electrum, mycelium, breadwallet), and then back up the keys!!!. If you use cloud wallet for storing large amounts of bitcoin, you are asking for trouble.

Cloud mining or mining equipment
Bitcoin mining almost always loses money. For those of you not in the know, "bitcoin mining" is basically a process where you donate computational resources to help process some bitcoin transactions on the network, and in exchange you get paid in bitcoin. It's a big money loser for most people. Every guy that I know that bought bitcoin mining hardware lost money. The equipment is expensive and you'll often end up spending more on electricity than what you'll get back in bitcoin.

Also, people who are selling you equipment to mine or, worse, selling "cloud mining subscriptions" are usually trying to rip you off from my experience. Remember, they're selling you something, so their advice is usually very biased. Don't get me wrong, you can make money in bitcoin, just not with that.

Rule of thumb: beware of advice when it's good for the advisor!

Bitclub - or any "multi-level marketing" company for that matter.
Somewhat related to the post above. Watch out for Bitclub, in particular. They're basically selling you cloud mining subscriptions. As stated earlier, cloud mining almost always loses money. I went to one of their sales pitches once and it was disguised as a meetup.com group! And when I went, they gave me "the hard sell", all while giving me "facts" about bitcoin which I knew were erroneous. I actually reported these guys to meetup.com and got them kicked off for abuse of their service. A lot of people think these guys run their company unethically, and in my opinion, I agree. Don't take my word for it, though, read this.

Rule: stay away from any pyramid scheme or "multi-level marketing" place involving bitcoin. In fact, avoid any MLM scheme altogether.



The Bitcoin Spot
5152 Lankershim Bl
North Hollywood, CA 91601
(818) 985-6886
steve@thebitcoinspot.com
Hours: Monday - Friday 9:00AM - 5:00PM