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Avoiding Bitcoin Scams and Fraud

Nov 06, 2020
byNDAX Labs

Cryptocurrency fraud and what to look out for

Fraud is on the rise in Canada. The Canadian Anti-Fraud Centre detected 400,000 fraudulent phone calls in 2020 – like those pretending to be the Canada Revenue Agency -- a two-fold increase over 2019 levels. The amount of money Canadians lose to fraud has increased to $130 million in 2019, from $20 million in 2005.[1]

A 2020 study done by Chartered Professional Accountants of Canada (CPA) found that 34% of Canadians have experienced at least one type of fraud.[2]One of the most vulnerable groups to fraud are Canadian seniors, who frequently fall victim to identity theft, credit card fraud, fake door-to-door scams and online scams.

The COVID-19 pandemic, which has forced many to spend more time on the internet as they work and study from home, has emboldened fraudsters. Using the coronavirus as a smokescreen, scammers are posing as government agencies and tricking internet users into downloading malware and sending them passwords and other personal information. It’s estimated that Americans have lost $161 million, Britons have lost $21.8 million[3]and Canadians have lost CAD $1.2 million in the first few months of the pandemic.[4]

What is fraud?

The legal definition of Fraud in Canada comes from section 380(1) of the Criminal Code. It is loosely defined as:

Anyone who, by deceit, falsehood or other fraudulent means, defrauds the public or any person of any property, money or valuable security or any service.[5]

Online fraud or cyber fraud is fraud committed over the internet. In the cryptocurrency sector, two of the most common types of scams are phishing scams and phony investment opportunities, designed to trick people into sending the scammers money, cryptocurrency or personal information.



Bitcoin Phishing Scams

Phishing emails are designed to scam internet users of their money, cryptocurrencies or personal information. In some cases, they impersonate someone you know or someone in a position of authority, like your bank, the Canada Revenue Agency or a Nigerian prince. In other cases, phishing emails may claim to have hacked into your computer and recorded you doing something unsavory, demanding bitcoin or they’ll show your friends and family.

Cryptocurrency traders and employees in the crypto sector should be especially wary of scams designed to gain access to cryptocurrency trading accounts. One such scam occurred in 2019, when Binance, one of the world’s largest cryptocurrency exchanges, lost roughly 7000 Bitcoins worth USD $40 million to an elaborate phishing scam. The scammers gained access to user API keys, 2-factor authentication codes and other personal information that allowed them to execute a fraudulent transaction to withdraw the crypto assets.[6]

If an email looks off in some way, be skeptical of it. Emails that ask for your password, money or other personal information are red flags. Look for misspelled words, branding that looks inauthentic -- like logos being off-color -- or other clumsy mistakes. Hover your mouse over a link to see if it is sending you somewhere other than your intended destination; somewhere that looks phishy.[7]



Fraudulent Investment Opportunities

Phony investment opportunities are another type of cryptocurrency fraud. This kind of fraud is always adapting in its forms and methods as scammers try to stay ahead of regulatory authorities.

Fraudulent Initial Coin Offerings (ICOs) are on the rise. While many ICOs are legitimate, a substantial number of companies who raise money through ICOs have no real business plan or technology, and sometimes make fraudulent or unsubstantiated claims about their products.[8]

Cryptocurrency pyramid schemes advertise low cost, high reward cryptocurrency investments through multi-level marketing schemes. They promise to dramatically increase your initial investment in a short amount of time. If the scheme is elaborate enough, investors will receive some money back as the scammers shuffle money from one investor to another. In other cases, the scammers just take the initial money and run. [9]

Flipping scams are offers to instantly exchange cryptocurrency for money after paying an initial startup fee. These offers are usually sent to thousands of social media users at once, expecting only a small amount of each batch to fall for them. In reality, the scammers just steal the cryptocurrency from the users without upholding their end of the bargain. [10]

Fake cryptocurrency websites and mobile apps try to trick users by posing as existing and established exchanges. Sometimes they are trying to get your login information to the actual exchange; in other cases, users are baited into downloading malware by clicking a bad URL or downloading a nefarious app. [11]



Once again, look out for anything that looks suspicious about the website, the app, the company or the offering. Do your due diligence on a company by reading their whitepaper, if available, and investigate them thoroughly on the internet. Familiarize yourself with the investment opportunity, look at reviews, and check to see if the company is legitimate by seeing if they are registered with the proper regulatory agencies.

Check out: Bad Crypto Podcast: Avoiding Crypto Scams, or detailed information on steps you can take to prevent fraud.

If you are based in Canada and looking for a secure Canadian Bitcoin exchange, then take a look at  NDAX. NDAX is an easy-to-use, beginner-friendly exchange that can give you easy access to trade Bitcoin and other cryptocurrencies like Ethereum, ChainLink, Tether, XRP, Litecoin, Cardano, Dogecoin, EOS and Stellar.


  • [1] Taschner, E. (2020). Anti-Fraud Centre Warns Scams on the Rise. CTV News: Ottawa.
  • [2] file:///Users/juliandobre/Downloads/Fraud%20Backgrounder%20Final%20Feb%20272020%20EN.pdf
  • [3] Cadman, E., Pitcher, J., Chanjaroen, C. (2020). The Covid-19 Pandemic is Making Everyone More Susceptible to Scams. Bloomberg Wealth: New York.
  • [4] Thompson, E. Nicholson, K. Ho, J. (2020). Canadians Have Lost More Than $1.2 million to COVID-19 Scams. CBC News: Toronto.
  • [5] Criminal Code, RSC 1985, C-46, s.380.
  • [6] Zhao, C. (2019). Binance Security Breach Update. Binance: Malta.
  • [7] 4 Common Cryptocurrency Scams and How to Avoid Them. Kaspersky: Moscow. Retrieved October 2020.
  • [8] Pines, L. (2020). Afraid of Cryptocurrency Scams? Follow These 3 Steps to Avoid Them. Commodity: New York.
  • [9] Wasik, J. (2020). How To Spot A Bitcoin Scam. Forbes: New Jersey.
  • [10] Ibid.
  • [11] Ibid.