Bitcoin Mining Scams Explained: How Fraudulent Mining Works
Bitcoin mining is an integral part of the Bitcoin blockchain and can be a legitimate way to create and earn Bitcoin, when done correctly. As cryptocurrency continues to gain popularity, many people have become intrigued by the idea of being able to earn Bitcoin from mining. Unfortunately, cybercriminals also know this and exploit genuine interest in Bitcoin mining in what are commonly referred to as Bitcoin mining scams, which unlike real Bitcoin mining, only cost the users and do not provide any Bitcoin in return.
What Is Bitcoin Mining?
Bitcoin mining is part of Bitcoin’s proof-of-work consensus process, which verifies blocks before they are added to the blockchain. This ensures that transactions are valid and each bitcoin is only spent once. Bitcoin miners and mining pools compete to be the first to solve a complex cryptographic puzzle to find the missing integer and obtain Bitcoin as a reward. Cryptocurrency miners use a combination of hardware and software, which is often customized to be as efficient as possible to mine bitcoin. When a miner solves the cryptographic puzzle, it is communicated to the other devices on the Bitcoin blockchain (referred to as nodes) and the miner receives their reward, which includes both the new bitcoin and transaction fees.
What Are Bitcoin Mining Scams?
A Bitcoin mining scam is a fraudulent scheme where cybercriminals attempt to sell fake mining services or investments related to Bitcoin mining to unsuspecting victims. These scams attempt to create a false sense of security by offering guaranteed or steady income for an investment that is typically made in cryptocurrencies, and they require upfront payments.
The criminals behind these fraudulent schemes often provide their victims with dashboards showing data that looks convincing. The dashboard may show fake hash rate statistics, fake profits, and they may also provide documentation that looks convincing; however, it is all smoke and mirrors. There are several types of Bitcoin mining scams that have been identified.
Types of Bitcoin Mining Scams
1. Cloud Mining Scams
Cloud Mining enables users to rent hashing power from service providers without having any physical hardware. While there are legitimate cloud mining operations, there are also scam cloud mining platforms that:
- Promise unrealistic returns: While in legitimate cloud mining operations, returns fluctuate daily and are never guaranteed, in a scam cloud mining operation the scammers will often claim that the profits are guaranteed or fixed.
- Scam cloud mining operations often do not provide any transparency regarding where they operate (mining operations) or what type of equipment (physical infrastructure) they have. And when they do, the information is not independently verifiable.
- Scam cloud operations often display simulated earnings through fictitious dashboards that do not reflect any real mining activity or returns.
2. Ponzi-like Mining Investment Schemes
Some scams operate like classic Ponzi schemes: early investors are paid with funds from incoming investors. These schemes collapse when new investment slows, leaving later participants with losses.
3. Fake Mining Apps or Software
While these fraudulent mobile applications advertise their offerings as a means for Bitcoin mining, they do not actually produce any real Bitcoin. Their product may show fake earnings or charge for subscriptions and provide no benefit.
4. Mining Contract Scams
Scammers offer their victims “mining contracts” which they claim guarantees profits from cloud mining. However, once users pay, the contracts either never yield returns, the scammers ask for more money to release the fake “profits,” or the scammers simply disappear.
Common Red Flags of Bitcoin Mining Scams
Unrealistic Returns
Most authentic services that offer mining services cannot grant an investor consistent and high returns. Any offer of “guaranteed profits” should be viewed as potentially fraudulent.
Lack of Verifiable Operations
Beware of services that do not provide proof of their mining infrastructure, hash rates, or payout systems.
Complex or Opaque Pricing
Many times, fraudsters will create pricing structures that are confusing or difficult to navigate to mask where your funds will be utilized.
Pressure and Urgency
Fraudsters often use high-pressure tactics to sell their services. For example, “This is a limited-time offer” or “Last chance.”
Anonymous or Incomplete Information
Fraudulent platforms will usually be vague about their founders, their location, and whether they follow the regulatory guidelines.
How CNC Intelligence Helps Scam Victims
CNC Intelligence is a licensed investigative firm in the United States that provides services related to crypto asset tracing, intelligence for asset recovery, and forensic investigation. Using advanced blockchain analysis and cyber forensics, our staff can:
Investigate Mining Operations
Using a combination of blockchain investigative tools as well as open and closed source intelligence, our investigative team can evaluate the legitimacy of Bitcoin mining operations and identify associated risks.
Trace Asset Movements
Our crypto asset tracing services track the flow of cryptocurrency after a scam in order to determine their destination. The results of a crypto tracing service may provide valuable data for legal and law enforcement agencies.
Provide Intelligence for Recovery
Our asset recovery intelligence solutions include evidence and analysis that support actions taken by victims, law firms, or government authorities.
Expert Opinion and Litigation Support
By providing expert opinion and litigation support to attorneys and regulators that they can better understand the complexities of blockchains and fraudulent activities.
Cyber Investigations and Compliance
CNC Intelligence goes beyond tracing stolen money by providing investigative support and compliance and risk management solutions.
Why Professional Investigation Matters
Tracking each and every transaction can be quite difficult; however, there are situations when law enforcement and/or attorneys need to have thorough documentation of the case (forensic data) as part of their investigation. In these situations, professional investigators such as those at CNC Intelligence may provide valuable intelligence. It is important to remember that investigators cannot guarantee results, and to recover funds, victims will need to work with law enforcement or a law firm.
Final Thoughts
If you or someone you know has been impacted by a Bitcoin mining scam, seeking a thorough investigation with professionals like CNC Intelligence may help uncover critical information about what happened. Our services in tracing assets, preparing expert analysis, and supporting litigation efforts aim to shed light on complex cryptocurrency frauds.
Stay alert and do your research before investing in Bitcoin mining.