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10 Ways to Lose Your Bitcoin and How to Prevent Them

  • There are many ways you can lose your Bitcoin.
  • Approximately 20 percent of all mined Bitcoin has been lost forever.
  • Ponzi schemes are one of the major ways people lose their Bitcoin.
  • A Chinese Ponzi scheme gathered up to 1 percent of all Bitcoin in circulation.a

Bitcoins can be lost in a variety of ways, with most people losing coins simply due to user error. There are even a few mistake cases that have caused people to lose all the Bitcoin in their wallets.

According to a 2019 study conducted by the Wall Street Journal, 20 percent of all Bitcoin has been lost, forever. This goes to show that while Bitcoin solves many of the challenges inherent in the financial industry, it is not completely invincible.

1. Losing Your Private Key

Bitcoin owners are usually advised to store their private keys in the safest place they have available, some end up stashing their keys in a vault or in the bank.

The reason is that when you lose your private key, you have rendered the Bitcoin useless forever. Unlike fiat that has chances of being recovered, it is almost impossible to recover Bitcoin with a lost private key.

In November 2013, James Howells, an IT worker who mined Bitcoin in its early days threw away a computer hard drive without realizing it contained his private key. At the time, the hard drive contained $7.5 million worth of Bitcoin or $230 million in today’s value.

There are hundreds of others who threw away or couldn’t find the hard drives where they stored their private keys. All those fortunes have been lost. Malware and viruses are also ways many have used to lose their private keys.

Solution

If your private key is stored in a physical medium or on a seed, store them in the safest place you can find. The smartest move would be to create duplicates of your private keys. At least, there should be one trustee who can get access to the private key in the case of any eventuality.

2. Cryptocurrency Exchanges

You would not lose your Bitcoin by trading them in a Crypto exchange, however, exchanges are more susceptible to getting hacked. Hacked crypto exchanges account for the majority of Bitcoin lost. In 2018, they accounted for 27 percent of all lost digital assets.

In 2019, a total of $292,665,886 worth of cryptocurrency and 510,000 user logins were stolen from crypto exchanges.

Mt. Gox was the first high profile hack in cryptocurrency history, and perhaps the most popular. Many other exchanges have been hacked including Bitfinex, Bitstamp, Bitpoint, EXMO, Cryptopia, Coincheck, Altsbit, Upbit, GitHub, and a long list of others.

Solution

If you are not trading store your Bitcoins in a private wallet where you control the private keys. Don’t store most of your funds on an exchange

3. Phishing

One of the most deployed means of stealing cryptocurrencies is Phishing. It is simple, yet very effective. These cybercriminals lure Bitcoin holders into logging in their account details into sites that mimick the original one.

Promos, discounts, giveaways, emails, and airdrops are their favourite means of reaching people. When you log in with your details, they instantly get them through a backlinked mail. Then then force their way into accounts and siphon coins.

Coinbase, Binance, and MyEtherWallet are the sites commonly used for Phishing. Most times, these fake sites have different names from the original; .info, .co, or .xyz instead of .com.

Solution

When you receive a mail or a link on a post redirecting you to double your account or get an 80 percent discount on your next transaction, do a Google search to confirm the authenticity of the promo. Also, installing an ad-blocker can help. Lastly, double-check the name of the website before logging in.

On the flipside

  • The Financial Crimes Enforcement Network (FinCEN) of the U.S. has announced that it will soon propose a new regulatory guideline to check crypto crimes.
  • The new regulations want to “centralize” the crypto space so that it can control the cryptocurrency projects in the country.
  • France has taken a different route to stripe cryptocurrency of their anonymity.
  • The growing regulation of the crypto space is happening to check the criminal acts conducted and sponsored with cryptocurrencies globally.

4. Ponzi Schemes

While Ponzi Schemes may not be common in the west, it is an everyday occurrence in the east. People are promised a daily interest of, 2, 5, and even 10 percent of their investment. Many people who move their Bitcoin to such accounts never get to see them again.

Chainanalysis reported in January 2020 that Cryptocurrency scammers raked in $4.3 billion worth of digital money in 2019. Ponzi schemes accounted for 92% of the stolen funds.

Chainanalysis reported that a single Ponzi scheme, PlusToken based in China by itself brought in at least $2 billion in 2019. In 2020, the Chinese government reported that it had seized up to $4 billion worth of Bitcoin, 1 percent of its total supply from PlusToken.

Solution

Avoid any project that promises an outrageous return on your Bitcoin investment. Do a research on a new project, if it’s a Ponzi scheme, avoid it altogether.

5. Social Media ‘Charity’ Scams

Social Media is one of the most effective ways scammers get Bitcoin holders. In July of 2020, we saw one of the biggest social media scams. The verified Twitter accounts of Elon Musk, Bill Gates, Jeff Bezos, Joe Biden, Kanye West, and others were hacked.

In a show of ‘charity,’ the hackers asked unsuspecting followers to transfer Bitcoins to a certain account and receive double the amount they transferred. More than $100,000 in bitcoin was lost on that day.

Solution

Individuals or crypto projects would usually make announcements prior to an airdrop or a giveaway. Confirm from multiple verified social media handles or a registered blog/website that there would be such before giving out your wallet address or making any transfers.

6. Catfishing

This is one of the most common ways people lose their Bitcoins to fraudsters. Catfishing involves creating a fake social media account to impersonate a reputable cryptocurrency project or person.

While it is very similar to an outright hack, catfishing includes impersonation with a similar account, not the original account. In 2018, records showed that over 18,000 people were victims of catfishing schemes.

Solution

Follow only the verified accounts and websites of crypto projects and linked individuals. If any case comes up, verify with other accounts. If truly an airdrop, it should show up on all their social media platforms and websites with countdowns leading to the event.

7. Transferring to a Wrong Address

Many people would not consider transferring Bitcoin to a wrong address as a common way of losing one’s Bitcoins, but it actually is. A single character is all it takes for your Bitcoin to end up in the account of a stranger.

Since Bitcoin transactions are completely irreversible, sending coins to the wrong address means losing them forever. Unless you send it to a person kind enough to refund. If they end up in a void account, simply forget about them forever.

In 2018, uToday reported that the probability of typing a wrong Bitcoin address is about 1 in 4.3 trials.

Solution

he best method of inputting an address is by copying and pasting the address of the receiver. After that, double-check that the address to make sure you haven’t accidentally typed in an extra character.

8.Fake Cryptocurrency Wallets

Another route fraudsters take is to create fake wallet apps and list them on Google play store. Sometimes they come as new projects, other times they mimic real cryptocurrency wallet apps. Their purpose is to get people’s credentials or steal people’s crypto.

When people download these fake apps, they request the wallet passwords and private keys of users. The fraudsters on the other end proceed to withdraw crypto from the real wallets. Sometimes they even go as far as allowing users to deposit but not to withdraw before they steal their bitcoins.

Solution

Before downloading, check for a verification symbol. If for any reason it’s absent, read the reviews of users, there should be a complaint or two in the comment section. Another precaution could be downloaded directly from the website of the crypto project.

9. Fake ICOs

It is not uncommon to see cybercriminals create fake Initial Coin Offerings ICOs. People who are new to crypto fall prey to these fake ICOs who advertise themselves as a new cryptocurrency investment that will yield high returns.

Because of fear of missing out on the next “Bitcoin,” many inexperienced investors throw in their Bitcoin and cash into these fake ICOs. One of the most popular fraud ICOs is Centra, a project that was endorsed by Floyd Mayweather.

Solution

Spend time analyzing every crypto project you plan on investing in. If you still feel unsure, seek expert opinion before making an investment.

10. Pump and Dump Schemes

If you have been around the crypto space for a while, then you should be familiar with pump and dump schemes or “shit coins”. They are price manipulation schemes where cybercriminals take to social media groups to hype up projects or tokens.

In themselves, these tokens and projects have no real value or have no real use-case. Because of the hype and investments from the public, the coins experience exponentially increase in value overnight.

Once the value increases, the fraudsters sell their tokens, and soon after the massive sell-off the token price sinks dramatically. People who kept their tokens end up with almost valueless coins.

Solution

Spend time analyzing the use case and value of new crypto projects. Most pump and dump schemes offer no real value. If you still feel unsure, seek expert opinion before making an investment.

In conclusion

Now that you are aware of the most common ways people lose their Bitcoin and other cryptocurrencies, it will be easier to prevent some of these unfortunate events from happening.

Keeping your digital assets safe is more important than purchasing them. Many who bought Bitcoin in its early days would never have imagined it hitting $30,000 today.

This article is for information purposes only and should not be considered trading or investment advice. Nothing herein shall be construed to be financial legal or tax advice. Trading Forex, cryptocurrencies, and CFDs poses a considerable risk of loss

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