With the boom of the crypto industry came numerous opportunities for earning active or passive income. One of the popular passive income ventures in the crypto industry is crypto mining, which involves the solving of mathematical problems to confirm crypto transactions and earn rewards. Most miners typically join mining pools to broaden their capacity to solve more blocks and earn more.
However, this sector has become significantly riddled with malicious actors who lure unsuspecting victims into fake mining pools to hoodwink them of their funds. These scams have become somewhat of an epidemic in the crypto space today, especially on social media.
In this article, we take a brief look at the crypto mining sector, the growing propensity of crypto mining pool scams, and how to identify and avoid these scams. We also review a real-life scam event of an unsuspecting crypto mining recruit via Twitter.
The Crypto Mining Sector’s Evolution: Why It Is a Hotbed for Scammers
As mentioned earlier, cryptocurrency mining involves the application of computing power to solve complex mathematical problems that verify crypto transactions for small crypto rewards. A common strategy in the mining sector is pooling, where miners pool resources and computing power to solve more blocks and earn more rewards and reputation. In mining pools, miners get rewarded according to how much work they contributed to solving a block.
Like how on-premises data center computing evolved to cloud computing, mining pools have also evolved into cloud mining. Instead of bearing the costs of purchasing, setting up, and maintaining a mining rig, which attracts high electricity bills, cloud mining allows miners to rent computing power for their mining operations. Simply put, cloud mining is the rave of the moment in the mining industry today.
While cloud mining allows users to mine crypto in a stress-free and efficient setting, it also introduces several cybersecurity risks. Due to how easy and quick it is to create a crypto mining service, many scammers have infiltrated the industry, looking for unsuspecting victims. One of the most common forms of these scams comes in mobile apps, many of which get heavily advertised on Twitter and other social media platforms.
That said, one of the many dangers of mining scams is how difficult they are to differentiate from legitimate ones. Also, mining scams fall into an already technically demanding mining practice, making it easy to hoodwink newbies or inexperienced miners.
Meanwhile, legitimate cloud mining pools are usually buried under a pile of “fly-by-night” operations on search results. Identifying the legit mining pools can be tasking and requires in-depth sifting through Reddit and other crypto community forums. As the industry becomes more competitive, going with established brand names is the wise thing to do.
That said, newbies or those getting into the industry for the first time are advised to observe thorough research to ensure that you do not fall into the hands of bad actors. Also, keep an eye out for red flags when searching for mining pools. For starters, no legit mining pool would ask you to deposit funds into a wallet to start earning or to buy a private key, it is most likely a scam.
An Account of a $200,000 Crypto Mining Scam
According to screenshots posted on Twitter by @CoinTakingLs, a crypto mining scam victim shared his account of how he got duped out of $200,000 worth of Ethereum.
The victim narrated that he got randomly contacted by a stranger on Twitter—red flag—, and after communicating for over a week, she convinced him to join an Ethereum mining pool where she claimed to make 4 Ether a day as profits. Red flag!
She explained that users need to have some Tether (USDT) in their wallets to join the pool. Red flag! She continued that the USDT is essentially used to create Ethereum and users get dividends in the form of more Ether in return.
Out of curiosity, the victim deposited a small sum into the wallet and noticed that the fund made a daily profit of about 1-3%. After a few days of trial and seeing positive results, the user had become a believer and decided to go all out. He deposited $200K into the wallet, and right before his eyes, his funds appreciated by 2%. According to him, he was realizing about $4,000 worth of Ethereum per day.
However, luck ran out a few days later after he checked his account only to find out that it had gotten cleaned out. The entire fund, and “profit,” were withdrawn by an unknown address, and that was it. After trying and failing to contact the mining pool, the user understood that he had gotten scammed, even though he could still communicate with the Twitter user that linked him to the fake mining pool.
That said, the victim subsequently released the scammer’s details using the transaction hash and even placed a bounty on the scammer, promising to reward anyone that could help him retrieve his stolen funds.
He also noted that he filed a complaint with the local police station, FBI internet crimes, and the federal trade commission (FTC).
However, this victim—like countless others—will likely never get his funds back due to the permanence of crypto transactions and the anonymity it provides. Readers are advised always to take safety measures when getting involved with a new mining pool and ignore strange messages like the one narrated above. In most cases, a legit mining pool would never message a prospective user first.
That said, let us look at some red flags to look out for when searching for a crypto mining pool.
Crypto Mining Pool Scam Alerts
If your guts tell you that a crypto mining pool platform might be a scam, chances are it most likely is. The first sign is called the duck test: “If it looks like a duck, swims like a duck, and quacks like a duck, then it probably is a duck.”
If a mining pool shares similar properties with a previous scam you have heard of or experienced or has some of the properties listed below, it is advisable to take a step back, pay more attention, and tread cautiously.
- Properties of a Mining Pool Scam
- The platform has no public mining address or does not allow users to select pools.
- The crypto mining pool cannot provide endorsement evidence from hardware/ASIC providers.
- The platform has no evidence (photos or video recordings) of its hardware or data center.
- The mining pool has no limits to the amount of hashing power you can lease. Scam pools usually promise instant and limitless scalability, which in reality is not possible.
- The crypto mining platform advertises a referral payout scheme. This is an obvious sign that you might be dealing with a Ponzi scheme.
- Operators of the mining pool are anonymous. Also, in cases where the mining pools provide the identities of their operators, endeavor to carry out due diligence and verify these identities.
- The owner of the pool is hidden behind private registration. Also, research on how long the platform has been in operation. Having a domain registered for less than six months is usually a red flag in this sector.
- The platform provides no clear-cut path for divesting. Crypto mining platforms should provide easy-to-understand methods for withdrawing funds or closing contracts.
- The platform promises guaranteed profits. For those familiar with the crypto industry, you should understand that only very little can be guaranteed, and profits are not one of them. Platforms promising guaranteed profits are usually fraudulent and should be avoided.
- The mining pool asks you to deposit funds. It is worth mentioning that some legitimate mining pools may ask for subscription/participation payments, although significantly rare. That said, always make consultations with your trusted advisers in situations like this.
Always keep these checks in mind when looking for a mining pool to join in your journey to financial freedom or whatever goal you have in mind in the cryptocurrency world.