In 2014 and 2015 there has been a shift from mining rigs being used by individuals to it being too expensive for individuals alone to carry out – so the market for cloud mining has grown and grown. This has caught the eye of the scam artists who have set up a number of cloud mining sites offering mining contracts for Bitcoin, Ethereum and other alt coins.
With any industry the scammers have to stay one step ahead of those policing it. With Bitcoin it is incredibly difficult to get any distinct proof as the industry is geographically spread – but there are red flags we look for that usually mean somethings up.
Here are some of the tricks they use:
1. The domain name is never registered to a real user but is instead hidden.
2. They register a Company – a number have done so in London to give the illusion of prestige – but the Directors are often registered as foreign residents where identity requirements are easily faked.
3. They are evasive when asked to show proof of their equipment.
4. They set aside funds and use initial funds from clients to make payouts to again give an illusion of respectability and honesty that then will generate more clients. They show a Bitcoin address that they make payouts from that is verifiable. One day the address stops paying.
5. They use promotion over substance with, for example, videos using fake representatives and offices -again with no proof of equipment.
6. They advertise with comparison sites who don’t fully check out the Company’s credentials as they are given a share of the profits from the scam . The Comparison sites say the site can be verified as it is making payouts from a particular Bitcoin address. See point 4.